21:26 PM

News Analysis: Yahoo challenge to Google Adsense comes as click fraud threatens contextual pay per click advertising

by Tom Foremski for SiliconValleyWatcher


The coming launch by Yahoo of YPN—a competitor to Google Adsense, is a bid to break off a chunk of Google's second largest business.

But the competitive battle could be tempered by click-fraud, a growing problem that threatens both companies.

(See SVW story: Confirmation: Yahoo is testing a Google Adsense competitor.)

At stake are hundreds of millions of dollars of Google’s Adsense revenues from publishing text ads on third party web sites, many of them blogs.

Yahoo has an opportunity to strike a strategic blow against Google. Instead of spending hundreds of millions of dollars marketing Yahoo Search and its other online businesses, Yahoo could choose to offer web site owners a larger share of YPN advertising revenues than Google.

This would win Yahoo prime positions on hundreds of thousands of web sites, and Google would be stuck with far fewer web pages on which to publish ads.

Declining conversion rates because of click-fraud will further exacerbate the competitive battle.

Click-fraud, if left unchecked, will lead to advertisers paying less for each click in response to fewer sales per click.

Advertising networks would then have to increase the number of text ads published to make up for less revenue per click. But there are a limited number of online pages on which to serve ads.

Google has greater exposure to click-fraud than others, because almost all of its revenue comes from advertising vulnerable to this exploit.

This is why Google is keen on publishing text ads on email messages, and when a PC user searches their computer. Google’s Gmail email service and Desktop Search service potentially offer a massive inventory of PC screen pages on which to publish text ads. Yahoo has similar services.

Web pages are open to anyone and it is easy to disguise visitor identities and their clicks. Email and desktop search are specific to an individual person, and an individual PC—making it considerably harder to conceal click-fraud exploits.

The best part: no revenue sharing required. cd1555