Search engines are on the defensive about click fraud. In lawsuits, advertisers accuse Web companies like Google and Yahoo of failing to adequately guard against a practice that artificially raises ad
rates and enriches scammers. But it also enriches the search engines--which has led advertisers to accuse them of collusion, or at the very least, indifference. However, to completely thwart the click
fraud problem, companies would have to change the pay-per-click business model, whereby ad rates are determined by the number of times an ad is clicked. The model provides a strong incentive for
fraud, says Mikhail Ledvich, chief strategy officer of ClickFacts, a San Francisco company that develops auditing software for Internet advertisers. Rival businesses can cut into another company's
margins by repeatedly clicking on their ads, which depletes their ad budget. Advertisers now want a pay-per-action or pay-per-performance model, in which they only pay for those click-throughs that
ultimately lead to a sale. Google, for one, is now testing just such a model. But search engines have major reasons for not wanting a pay-per-action model. First, sales happen far less than clicks.
Second, higher ad rates--which would be inevitable under a performance-based system--would likely eliminate smaller advertisers from the revenue pool. Also, tracking sales conversions would be
entirely up to publishers--out of search engine control. That could lead to sales-tracking fraud, whereby sales go unrecorded by advertisers who don't want to pay.
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