The advertising guru David Ogilvy famously said “I know that half my advertising works, I just don’t know which half”.  Perhaps this statement has become a truism in the age of click fraud.

A new report on the Click Fraud Index from Click Forensics has analysed pay-per-click (PPC) fraud figures for the second quarter 2007.  Key findings include:

• The overall industry average click fraud rate was 15.8 percent for Q2 2007. This is an increase from 14.1 percent for the same quarter in 2006 and 14.8 percent for Q1 2007.
• The average click fraud rate of PPC advertisements appearing on search engine content networks, including Google AdSense and the Yahoo Publisher Network, was 25.6 percent. That’s up from 21.9 percent for Q1 2007 and 19.2 percent for Q4 of 2006.
• Traffic from botnets doubled from Q1 to Q2 2007 and contributed significantly to the increase in click fraud rates.

Experts suggest that the rapid rise this quarter is because of botnet activity.  Botnets are being used for a variety of online crime, including click fraud, identity theft, denial of service attacks, phishing and spyware distribution.

The FBI recently reported that botnets have infiltrated more than 1 million U.S. computers and that their sophistication and growing numbers are making it harder for search engines to identify click fraud originating from these sources – especially when they lack the crucial data needed from the advertiser web sites.

A significant percentage of today's click fraud traffic can be attributed to two growing areas of concern for search advertisers – traffic that comes from botnets and from parked domains or made-for-ad sites. Advertisers running campaigns on content networks are especially vulnerable as they are increasingly targets of this growing army of International web enabled fraudsters and also more alarmingly as a possible fundraising mechanism for terrorist groups  

However, is this analysis accurate? Given that Google earn over 90% of its current revenues from PPC advertising, if we then say 25% of the revenues are fraudulent, is the report suggesting that Google makes billions of dollars a year in fraudulent revenue? If it was true I am sure it would illicit an immediate investigation from the SEC.  

Of course, these findings contrast sharply with the claims of Google and other search engine giants who dismiss fraudulent clicks as all but a dead issue, now easily contained by a number of filtering and algorithmic elements - however the regular tweaks of the algorithms to deter fraud often produces a very negative impact on legitimate sites. However, this process must be continual especially when you consider that in the next few years click fraud will likely become more common as China, Iran, Korea and India add millions of young, savvy and politically or financially motivated users to the World Wide Web.  

And if this problem worsens, many advertisers, media buyers, marketing executives and ad agencies may wonder: is there still a safe, stable, influential, accountable and affluent area on the Web to run successful media campaigns that efficiently brings buyers and sellers together?  

In fact, vertical search has proven to be a foolproof safeguard against click fraud. Unlike consumer search engines, vertical search engines drastically minimize the possibility of fraudulent search results because they are defined to serve professional niche communities around carefully pre-determined white lists of Web sites that are hand selected by industry experts. In essence, white lists provide a much needed human filter to Web search: shielding end-users from meaningless content and delivering precise web content as a professional workflow tool, while at the same time protecting advertisers from robot wielding fraudsters.  

It is interesting to note the recent analysis by Outsell that highlights trade web sites, vertical search and sponsored content as major growth areas for advertising expenditure in 2008.