This is another side of the story that nobody want to talk about in reference to click fraud.
Here is an article that is more accurate and understandable from a business standpoint than any other I have read concerning this subject. Now the reason I say that is that I used to be a financial advisor and sold various products in a number of different vehicles.
The reason I mention that is that as soon as read this key point, it made total sense to me, and I hope it does to you.
Tommy Maric says:
"The key point is that click fraud is already taken into effect when advertisers select the highest amount they will bid."
If you understand anything about the stock market and company valuations, you'll recognize what this means. Simply said, it means that the market price, in the case of stocks, has already taken into consideration events, whether good or bad.
This is what Maric is saying, that in the case of click fraud, the bid prices already include the downside of there being some fraud involved in the process. The prices that are bid take that into account already.
Here's a great example that he gives in how it works with PPC:
"For instance, there is no difference whether an advertiser pays $0.83/click for 121 clicks with 21 being fraudulent, or $1.00/click for 100 clicks when there is absolutely no fraud. In either case, the advertiser pays $100 and generates a profit of $20, and Overture and/or Google make $100. What changes is the advertiser’s yield (e.g., the percent of clickers who purchased the book) which in turn effects their highest bid price. That is, with fraud, 30 out of 121 clickers (24.8%) purchased the book, and without fraud 30 out of 100 clickers (30%) purchased it. Without fraud, the bid price in an efficient market will rise from $0.83 to $1.00."
I agree with him. There really doesn't seem to be an issue at all.
"Efficient market theory says that it is impossible to “beat a market” because prices already incorporate and reflect all relevant information. As the PPC industry has matured, efficiency has begun to take root. That is, the price of each keyword has been driven up to the point where it reflects the highest price an advertiser is willing to pay for a click."
The problem Google(GOOG) and Yahoo(YHOO), among others have is that the great majority of companies don't understand what it is that we've just talked about. They need to explain things more clearly I think as a lot of people have been receiving alot of conflicting and confusing information.
Let's use the example of a retail store to explain it. When someone steals from Target, do you think that all of their prices stay the same no matter how many times it is done? No! Prices for any product in the world takes into account percentages of theft, damaged goods and returns, plus utilities and wages etc. All of this is considered as part of the price of a consumable good.
So why wouldn't the same thing apply to PPC and the low-level of fraud involved? Again, the answer is that it does. All of this is taken into account in the bidding prices.
I hope this helps you to understand how all of this works together. Whatever you do, don't hold back because of what some people that can benefit from your being put into a state of fear. PPC is still a great way to drive traffic and make a lot of money.
The downside to any theft is that it brings prices up, and that is one result of click fraud that has happened.
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