The biggest concern about advertising with google adwords is what stops competitors and criminals from clicking on my ads and driving up my advertising costs. Looks like very little, but google is working on it, and currently, even though less then 10% of all clicks are due to fraud this adds up to billions

“At Google’s current revenue rate, every percentage point of invalid clicks we throw out represents over $100 million/year in potential revenue foregone,” said Google. Add it up and Google forgoes roughly $1 billion in revenue due to click fraud.
Source:ZDNET

I have stopped our adwords campaigns for 2 reasons. First, it is getting too expensive to use adwords, secondly You can clicks to website using other free methods, it just takes more time.

I stopped using adwords late 2006, and we recently started them back up, but to my surprise they added minimum bid requirements and for most of the San Francisco keywords I wanted to use, the minimum bid was $5.00 and most clicks coming from those was $2.00 to $3.00. On a budget of $20.00 per day, that is only 10 clicks a day and with a 50% conversion rate to leads, that is only 5 a day…compare that to our other means of getting leads and it is just not worth it. I think I would just have to study the system for a couple hours to understand the google adword system again, but I’m going to put that off for now, especially after this report.

Miriam L. Kauterman, owner of Premier Homes Real Estate LLC, a vacation rental home and sales firm in Avalon, N.J., said she spent more than $27,000 advertising with Google for two years, but stopped in August after she saw a suspiciously high number of clicks. When she asked Google to investigate, the search engine refunded her only $56 — much less than what she thought she was owed. She has joined the lawsuit filed against Google last month in Pennsylvania. “I feel like I’ve been robbed and there’s nothing I can do about it,” she said. “It’s infuriating.”
Source: Washington Post

How does click fraud get committed?

It’s really quite simple…Fraudsters start an adsense account. From this adsense account, they will earn roughly 15 cents per click (Real estate is high price advertisment, so real estate ads bring in closer to 40-50 cents). Now they create a group to click on the ads and pay them roughly 1 penny per click. although some pay half a penny per click. Why people do it? I have no Idea. The same amount of time it takes to make minimal profits could be spent working at a normal job and making minimum wage would be ten fold.

This problem of click fraud is really just the second coming of web 1.0, remember the first internet. I use to do a lot of affiliate marketing around 1997, before text ads. Back then it was all image banners. The method of payment back then was pay-per-click, roughly 10 cents per click on a banner in your website…This model eventually gave way to a pay-per-signup, or pay-per-purchase. Looks like the current trend in online advertising might be headed the same direction.

in 1997, click fraud came from websites that allowed free Warez. Warez is hacked programs to run without serials, mp3, appz, images, etc…This is before Napster and torrents so we had to get our mp3’s somehow. There were sites that allows you to download unlimited mp3’s from their site, but you had to login to access the music. To get a username and password you would have to go to their site, click on a banner, and then find the username and password on the advertisers page. There would be instructions like, username is the 3rd word in the website title, and the password is the last word on the page. Don’t forget these are caveman days as compared to the internet of today.
Other sources:
Adwords Blog

SearchEngineLand.com

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