Online pay-per-click advertising helped Diana Frerick and Kevin Steele turn their $200,000-a-year Phoenix, Ariz.-based karaoke business into a nearly $3 million retail operation. Then, according to the Gannett News Service, online “click fraud” almost forced them to shut their doors.

According to InformationWeek, paid search (sponsored links or pay per click (PPC) ads are not much better at turning shoppers to buyers. Contrary to some other recent research showing a higher conversion rate of visitors to buyers for organic search, this report seems to indicate the reverse, although not by much.

“Keywords bought on a pay-per-click basis at search engines such as Google, Yahoo and Microsoft MSN had a median conversion rate of 3.4 percent, compared with 3.13 percent for unpaid results to search queries [...] Both forms of search were far above the overall conversion rate of about 2 percent for most e-commerce sites. [...]

Most people don’t understand that to get high conversion rates you need multiple touch points. It’s not just one or the other.”

“Fleischmann [an online advertiser] is a victim of click fraud: a dizzying collection of scams and deceptions that inflate advertising bills for thousands of companies of all sizes. The spreading scourge poses the single biggest threat to the Internet’s advertising gold mine and is the most nettlesome question facing Google and Yahoo, whose digital empires depend on all that gold.” <read the full Business Week article here.>

Site Pro News has a revealing article about services that guarantee traffic through your pay per click (PPC) ads. It seems some of these services are click fraud scams. Here are the highlights:

1. How do they get their customers? They should have some reasonable explanation for how they entice 10,000 or so customers to click on your ad.

2. Do they allow sites with pop ups? If not, why not? Could it be their automatic click machine doesn’t work on sites that have pop-ups?

3. Do you have the software necessary to monitor your site to determine if the clicks are coming from unique visitors? If you don’t, you have no way of knowing whether or not you have 10,000 unique potential customers or 1 machine clicking your site 10,000 times.

4. Do you know what the historical conversion rate of your site is? If sales aren’t tracking that conversion rate, why not?

5. Are there any complaints listed with the Better Business Bureau? (Or, if you want a report for consumers by consumers, check the Rip Off Report).

6. Finally, if you suspect fraud or feel you have been badly treated, email the company in question and demand your money back. If you don’t get it, post to the BBB, or better yet, the Rip Off Report. Sites like this one will put some of these guys out of business.

The usually unflappable High Rankings® Forum administrator Alan Perkins has had it with all three PPC providers and rants about it this week on the High Rankings Forum.

How do you think Google, Yahoo, and MSN are doing with their PPC programs? Visit the thread and share your thoughts.

Click fraud has become the greatest threat to the rapid growth of the paid search marketing sector. The Interactive Advertising Bureau estimates that 20 to 35 percent of ad clicks are fraudulent. According to SiteProNews, click fraud threatens an entire business model: one that generates billions of dollars every year.

At this point, it’s hard to tell whether pay-per-click advertising will stand the test of time, or line up for the chopping block. Just today I received an  official legal notice that I’m part of a class action suit against Yahoo over click fraud. Many of the search engines are actively — should I say frantically? — looking for solutions.

<Read the entire story here.>

According to ZDnet, the publishers of PC Magazine, “The amount of click fraud taking place on search giants such as Yahoo and Google has increased since the beginning of the year, despite efforts to curb the practice.”

“The greatest percentage of click fraud, over 88 percent, originated from North America. Unwanted click activity originating from India increased by 26 percent between April and June 2006.”

Click fraud has been growing rapidly and is a serious source of concern for those using Pay per Click ads. We’ve discussed it numerous times in our blog: starting way back in May, 2005, but also in March, 2006, May, 2006, June 2006, and July, 2006.

<more here>

In a blog entry at Search Engine Watch, it’s reported that a click fraud study that claims 14.6 percent of all clicks and $800 million worth of fraudulent clicks were charged to advertisers.

The study conducted by Outsell Inc., a market researcher in Burlingame, seems to have been a survey of “407 online advertisers representing a cross-section of U.S. business.”

<more from Search Engine Watch>

Click fraud has become so large that it’s setting records, and not in a good way.

“We’ve seen indications that the overall losses due to click fraud could equal more than $1 billion” each year, according to a financial expert quoted  in Business Week. That figure is “larger than the total magnitude of credit card fraud in the U.S.,” according to Fair Isaac’s director of product marketing, Kandathil Jacob. Fair Isaac, a credit-scoring firm, is in a position to know, since it analyzes some 85 percent of U.S. credit card transactions.

It’s happened to you. You’ve searched for something on Google and several promising results appear. You click on a link, but when you get to the site all you see are a few ads and nothing even remotely close to what you searched for. So you go back to the search results and try again, only it happens again and again until you finally find a page with some decent content … or frustration sets in and you give up all together.

Why does this happen? How come in this day and age Google can’t give you the results you’re looking for? A large part of the answer is the growing number of Made For AdSense (MFA) sites on the web today. MFA sites are designed for the sole purpose of getting you to click on a Google AdSense advertisement.

When seeking link partners for our clients, we find a very large percentage of sites with links to some of our clients’ competitors are MFA sites. Those links aren’t helping our clients’ competitors, but certainly add noise to our link-finding efforts because we don’t want to solicit links from them. They’re presenting an increasingly frustrating component to link building.

For a better understanding of the impact of MFA sites and the likelihood of Google and others dealing with them, read Adam MacFarland’s article from Site Pro News.