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If the advertiser reduces his bid to $0.50 then he may not get many clicks and may not get the $100 customer. You are assuming that all the other advertisers will behave the same way and adjust their bids accordingly. This is not reality. Advertisers can't make bid adjustments without considering competing bids. Click fraud certainly hurts the advertisers.
What if the search engine had more information about Who was click on the link, What device they were using to click on the link and exactly "Where" they were when the clicked on the link. If it's a real person, using a real device and the location changes each time could that help prevent click fraud?
Peter
Krish, it is the conventional wisdom that click fraud hurts advertisers, but it's just not true. Even for "legitimate" clicks, your conversion rate might be 2% or so. Thus 98 of 100 people just leave. Any advertiser takes that into account in pricing the rate they'd pay. I fail to see why it's so convoluted to point out that if that click through rate dropped to 1%, the advertiser would drop the rate they'd willing to pay. How do you think the rates get set, if it's not based on actual conversion?
Peter, the search engines have plenty of information to reduce click-fraud. If you sign up for an account with Google or Yahoo, they have a "conversion tracking" feature which allows you to put a little pixel on your "Thank you for purchase" page. Ostensibly, this is so that Google and Yahoo can provide you with good data on who converted, which is useful. However, they use this data to track conversion rates by traffic source and knock out certain traffic sources. This is how they've managed to keep click-fraud under control at all (to the 10% or so level that most reputable estimates seem to come in at).
Your assumption that all advertisers drop the bid because of click fraud is not true in most cases. This may only happen if click fraud increases the cost of click to the point they are forced to change the bid. I suspect in most cases, click fraud increases the cost of click but still remains lower than revenue per click. In such cases, advertisers do not want to tinker with thier bids, but take click fraud as cost of doing business. This is true in our case, and I suspect this to be true in most cases. As you can see click fraud certianly hurts the advertisers the most.
I'm building a thesis for a short regarding click fraud. Your position is completely incongruous with the advertisers I've spoken to.
BusinessWeek gave me the opportunity to publish my own take on the problem a few weeks ago, about 3 weeks after the original article came out, you must not have seen it. You and others would benefit from reading it and responding to it directly: http://www.businessweek.com/bwdaily/dnflash/con...
The hypothetical, I hope, is clearly presented that way to help explain the point - I'm not implying those numbers or rates are what you actually pay.
I have just read the opinion piece you published in BusinessWeek. You are correct, I had not read that before writing this. I was pleased to see that you did recognize this exact phenomena (that it hurts the advertisers if click fraud is evenly distributed).
You may be surprised to learn that I agree with your other points as well. To the extent that click-fraud is unevenly distributed and sporadic, it would hurt some advertisers more than others.
So perhaps I should be more specific - my background being economics, I'm tending to look at advertisers *in aggregate*. It's like saying that trade, in aggregate, increases incomes - that's true, but there are certainly individuals hurt and others helped by trade.
To the extent that click-fraud is an unpleasant, random event, however, it has the same effect I've described. If it drives you away from Google instead of leading you to reduce your rate, it has the same net effect on publishers - it reduces the rates they make and reduces the take for Google.
So while I appreciate your points, it doesn't appear to change the conclusion - advertisers can limit the fraud through careful management, the rates do go down (whether through advertisers leaving or reducing bids), so it does affect publishes, and Yahoo and Google do have every incentive to fix the problem.
Neither the BusinessWeek article nor the New York Times article addressed any of those points - though clearly you corrected some of that in your own response.
Second, like you I guess I should also promote our site (www.mostchoice.com) with a link to it so people can see that we're not a "mortgage site", another example of shoddy research on your part. You shouldn't go asserting things or other people's thoughts based on guesswork.
But my central "economics" point disagrees with your bottom line -- while bids do drop to some extent, the uncertainty that spikes of bad clicks create is inefficient and unfair for everyone in the system. At the very least it costs advertisers time and attention they don't want to spend to monitor it and fight for refunds. You're not in favor of letting the thieves siphon off money from the real sites as am I, but advertisers pay for this thievery, Google and Yahoo made money from it when it was a "dirty little secret" and most advertisers didn't know better (many still don't, big pubs are just now getting it).
Now it's started to hurt Yahoo (and damage Google's reputation) and the problem has become too big to ignore so they both take it more and more seriously. But their incentives were clearly to cover and ignore before since they made a % of the incremental fake traffic. I've had lots of emails from advertisers thanking me for sharing our experiences and wondering how they can recover some of what they now clearly see (as they finally look at their logs) was taken.
You're right that publishers should be pissed by some lost revenue, but not that it doesn't hurt more the paying customers who were robbed more directly. No need to worry about which group is bigger, we need to focus on how to stop the thieves by changing the system incentives first and foremost.
I placed 1 ad and racked up a huge bill on AdWords with few conversions. I'm sure it wasn't just my clever wording that got people to click.
As a publisher I care that Google and Yahoo can match ads well and that they have inventory. That's an even bigger issue to me, than click fraud is.
As a publisher I don't care one bit if there is click fraud. That's all good for me.