Outsell, Inc., a market research firm, released a new study claiming that Internet advertisers paid $800 million for fraudulent clicks last year. Not surprisingly, out of the 407 online advertisers surveyed, 27% claim to have reduced or stopped spending on pay-per-click advertising, with another 10% planning to do the same. Many feel that companies like Yahoo and Google are not doing enough to prevent click fraud. However, only 7% of those advertisers requested refunds, averaging $9,507. Outsell estimates that the cut in advertiser spending cost Google, Yahoo and other Web sites upwards of $500 million in revenue. Despite this, the U.S. Internet advertising industry grew in 2005.
Chuck Richard, vice president of Outsell, believes that the growing frustration with click fraud will push advertisers to adopt different styles of online advertising, such as cost per action - paying only when a consumer clicks on an ad and then buys a product or requests information from the advertiser. EBay's new advertising network uses this advertising model. "Pay per click is a really rudimentary advertising -- a baby step -- and it's destined to decline and be replaced by other advertising methods," Richard said.