There's a big buzz word floating around the Internet, of importance to both publishers and advertisers. Click fraud is an inevitable outcome of automations roaming the Internet. More and more bots are roaming, spiders crawling, and indexers indexing pages; and when they come across an advertisement link from Google, Yahoo, or MSN they do not discriminate. They simply follow the link.

Whether the click was intentional by someone attempting to abuse the system, or more likely, just the result of a bot spidering pages, someone's credit card is charged a few cents and someone's account is credited a percentage.

For those of you who have been long-time advertisers with Google, you should have received a notification about the click fraud settlement, mentioning the web site http://www.clicksettlement.com. At first glance, this email may look like a phishing attempt, but it's actually legitiment. Google went to court and settled on their first click fraud case. Advertisers who ran Adwords after January 1, 2002 may be eligible for a refund. The refund will be determined by Google and given in Adwords credits. Users who wish to accept the settlement can apply between June 19 and August 4 2006. If you do choose to accept, you waive any right to take part in a future settlement claim.

Therefore, you may want to think about how much you'll actually receive. For most users, this may amount to less than $50 if you spent upwards of $10,000 for a given year.

Some experts rate click fraud as high as 30% of paid clicks. So, what does this mean for the future of paid search? Well, so far there are 3 main ways to advertise in web pages.

Banner Advertisements - Pay per Display

In the good old days, companies would pay for each banner ad display on a web site. However, since many users either ignored or became desensitized to them, they often resulted in poor conversion rates. This means the advertiser ended up paying more and making less. This also resulted in the
incredibly annoying banner ads which flash in bright colors to compete for your attention. Following banners were the popups, spyware, adware, and hijackers, in respective order. A more recent incarnation of banner advertisements are the Flash game banner ads, which let you play a quick game with the mouse within the banner area.

Context Advertisements - Pay per Click

The more modern approach, started by Overture, and made amazingly popular by Google was of course text-based advertisements, which display ads according to content on the page being displayed. The relevancy works great for users and advertisers. However, since web masters get paid for every click, a slew of web page spam has erupted with their only purpose being to attract clicks on text-based ads. Along with web spam, the ever increasing number of web-bots also bears down on this method. The end results are the click fraud suits being seen today. Some advertisers have even begun turning off context ads on 3rd-party sites and only allowing ads to show within search engine results, claiming they see no reduction in sales, but pay less for clicks.

Affiliate Advertisements - Pay per Sale

In between the two methods above is the affiliate advertisement model. This is where advertisers only pay when an actual sale is made. The web masters receive a much higher commission, rather than only a few cents for a click. When combined with the context advertisement model, showing targeted affiliate ads has some potential and also avoids the problem of click fraud. Keep an eye on this one; it could become a lot more dominant in the near future.

I will be performing an experiment in the near future to test which pay-per-click sites offer the best returns compared with the context-based affiliate model. Stay tuned to the blog for results.