As Steve Rubel rightly highlights, there’s an saying in advertising that goes “Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.”

This old adage apparently holds true in the Internet age as well. A recent study by Outsell Inc. reports that online advertisers lost over $800 million last year and that, on average, 14.6 per cent of all ad clicks are fraudulent. Personally, I suspect that even those numbers are lowballed.

Click fraud is a serious problem. It can be as simple as someone installing Google Ads on their blog and clicking on those ads to generate revenue for themselves or it can be a incredibly complex operation utilizing automated scripts (‘bots’), Trojan horses, and IP spoofing to generate artificial clicks on an ad. An even more desperate form of click fraud that’s raised its ugly head recently are the Third-World ‘Click Farms’ – operations staffed around the clock with low-wage workers who are employed to manually click on ads.

Either way, advertisers who have paid good money for Pay Per Click (PPC) keywords end up out of pocket – in a big way. The big search engines, who act as intemediaries and are paid regardless, have been charged by some as being complicit (or at the very least, lax in their enforcement) in allowing click fraud to be perpetrated on their networks. Yahoo! recently had to refund money to thousands of advertisers and early this year, Google settled a $90 million class-action lawsuit on click fraud claims dating as far back as 2002.

Now, if those were my advertising dollars I would want to make damn sure that all the clicks on my ads are legit. Click fraud is a big reason I’m hesitant to jump into PPC advertising, despite the mad rush towards Internet advertising in our industry. As a recent article in Wired Magazine suggests, one of the biggest problems for small businesses are competitors sitting on your search terms and clicking on your ads – slowly draining your daily ad budget and burying your ads. I can see this being a particular problem in a fiercely competitive business like real estate. Me, I’m going to hold off on PPC ads until this storm blows over.

This also does not bode well for any of the Real Estate 2.0 sites who depend on advertising revenue in their business model (you know who you are…). If potential advertisers like myself jump the PPC advertising ship before it even leaves port, there could be a very real impact on your bottom line.

I’m curious, has anybody out there had any experience either buying or selling search terms? How have you fared with click fraud?

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