Click Fraud: What Increase Means for GOOG/YHOO, et al

The steady rise in click fraud will not destroy Google and Yahoo. It could cream thousands of small content sites, though.

As we reported in October, click fraud rose modestly again in Q3, according to click auditing firm Click Forensics. Overall, click fraud crept up to 16.2% from 15.8% in Q2 and 13.8% in Q3 last year. This increase, though steady, is modest, and the overall level of click fraud remains manageable. (Although Click Forensics and advertisers have a legitimate beef about the black box way that Google and Yahoo charge advertisers, they usually aren’t charging for 100% of clicks.)

However, the growth of click fraud on third-party content networks is a real problem, especially for small content sites. Content network click fraud jumped from 25.6% in Q2 to 28.1% in Q3 and a startling 9 points from 19% in Q4 last year. Content networks include blogs and niche sites that use third-parties to sell their advertising, as well as “parked domains” and “made for advertising” sites that exist solely to host ads. The majority of the traffic from the latter sites is fraud, says Click Forensics…

Although 28% sounds like a devastating number for Google and Yahoo, it isn’t. Why not? Because they generate only a small fraction of their profit from these businesses.  Although Google generates a third of its revenue from its third-party Networks business, for example, it only generates as small fraction of its profit (probably well less than 10%). The vast majority of Google’s profit comes from its owned-and-operated Google Sites business, which still experiences a low level of click fraud (even according to Click Forensics.

Why does Google’s Networks business contribute a tiny fraction of its profit? Because Google passes 85% of the Networks revenue back to its publisher partners.   It is these partners–blog networks and other small content sites–who stand to get crushed by a click fraud backlash. 

Sudden awareness and passion about this issue would hurt Google and Yahoo from a perception perspective (and, yes, perception is reality), but even if they shut down their network businesses tomorrow, they would still maintain most of their profit. The same cannot be for the content partners themselves.

See Also: Click Fraud Increases Again in Q3

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