The Bill for Bad Clicks

Click fraud is a $1.3 billion problem that affects Google(GOOG Quote), Yahoo!(YHOO Quote) and Microsoft's(MSFT Quote) MSN, along with publishers and advertisers, according to a report released Wednesday by market researcher Outsell Inc.

Click fraud is a long-standing concern of search engines, who charge advertisers based on the number of times someone clicks on their ads. The problem manifests itself in many ways, such as when someone clicks on the ads of a competitor to drive up their marketing costs. Other times, Web site publishers improperly click on their own ads to get revenue.

The company, which estimates that 14.6% of all clicks are invalid, reached its conclusion from a survey of 407 advertisers who together spend $1 billion annually. Outsell, which pegs the U.S. search market at $5.5 billion, estimates that $800 million in search advertising spending is wasted. The survey also found that 27% of advertisers have cut their spending, on average, by 33% because of concerns about click fraud, equal to $500 million in lost revenue for the search engines. ...