Internet advertising is booming. The industry has gone from $ 9.6 billion in revenue in 2001 to $ 27 billion this year, according to Piper Jaffray, an investment bank. And it is still early days. The internet accounts for only 5% of total spending on advertising, but that figure is expected to reach at least 20% in the next few years. The single largest category within this flourishing industry, accounting for nearly half of all spending, is "pay-per-click" advertising, which is used by firms both large and small to promote their wares. The benefits of the pay-per-click approach over traditional advertising (television, radio, print and billboards are obvious. Since advertisers pay only to reach the small subset who actually respond to an advertisement, the quality of the leads generated is very high, and advertisers are prepared to pay accordingly. The price: per click varies from $ 0.10 to as much as $ 30, depending on the keyword, though the average is around $ 0.50. Google made most of its $ 6.1 billion in revenue last year from pay-per-click advertising. But as pay-per-click advertising has grown into a huge industry, concern has mounted over so-called "click fraud"--bogus clicks that do not come from genuinely interested customers. It takes two main forms. If you click repeatedly on the advertisements on your own website, or get other people or machines to do so on your behalf, you can generate a stream of bogus commissions. Click fraud can also be used by one company against another: clicking on a rival firm’s advertisements can saddle it with a huge bill. Bogus clicks are thought to account for around 10% of all click traffic, though nobody knows for sure. A few months ago Mr. Gross pioneered an alternative to the pay-per-click model. In February, Snap, a search engine backed by Mr. Gross, launched "pay-per-action" (PPA), a new model in which advertisers pay only if a click on an ad is followed by an action such as a purchase or a download. Might this put an end to click fraud Don’t bet on it, says Mike Zeman at Starcom, an advertising agency. Payper-action will be a niche, he predicts, since converting a click into an action depends on a variety of factors such as the ease of use of the advertiser’s website. Google and its peers will be reluctant to be so dependent on factors outside their control. But Mr. Tobaccowala thinks pay-per-action could become a real alternative to pay-per-click. As bigger companies spend more on internet advertising; they will demand more accountability and a wider range of options, he says. At the very least, that means clamping down on click fraud; but it also presents an opportunity for entrepreneurs to invent new models that are less vulnerable to abuse
Internet advertising is booming. The industry has gone from $ 9.6 billion in revenue in 2001 to $ 27 billion this year, according to Piper Jaffray, an investment bank. And it is still early days. The internet accounts for only 5% of total spending on advertising, but that figure is expected to reach at least 20% in the next few years. The single largest category within this flourishing industry, accounting for nearly half of all spending, is "pay-per-click" advertising, which is used by firms both large and small to promote their wares.
The benefits of the pay-per-click approach over traditional advertising (television, radio, print and billboards are obvious. Since advertisers pay only to reach the small subset who actually respond to an advertisement, the quality of the leads generated is very high, and advertisers are prepared to pay accordingly. The price: per click varies from $ 0.10 to as much as $ 30, depending on the keyword, though the average is around $ 0.50. Google made most of its $ 6.1 billion in revenue last year from pay-per-click advertising.
But as pay-per-click advertising has grown into a huge industry, concern has mounted over so-called "click fraud"--bogus clicks that do not come from genuinely interested customers. It takes two main forms. If you click repeatedly on the advertisements on your own website, or get other people or machines to do so on your behalf, you can generate a stream of bogus commissions. Click fraud can also be used by one company against another: clicking on a rival firm’s advertisements can saddle it with a huge bill. Bogus clicks are thought to account for around 10% of all click traffic, though nobody knows for sure.
A few months ago Mr. Gross pioneered an alternative to the pay-per-click model. In February, Snap, a search engine backed by Mr. Gross, launched "pay-per-action" (PPA), a new model in which advertisers pay only if a click on an ad is followed by an action such as a purchase or a download.
Might this put an end to click fraud Don’t bet on it, says Mike Zeman at Starcom, an advertising agency. Payper-action will be a niche, he predicts, since converting a click into an action depends on a variety of factors such as the ease of use of the advertiser’s website. Google and its peers will be reluctant to be so dependent on factors outside their control. But Mr. Tobaccowala thinks pay-per-action could become a real alternative to pay-per-click. As bigger companies spend more on internet advertising; they will demand more accountability and a wider range of options, he says. At the very least, that means clamping down on click fraud; but it also presents an opportunity for entrepreneurs to invent new models that are less vulnerable to abuse
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