Search giant could see pressure on ad click-through rates from a variation of click fraud

Bear Stearns maintained an "outperform" rating on Google and said the Internet search giant could see pressure on advertising click-thru rates from a variation of click fraud known as "impression fraud."

Impression fraud, which has reportedly increased over the last few years, involves a competitor who repeatedly searches for certain terms which displays a company's advertisement but does not click on the ad. This is intended to lower the click-thru rate for the ad and drive down the cost of certain search words.

"This will have a negative effect on sponsored search rankings in Google which uses a combination of the bid price and the click-thru rate to determine placement," wrote analyst Robert Peck.

"Impression fraud does not currently affect Yahoo! which uses a pure auction format to determine sponsored placement. This will be important to monitor as we look at Google's click-thru rates going forward."

Meanwhile, recent industry data released by comScore indicated that the click-thru rate on Google.com declined to 13% in January from 14% in the previous month, according to Bear Stearns. Yahoo's click-thru rate remained flat at 12%.

"While this may appear negative for Google, we note that searches on Google.com increased 8% from December 2005 to January 2006 while Yahoo's increased 2% and at the same time sponsored clicks on Google.com was flat compared to a 1% decline for Yahoo," he said.