Q3 Click-Fraud Rate Dilute Advertiser ROI; Botnet Activity Rises

Q3 Click-Fraud Rate Holds Steady at 16%; Botnet Activity Rises

The  average click-fraud rate for Q3 2008 held steady overall at 16%, but a 10% rise in botnet activity – and a 28% overall click-fraud rate from botnets – is potentially undermining ad-industry efforts to combat click fraud, according to figures from Click Forensics‘ Click Fraud Index.

Key Q3 findings:

• The overall industry average click-fraud rate was 16% for Q3 2008, down only slightly from the 16.2% rate reported for both Q2 2008 and Q3 2007.
• Traffic from botnets was responsible for 27.6% of all click fraud traffic in Q3 2008, up from 25.2% for Q2 2008.
• The average click-fraud rate of PPC advertisements appearing on search-engine content networks, including Google AdSense and the Yahoo Publisher Network, was 27.1%. This is down from 27.6% reported for Q2 2008 and 28.1% reported for Q3 2007.

• In Q3 2008, the greatest percentage of click fraud originating from countries outside North America came from Russia (4.9%), France (4.8%) and the UK (3.5%).

Online Text Ads Most Clicked, Why Bother with CPC?

Ed: Advertisers and agencies working too hard to get readers to click. Why bother?

Online Text Ads Most Clicked, Only Young Like Video

Despite current buzz around fancy and expensive video ads, only 11% of consumers say they are likely to click on them, compared with 25% who would likely click on simple text ads and 20% who would click on right banners, according to a study from iPerceptions, Inc.

Though video ads are unpopular overall, the under-25 set is more likely to click on them than on any other type of ad. This age group accounts for nearly one-third of the video-ad viewing audience.

First-time visitors to a site and those with lower incomes also are more likely to click on video ads than other ad types.

The study found a strong relationship between income and likelihood of clicking. As consumers’ incomes rise, they become less likely to click on ads. On average, 40% of consumers likely to click on any ad make less than $50K a year – and only 15% make more than $150K. The income gap is most pronounced with video ads, with 49% of consumers likely to click on video ads making less than $50K a year – and only 13% making over $150K.

Click frequency also increases as site loyalty rises. Across the board, 65% of consumers likely to click on online ads are weekly or daily browsers on a site, and only 15% are first-time visitors and 6% are sporadic visitors…

Two Ways Google Is Trying To Juice AdSense: Ad-Only Search Boxes And Syndication Pages

Ed: Confusion between efforts to increase the supply of ad pages versus click demand. 

Turning on ad units on maps, flash, video suggests shortage of supply where ad demand exists to increase revenues.

Using inventory to run generic Google search and link syndication suggests shortage of clicks. Getting more people to click increases revenues. 

In the recent quarterly report, the Google CFO claimed that we can sell every click. Thus, it’s likely that these actions suggest shortage and possibly falling clicks – as reported.

Google turned in healthy third-quarter earnings largely thanks to the fact that Google is finally getting serious about cost containment. But that is only half the story. Going into the expected economic downturn, Google is now turning on every additional source of advertising revenues it can. For instance, so far earlier month it began offering AdSense in Flash games, new AdSense links at the bottom of Google Maps, and introduced click-to-buy buttons on YouTube videos. Now, it looks like it may be testing two more ways to juice those AdSense revenues: an AdSense search box and AdSense ads that link to syndication pages filled with . . . more AdSense ads!

Google might just be testing these, but these efforts are starting to get noticed. One reader who runs a site about Google Chrome, for instance, runs AdSense. But instead of a regular text ad, Google served up the search box at left, inviting people to search for specific ads. In effect, Google is saying, “We are not 100% sure what ads you’d like to see, so why don’t you just tell us?” An ad-only search box is a departure from Google’s past policy of showing the most relevant results, with ads on the side. Although it is clearly labeled, some people might still confuse the AdSense search box with a regular Web search box. Others might find it more helpful than the regular text ad links.

More troublesome is Google Syndication. Another reader, Michael Oxley, noticed that the AdSense text links on his golf site are directing readers not to a product page with information about a “Tiger Woods Caddy” or “Golf Wear,” but rather to a Google Syndication landing page filled with more AdSense ads (see screenshot below). These landing pages are run by Google (they take you to a googlesyndication.com URL). These pages basically syndicate a bunch of other AdSense ads triggered by the keywords in the original ad that was clicked on.

If Google starts using its Google Syndication pages more widely (they’ve actually been around for a while, it seems, and look similar to what are known as Link Units), it could become controversial. That is because they seem to run counter to Google’s own stated policy for landing page quality, a factor that goes into how Google scores each ad. As this NYT article explains:

Google now takes into account the “landing page” that the ad links to, and, for example, gives low grades to pages whose sole purpose is to show more ads…

STATS: CPC up, CPM down

Ed: Compete.com reports 35.7% YOY growth in number of USA search. Google CFO reports paid click growth of 18%. CTR declined by 13%. Fewer % of people clicked on ads. 

Average CPC improved 2%, not enough to offset the CTR decline, and much less than reported by Efficient Frontier. 

Affiliate’s share of the pie is bigger, but proportionally smaller, and shared among more affiliates. I wouldn’t be surprised if the average affiliate share declined. ;^)

Google growth is sustained by overall Internet growth, both domestically and internationally. There seems to be no indication that the hundreds of improvements per month has substantially changed CTR or CPC – particularly for affiliates.

All Eyes On Google This Week

Google, whose stock is down 45% this year, announces third quarter financial results tomorrow, and Silicon Valley will be watching. Analysts expect revenues of a little over $4 billion and EPS of $4.79 – and most have price targets for the stock, which closed yesterday at $363, to bounce back up to the high 500’s.

For now, the big factors affecting Google are the strengthening dollar (half their revenue is outside the U.S.) and general pessimism about the advertising market moving forward. There are also concerns about the intense regulatory scrutiny of the Google/Yahoo search deal.

Beyond this quarter, though, no one really has any idea how Google will do, and that uncertainty is what’s driving Google’s stock down. A declining stock market means less consumer spending, which then means less advertising dollars flowing as well. But what isn’t certain is how that will impact Internet advertising, which is still taking share from more traditional ad spending.

Citi analyst Mark Mahaney, who’s targeting Google stock at $590, thinks Google is in a good position to weather a storm: “GOOG is the market share leader – and is gaining share – in arguably the most dynamic part of Internet advertising – search, which appears to be less impacted by the current macro economic environment,” he said in a recent preview report for the fiscal quarter. He also sees strong growth potential for non-search ads through YouTube and DoubleClick. ComScore is reporting that the growth in the number of searches on Google accelerated in September.

Display Ad Prices Trending Downward; Fall-Off Is Consistent, But Not ‘Dramatic’—Pubmatic

Here’s some more evidence of how bad things are… The average price of a display ad was 27 cents in Q3, a nearly 50 percent drop from Q407’s 50 cents, according to Pubmatic, which sells software optimization tools to ad networks and has been surveying prices for the past four months. In Q1, the company said the average price of a display ad was 37 cents, while from Q2’s price was 34 cents, said Pubmatic, which bases itsPubMatic AdPrice Index (PDF) on a survey of roughly 5,000 websites mostly in the U.S. 

Google CFO:

We had another solid q, despite a challenging economic environment

gross revenue up 31 % yoy to $5.5B
Google.com was up 34% yoy to $2.7B
AdSense up 15% yoy to $1.7B

paid click growth up 18% yoy, up 4% q over q
US revenues up 22% yoy to $2.7B, up 5% q over q

International revenue:

UK showed some softness, essentially flat Q over Q,

rest of EMEA performed better, relatively good performance in Netherlands and Germany,.

Also good performance in Brazil and China.

Why Google’s Partners Should Be Worried

Google today announced its third-quarter 2008 earnings — which were in line with investor expectations, thus giving market a reason to exhale. For the quarter, Google reported net income of $1.35 billion on sales of $5.54 billion.

Google’s partners however, should gulp hard, for the Mountain View, Calif.-based search and online advertising company is keeping more and more of its online ad bounty for itself. You can see that from the three metrics: revenues from Google-owned sites, revenue generated by partner sites and the traffic acquisition costs. Google’s partners’ piece of the pie isn’t growing that much. Check out the table:

	Q3 2008	Q2 2008	Q3 2007
Google-owned site Revenues	$3.67 billion (67% of total revenues)	$3.53 billion (66% of total revenues)	$2.73 billion (65% of total revenues)
Revenues from Partners	$1.68 billion(30% of total revenues)	$1.66 billion (31% of total revenues)	$1.45 billion (34% of total revenues)
TAC	$1.5 billion (28% of total revenues)	$1.47 billion (28% of total revenues)	$1.22 billion (29% of total revenues)

What that table is saying is that Google today is less reliant on partners for ad inventory. This shift isn’t going to change anytime soon, especially as Google launches more and more ad-supported services and finds new users for Google Mail and Google Android.

Google Gains 2 Points of Search Share in Q3, CPCs rise on Google Search and Content

Today we released the Efficient Frontier Q3 2008 U.S. Search Engine Performance Report. which analyzes the performance of Google, Yahoo, and Microsoft Live Search on search engine spending, CTR, CPC and ROI from advertisers in the Efficient Frontier Client Index. Because conditions in the finance sector have been so volatile over the past year, trends were reported separately for financial services advertisers and non-financial services advertisers.

Google continued to gain share for all advertisers over last year, capturing 76% the share of total search engine spending in Q3, up 2.1 percentage points from Q3 2007. That gain in share was largely due to growth in Google content spending, which increased from 2.6% to 4.6% of spending from Q3 2007 to Q3 2008. Content spending increased by 82.8% YOY  in Q3 2008 for non-financial services advertisers, and by 16.6% in financial services.

A look at trends in CPCs across search and content gives an indication of why advertisers are investing more in Google content and continue to spend on Yahoo and Microsoft Live Search. On a YOY basis CPCs on Google search increased by 8.3% and 4.7% respectively for financial and non-financial services advertisers. CPCs declined YOY for Microsoft Live Search and Yahoo Search, with the exception of CPCs on Microsoft Live Search for non-financial services advertisers, which were up 6%. Google content CPCs increased by 20% for non-financial services advertisers, but at $0.28 a click, Google content is still 53% cheaper than Google search, which averaged $0.61 per click in Q3.

The report also found that, in an increasingly unstable economic environment, ROI improved on all three major search engines in Q3 2008 on a YOY basis. Google search ROI for non-financial services advertisers increased by 11.3%, Yahoo search by 19.7% and Microsoft Live Search by 29.9% YOY.

For more findings from the report, read our press release, or download the full report here.

Global Views, Clicks, and CPC’s

The Internet is so large that no single company has visibility over the whole. Let’s take another stab at a first order approximation.

Total Views

Alexa reports that Yahoo has 5% of global views; Google has 2.7%; Youtube delivers another 4%. Compete reports 2 billion visits per month with 18 pages per month for Yahoo. Combining the numbers, global views is 720 billion per month. Adjusting for the Alexa bias toward developed countries; and reported double-digit growth in undeveloped countries; we estimate total views of 1 trillion – give or take a few hundred billion.

As a second source to verify the one trillion, comScore estimates 8 billion searches per month in the USA. Compete estimates 20 billion global views for Google. This jives with Google’s annual report stating that over 51% of revenues come from international sources. When combined with Alexa data, it also implies about one trillion views.

Note that search is only 2% of page views.

Total Clicks

Google reports $5 billion per quarter, most of which is attributable to click advertising. Efficient Frontier reports that average Google CPC is $0.60 on Google pages; $0.30 on affiliate pages. At Google rates, this is 10 billion clicks per quarter or 3 billion per month.

If half the pages have Google Adsense, the implied CTR is less than 1%. 

Of course, Hitwise claims that Google has 71% of the global search share. Does Google have more than 50% penetration with AdSense? Since Hitwise, comScore, and Alexa undercount developing nations, does Google have an even higher share? Since Google gains 67% of revenues on their own pages; the CTR is probably under 0.5% for the sum of all affiliates. 

Click fraud, unintentional clicks, and habitual clickers further erode the value of fractional CTR’s.

Do you have data to contribute for a better global view?