Online Advertising is Great. FRAUD is bad.

Online advertising is wonderful. You can select more precisely what audience you want to reach (more than radio or TV). You can track exactly how your advertisement is working (you can’t easily do this in print adv). However, one thing that online advertising has that other advertising does not have, is advertising fraud. This you MUST be careful about.

Here’s how it works in summary.
You pay Google, Yahoo or some other service for a certain amount of keywords and you are only charged when those keywords are clicked. The advertising that appears on Google or Yahoo’s sites is relatively fine. Sure your competitor can click on the ads to waste your money but its not “fraud” as the kind I’m about to tell you.
The problem happens when people set up web sites and place, legally, a “cost per click” advertisement on their web sites. This is done so that Google and Yahoo can extend their advertising inventory beyond just their own sites. The bad part is, however, that often these sites are set up to ONLY click on advertising links. They then receive a cut of the revenue from Google or Yahoo.
Now if the people clicking on your advertisement were potential customers, their would not be a problem. But the clicks that you are paying for are coming from software programmed to clicked on the advertisement or people all over the world paid a few cents to click on the advertisement.
So you pay for a cost per click advertisement, Google serves that adv to another web site, this web site pays someone or automates a clicking process and Google charges you each time the advertisement is clicked. You lose, Google, the “partner site owner” and whoever else is in this sick chain of fraud get a tidy sum of money.
The New York Times writes What makes the problem worse, industry followers say, is that many instances of click fraud go undetected. ¬?We¬?re not at a point in Internet history where we can easily point to a number and easily point to a solution, said Dana Todd, president of the Search Engine Marketing Professional Organization. Moreover, the technology solutions out there to combat the problem are neither free or easy, especially for small businesses that are already overwhelmed by search engine marketing.
Indeed, while larger companies expect and can usually afford to pay for some measure of click fraud, smaller companies have no choice but to ferret out inaccuracies, Mr. Sullivan said. The best way to start, he said, is to measure conversions to see if the ads are working.
But for many smaller business, Ms. Todd says, the only way to monitor the problem are either manually auditing clicks or using campaign management software or services. And often that seems not worth the bother.

Business Week writes about click fraud here.