A recent report by Click Forensics alleges that incidents of click fraud have spiked to 15.8 percent across the internet. Subsequently, a story in Infoworld says both ad networks and advertisers may be guilty of a lack of transparency and questionable math.

According to Click Forensics, click fraud within all PPC networks, including Google and Yahoo, jumped from 21.9 percent in 1Q 2007 to 25.6 percent in the 2Q this year.

The Click Forensics study accused Yahoo of doing little to combat click fraud, but Yahoo disputes that, calling their vigilance against click fraud a “top priority”.

The controversy surrounding click fraud comes up every year, but it apparently reached a fever pitch during December’s Search Engine Strategies conference in Chicago when participants voiced concerns over experiencing fraudulent click rates ranging from 20 to 40 percent, threatening the entire paid search industry.

Late last month, Google issued a statement on the Inside AdWords blog that insisted invalid clicks consistently remain under 10%, typically in the single-digits, and that virtually all malicious activity is found by Google’s filter. Many advertisers take issue with that estimate.

In February, Google outlined the three-layer filtration process it uses to combat and eliminate click fraud using both proactive and reactive filters, which is described in an article at Site Pro News.

In April of last year, The Click Fraud Index reported an industry-wide average click fraud rate of 13.7 percent. The click fraud rate was broken down as follows:

• Tier 1 search providers — 12.1 percent
• Tier 2 search providers — 21.3 percent
• Tier 3 search providers — 29.8 percent

As of December, their overall rate was 14.4%.

Google says they are already filtering more than 98% of invalid clicks. Their goal is to filter 100% and suggestions they are not doing enough are misguiding in their eyes. Andy Beal of Marketing Pilgrim reports on a conversation with a representative of Google.

It’s fair to say, though, that many webmasters disagree.

According to a new report on the scope of fraudulent clicks on search-related ads cited on C/Net’s News.com, the click-fraud rate among top-tier search sites like Google and Yahoo is dropping. It fell to 11.9 percent in the third quarter, compared with 12.8 percent in the previous quarter.

But at second-tier search providers, it actually rose to 23.2 percent from 20.3 percent. The overall industry rate inched down to 13.8 percent from 14.1 percent, according to figures released from Click Forensics, which operates the Click Fraud Index. The index compiles data from more than 2,500 online advertisers and agencies.

Business Week has run an extensive article on click fraud, in which they say “Its roots are deep, and while much has been done to stem the problem, the fixes aren’t happening fast enough.”

And they conclude, “Advertisers like us want only for the system to be more honest and fairer for everyone. That is not too hard to accomplish if the will to make changes is there. Whether Yahoo will come around willingly or as a response to stronger counter-pressures, such as advertisers’ new Click Quality Council, more lawsuits, or government intervention, is the next chapter in this drama.”

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.

“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.>

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>

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.