Today, TechCrunch came out with an excellent article about the high level of click fraud on Facebook, the latest example of just how broken the traditional online advertising model really is. Michael Arrington gives an excellent summary of how online advertising click fraud is perpetrated showing exactly why this form of customer acquisition makes little to no sense for advertisers :
“Click fraud is serious business on the big search engine advertising networks because the bad guys can make serious money. Sign up for an Adsense account and put those ads on parked domain names or wherever. Then all you have to do is start clicking those ads like crazy, using bots or cheap labor. The search engines fight this via obvious and not so obvious means, and an arms race begins. To win you need access to a lot of good IP addresses and not get too greedy. And like inflation and the government, a little click fraud is tolerated by Google and others. It keeps the dollars flowing”.
He goes on to explain that in Facebook’s particular case “advertisers are clicking on competitor ads to drive up their costs and drive down their ROI. As advertisers leave the system in disgust, prices go down and the people left win”. Google’s and other ad platforms are not immune to this same tactic.
The point of all this is actually really simple, it makes no sense as a seller/advertiser to pay an ad platform for a click (CPC). The only time an advertiser should pay the referring party is when a product or service is actually purchased by the user i.e. Cost Per Sale (CPS) model. This is why we like e-commerce widgets so much, since sellers know that there is no way they can be cheated because if there is no sale, there is no payment. We predict that within 5 years traditional banner and text CPC advertising will be all but extinct and will be replaced by transactional banners.
For the complete gory details of the click fraud on Facebook, Michael’s article is well worth the read.
