The Internet has opened new doors for advertisers, providing a unique, and sometimes cheaper, way to reach consumers. A small Michigan business no longer has to have the money for television or magazine ads to alert customers, but can instead pay for a few links generated on Google.

The fastest growing segment of all advertising, according to the Interactive Advertising Bureau, is pay-per-click advertising. In this ad style, a company pays search engines every time an Internet user clicks on the company’s link, which can be hosted on the search engine itself or distributed to other relevant websites. The cost per click for marketers can range anywhere from five cents to the highest price you wish to pay. Google allows marketers to pick how much they wish to pay and this determines the location and prominence of ads. This makes pay-per-clicking the ideal advertising route for businesses that don’t have the budget for elaborate media campaigns.

Google, Yahoo and other search engines all generate income through this method.  Yahoo ran more than 250 million individual listings last year. At the end of 2005, Google made $6.1 billion in revenue, 99 percent of that coming from keyword ads. This made Google a bigger recipient of advertising dollars than any television station or newspaper.  Search engines in general grew in popularity by 27 percent from 2004 and generated $2.3 billion in the first half of the year.  Internet users have also increased their reliance on search engines, frequenting them more to create five billion searches last August alone, according to Neilsen/NetRatings.

The biggest advantage of online advertising is the ability to have precise data of what is keying end users to websites.Knowing this gives businesses a precise understanding of what customers are most looking for. Marketers can even have their competitors’ names be the keywords for their ads, creating an ad that comes up when the Google enduser types in a competitor’s name.

However, this new type of advertising has not escaped from the clutches of scammers.  Click fraud is a threat to those who venture into the Internet advertising world. Click fraud works in two ways. Rival companies can click on competing company links, driving up the cost of ad budgets, which could force the pay-per-click company to either drop Internet ads or go out of business. Another way click ads are manipulated is through bogus affiliate websites. A company may pay for a search engine to place its ads on websites using keywords. Fraudulent websites then trick the search engines into placing ads on their site, which use special software to repeatedly click on the ads. The fraudulent websites make money while the initial company goes bankrupt. This has already happened to some unlucky businesses in mid-Michigan.

The rate of click fraud is hard to determine. Some estimates range the incidents as low as 1 in 100 to as high as 1 in 2.  A recent study by MarketingExperiments.com suggests that as much as 29.5 percent of clicks in three experimental ad campaigns on Google were fraudulent.  While the exact figures are hard to determine, the threat is real.  “Click farms” have sprung up in India, where employees repeatedly click on ads. In 2004, a programmer was arrested for creating click fraud software. Despite his arrest, this kind of software is still available online.

Search engines are not taking this lying down. Besides tightening their security and sometimes refunding companies who fall victim to click fraud, new software that screen clicks are popping up. This software looks at Web servers or locations of where the clicks were made to help distinguish the legit from the fake. A new method of payment is also being tossed around. Instead of companies paying per click, they would only pay for clicks that lead to consumer purchases.

In the face of new technology, marketers have a plethora of advertising outlets to choose from. The rise in the popularity of the Internet has allowed companies to enter the homes, businesses and lives of consumers like never before.  But whether this is an advertising blessing or a curse, thanks to click fraud, has yet to be seen.

		Kevin Schoen is CEO of ACD.net, an Internet, phone, networks company. He has served on the Governor’s Council on Technology Education, been a member of the Lansing Regional Chamber of Commerce board of directors and the board of directors of Waypoint of Michigan. He also serves as an adviser to other technology companies including Spectral Learning and Pathfinder Telecommunications.