August 2, 2007

The Blogger Economy

(c) copyright View from Silicon Valley, 2007.  All rights reserved.



We tend to have a bunch of different ideas and germs floating around trying to grow into actual missives.  Many die of old age but a long-standing germ finally blew up a few days ago when we stumbled across an interesting write up on Henry Blodgett's blog "Internet Outsider."

Once you choose to overlook Blodgett's denial of any wrong-doing in the bogus and self-serving "research" leading up to his ban from the securities industry, the content can be interesting.

The article we thought our readers would enjoy follows (with our comments and emphasis, as usual.  Keeping with past practice, "Big Brother" and similar euphemisms may be substituted for the subject company...)

"Click Fraud Increases Again, Especially on Affiliate Networks. Bad News for Content Providers" (*)

Click auditing firm Click Forensics reports that the percentage of fraudulent clicks industry-wide jumped another point in Q2, to 16%, after remaining largely stable in 2006.  More alarmingly, Click Forensics says that fraud on affiliate networks like Google and Yahoo jumped 4 points in a single quarter, from 22% in Q1 to 26% in Q2.  (Let's see, Big Brother recorded $13.4B, so the sterile-sounding "26%" is really $3.48B in fraud!!) This trend has big implications for the thousands of new companies and bloggers who generate revenue through such networks.  (Yeah, like how can we all get a piece of Big Brother's $3.48B in fraudulent clicks?!?)

Much of the fraud increase, Click Forensics says, comes from "botnets," which click ads automatically and are designed to appear to be humans.  (What happened to the supposedly rampant click fraud in China and Eastern Europe?  Did they magically disappear?) Unlike the search engines, which continue to downplay click-fraud, Click Forensics can analyze end-to-end traffic logs (what a "user" does after clicking through to a site), and the firms consistently conclude that fraud is a bigger problem than Google and Yahoo say.  Google estimates that fraudulent clicks account for less than 10% of the total. Yahoo pegs the figure at somewhere between 12% and 15%. (In other words, Big Brother concedes $1.6B to $2.1B is fraudulent?)  Although these figures aren't too far off Click Forensics' numbers, Google and Yahoo do not release breakdowns on their affiliate networks.

The affiliate networks are not major profit drivers for these companies (they contribute a big percentage of revenue, at Google, especially, but not profit).  But they are critical revenue drivers for the gigantic ecosystem of small content providers that has sprung up around them.

Most advertisers currently regard click fraud as a cost of doing business.  (Sure, if advertisers buy the 26% shtick, then it sounds like paying they're only paying about a one-third premium.  Big Brother is the only effective game in town, so what else can they do?) (And they don't currently have much choice: Yahoo and Google do not provide enough click-level detail about which to complain).  As estimates of click fraud on the affiliate networks increase, however, advertisers will (or should) put increasing pressure on Google and Yahoo to control the problem, provide more detail, and/or provide larger refunds for bad clicks.   Any of these measures could reduce the revenue passed through to affiliate content providers.

Andy Greenberg of Forbes.com originally reported the Click Forensics data.

* * * * * *

What does Big Brother's 53x P/E look like after you back off 26% from revenues due for click-fraud?

If we expect to maintain our relationship with Big Brother (or least his periodic checks), we need to tread carefully.  Big Brother apparently hires trolls to check your content, presumably searching for keywords we're trying not to use, and make sure no proscribed terms are utilized such as "click on our xxx"... oops, we shouldn't even print examples.

We've heard stories from bloggers who believe in "a tip for good service."  Particularly when the tip can be paid by a realtor listed on a housing bubble site.  Or a stock-picking service listed on a market-crash blog. 

If that's not clear --and ironic-- enough, drop us a line and we'll describe it without the #$@%& code words.

*= http://www.internetoutsider.com/2007/07/click-fraud-inc.html