Google faces pressure from 'impression fraud'

Peter Kang, Forbes.com 16 Mar 2006

Bear Stearns maintained an "outperform" rating on Google and said the Internet search giant could see pressure on advertising click-thru rates from a variation of click fraud known as "impression fraud."

Impression fraud, which has reportedly increased over the last few years, involves a competitor who repeatedly searches for certain terms which displays a company's advertisement but does not click on the ad. This is intended to lower the click-thru rate for the ad and drive down the cost of certain search words.

"This will have a negative effect on sponsored search rankings in Google which uses a combination of the bid price and the click-thru rate to determine placement," wrote analyst Robert Peck.

"Impression fraud does not currently affect Yahoo! which uses a pure auction format to determine sponsored placement. This will be important to monitor as we look at Google's click-thru rates going forward."

Meanwhile, recent industry data released by comScore indicated that the click-thru rate on Google.com declined to 13% in January from 14% in the previous month, according to Bear Stearns. Yahoo's click-thru rate remained flat at 12%.

"While this may appear negative for Google, we note that searches on Google.com increased 8% from December 2005 to January 2006 while Yahoo's increased 2% and at the same time sponsored clicks on Google.com was flat compared to a 1% decline for Yahoo," he said.