An Economists View on Click Fraud - Reyes talking Bollocks?

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Thread Title:
An Economists View on Click Fraud
Thread Description:

Jupiter analyst Niki Scevak gives an economists view on click fraud in the post threadlinked above.

In light of what Google CFO George Reyes said about click fraud threatening the G biz model Niki's thoughts on the subject make for a good read:

Firstly, click fraud is a bad thing that should be policed and eliminated by the engines and they have no excuse now that they have $50bn market valuations to hire scores of click fraud cops to eliminate it. But it will have zero impact on Google's revenue, or any other search company, and zero impact on the growth of that revenue.

Here's why. Click fraud is already priced into the cost per click. Marketers bid based upon how well the leads that Google and others send them convert into, in most cases, direct sales. That means that if one person out of every hundred buy, and they make $100 per sale then they will spend up to $1 per click. Now out of that 100 clicks, the fact that 50 (gross exageration used for effect!) of them are click fraud is irrelevant. If Google eliminates click fraud then that means that one person out of fifty will now buy, and so the marketer will be willing to pay up to $2 per click now.

The volume will decrease but the cost per click will rise to balance this.

Emphasis mine.

He goes on to say that Reyes would be better off doing his accounting than spouting off about click fraud (paraphrased heh..).

So, is George Reyes just spouting off about stuff he doesn't understand? Probably not eh? If that's the case, why is he making these statements?

Comments

Nice Try

I've been hearing this argument more and more lately. It sure looks good on paper, but it doesn't hold up when applied to the real PPC world. For Niki's theory to pan out, all advertisers must be tracking ROI on a direct CPA basis.

That doesn't account for all the big spending advertisers who are bidding to generate leads that won't produce revenue for quite some time, or advertisiers who are trying to acquire long-term customers. If you remove click fraud for those types of comapnies (who also happen to bid in many of the highest per click spaces) you will not see any of them raise their bids. That money will simply go back into their bank accounts.

Great point WG I also thin

Great point WG

I also think fraud effect Google’s in another way as many potential advertisers are put off by knowing it exists.

CF is priced into the bid

imo CF is priced into what a bidder is willing to pay.
I think of it as a cost of doing business just like theft & shrink in the brick and mortar world.

90% don't track shit

I would say that 90% of my clients track nothing at all. And, out of the 10% that does only a small percentage calculate real ROI.

Some of them don't do it because they just don't have time, some because the budgets (locally) are too small to care and some because they are simply not measuring based on direct marketing metrics - but branding metrics.

Especially in the last case click fraud really do hurt. I have had 3 large local advertisers pull out of AddWords before this Christmas because pricing was just getting to high - they could simple get a lot more and better branding in other medias (not to talk about organic).

It does help grow my organic business - so tell me again that dosn't hurt Google :)

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