Background, I ran Adwords campaigns within a few months of their launch, as well as Goto and Findwhat.

Now turned over to staff.

For the small shop, Clickfraud an important consideration
But for the “big boys” as they move from traditional MadAve to PPC, will they really care?

If you take the old Wanamaker line of “I know that half of my advertising is useless, but I just don’t know which half” (approx quote), and the fact that most traditional advertising, print, broadcast, is reaching eyeballs that just don’t care, anything will be an improvement.

In other words, if you are a marketing manager, and are offered a measureable, quantifiable result, not the traditional survey/Nielson, “trust us” black box, once you “grok” the new paradigm, you’ll jump at it.
Clickfraud be damned … it’s better than what you had.

Click fraud is definitely a problem, but it’s not going to top most advertisers’ agendas until the market stops growing at double digit rates and keyword prices flatten.

Generally speaking, right now, the only advertisers who are concerned about click fraud are either small businesses for whom every dollar counts or high volume spenders for whom a 1% increase in conversion rates could equal tens or hundreds of thousands of dollars.

I submit that Jordan’s explanation is the most accurate. Based on my information, FTD is doing a poor job of managing their campaigns. They let competitors bidjam them (heh), they let affiliates bid on their brand terms (which costs them a ton), and the list goes on.

The only trend that this shows is that more and more companies are going to be looking for high quality ppc management.

I quite agree with Greg Cohn that a fully loaded NPV must include a multitude of factors, many of which are dynamic and controllable by the advertisers themselves.

True, prices will come to rest at some “rational” level for any given advertiser. But, what’s a rational price for one advertiser is different than what’s a rational price for another. That is, new advertisers, and better, more efficient advertisers will continue to emerge and drive prices up. Indeed, some advertisers have been grumbling about getting outbid since the dawn of bid-for-placement models.

In 2006, as the mix of advertisers continues to change, we can expect to hear more grumbling and hissing.

Moreover rational price for any given advertiser changes over time, as that business is forced to examine its own cost structure, better understand its customers, improve its targeting, optimization, merchandising, etc. As an advertiser makes those improvements, it’s able to justify paying higher prices.

What’s magical about first generation advertising marketplaces (like Google’s) is that they force advertisers to become more efficient, smarter. That’s a good thing.

The next generation of advertising marketplaces need to go a step further and better engage publishers, providing feedback so they do what they can to improve the quality and quantity of what they provide into the mix: customers.

That’s going to be a major driver of growth in online advertising, and self-serve advertising in particular.

Tell me: what do you think next generation ad networks look like? Where is this trending?

I’d like to get your input over here as well:
http://paulneedham.typepad.com/blog/2006/01/its_exciting_to.html

If PPC search engines have a long tail, and obviously they do, they also have a very large head. IMO, those customers that are playing in the head are running headlong into a zero sum game. In many of those markets, flowers for instance, they’ve already hit their breaking point and I suspect you’ll see more and more companies that bid in mature keyword markets will start to deemphasize PPC. And keep your eye on the trademark front as well, because if companies ever get protection against Google and Yahoo selling their marks then a lot of these keywords are suddenly going to be 25% overpriced.

As a previous commenter points out, one would expect PPC’s to go up as keyword demand increases, independently of any fraud or gaming the system. The asymptote it should theoretically approach, however, is not relative to the profit of the immediate order, but rather to the net present value of a new customer. Fully loading that NPV number would include such factors as the value of growing market share relative to a competitor, the optimism of marketers with respect to conversion rates, the value of information learned from conducting test marketing at a loss, the importance of hitting one’s quarterly numbers, the value of customer growth to a startup seeking capital, and many other factors.

A Freakonomics-style analysis would look at a broad range of market factors before reaching conclusions about search marketing growth, and might yield some very unexpected conclusions. The prices of keywords might turn out to have as much to do with the captial markets and the availability of startup capital, for example (as the price of magazine pages did in 1999), as they do with the marginal profit of incremental sales.

One thing you can be sure of is that, if FTD had NOT already hit its analysts’ expectations, they would have continued firing all the cannons they had to do it.

Since these kinds factors expand and contract seasonally, in budget and fundraising cycles, and so forth, one would expect there to be continual pendulum swings in keyword pricing relative to direct conversion value and long-term rationalization in pricing relative to NPV. Sure, any invalid activity would be a tax, but, as you rightly point out, it’s already priced into the buy side of the keyword, just like poor landing pages, bad keyword targeting, and all of the other factors driving conversion rates (and hence driving what marketers are willing to pay per click). As all of these things are optimized — and there’s plenty of incentive all around to do that — one would anticipate better conversion rates = increased return on ad spend = increasing PPC’s.

Two years ago we achieved a 150% return on our PPC efforts. Now this is down to around 30%.

The biggest factor behind this is that the PPC market is being used by a far greater percentage of businesses and is consuming a greater share of their advertising budgets.
Secondly the market is becoming more ‘perfect’ in that people are hopping across PPC services and spending their money in a judicious fashion governed by economic returns.

The third factor is click fraud. For us the worst, by far, is MIVA. We get hit frequently on certain keywords which might normally get say 20 or so clicks a day, rising to 300 when attacked. Used to be we could get some money back as we could demonstrate the same IP addresses (or family of IP addresses were used). Now the perpetrators are clever enough to use multiple IPs from multiple machines, possibly using ‘click-farms’ – but even though all the clicks come in a short (say 15 minute) period, it is not enough evidence to support a refund. Why should the onus be on the advertiser to prove click-fraud?

Google comes in second in the click-fraud stakes, followed by Yahoo. We reckon at least 10% of our google adwords clicks are fraudulent. That’s conservative. But the time and effort involved in pulling out data from our log files to get a rebate is barely worth it. We have had a few rebates from Google, but they never seem to look further into a complaint to see whether the problem may have gone back beyond the period covered by the log evidence. Nor whether it occurred across other campaigns.
Funny, that.