Is pay per click a sustainable business model?

When a client of mine took out ads via Google and Overture, one thing the marketing guy told us was not to click on the links, because they were charged per click. The first question that came to my mind was, "What's to stop a competitor from making fraudulent clicks?" I figured that Google and Overture must both have ways of filtering out those clicks. It turns out "they don't.":http://money.cnn.com/2004/12/02/technology/google_fraud/index.htm

Pay per click is actually a pretty decent idea in theory. It insulates the ad provider from responsibility for crappy web sites and products that don't produce conversions, and it provides an incentive for the ad provider to present the ads in a way that will generate clicks. Google's ad ranking scheme even goes a step farther and provides top ranking to those ads that generate the most clicks, further insulating Google when the text of the ad is lousy or the product is simply irrelevant to the keywords the advertiser chose.

Unfortunately, these advantages may well end up being outweighed by the difficulty of filtering fraudulent clicks. Even if one keeps a database of all the known open proxies on the 'net and use cookies and the like, there are so many insecure hosts out there that it's still quite easy to generate fraudulent clicks that simply can't be filtered out.

Can somebody tell me what's wrong with charging by time instead of by clicks? If the customer thinks they're not getting enough clicks, they could simply lower their bid or bid on a lower slot. Google already uses a fairly clever scheme for bidding on rankings, so why not simply switch over to making it time based instead of click based? This would obviously blow away their ad ranking algorithm since it's based on clicks, but I'm thinking maybe that wasn't so clever in the first place given how untrustworthy clicks have turned out to be.

The main lesson to be learned from Google appears to be that the information you gather from the Web can only be trusted when you aren't basically paying the Web to deceive you, ala PageRank and AdWords. Perhaps I'm missing something here. I don't have a Ph.D. like many of the Google people do, so perhaps the sheer brilliance of paying for and ranking ads based on the number of clicks has escaped me. Feel free to enlighten me in the comments section.

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Publishers would like to get

Publishers would like to get paid whenever an ad runs and then some, advertisers would like to pay only when they make a sale, maybe.

The brilliance of pay per click is that both the advertiser and publisher (Google) get paid for performance and both can monitor that performance. With per impression or time based pricing, the advertiser has to trust that the publisher, though not nearly as much as with traditional media, where the equivalent of clickthroughs are impossible to monitor. With commission based pricing, the publisher has to trust the advertiser to report sales generated from advertising correctly.

Google may have enough trust that it could make a go of time based pricing.

Amazon seems to have done well as an advertiser offering commissions only, though I don't know how important its affiliate program is to its overall business, and publishers have incentives apart from dribs of affiliate revenue to promote Amazon product, e.g., use of book images and cover art. But the Amazon model is irrelevant to this discussion...

If you have a time-based

If you have a time-based system, how would google know which publisher to compensate?

Naturally, the publisher who shows more impressions of an ad should get more of the money paid by the advertiser. This is an invitation for page impression spam which is just as difficult to deal with as click spam!

Then, there's the issue of positioning of the ad within the page... should we pay a publisher the same amount of money for displaying an ad at the bottom of a page at on top?

The problem is not with the pay-per-click model, it is with the business model itself, with the concept of displaying ads on third party sites for a share of revenue.

The problem is that there are so many advertisers and so many publishers that you cannot assume integrity on the part of any party except google.

I'm sorry I am not able to express this more clearly. :-(