Click Fraud and Search 2.0
Click fraud is a fairly fascinating phenomenon. Essentially, it's a form of arbitrage: arbing the value of ad between the advertiser and the market. It's a hugely flawed mechanism, and the size of the potential arb makes me wonder why it's not growing faster or isn't more widespread.
Despite the incumbents' focus on statistical filtering (etc) to manage it, I think the massive influx of $$ to online advertising is going to make click fraud absolutely explode at some point in the next few months. The gains are just too great. When that happens, what will the incumbents do?
Essentially, the problem is imperfect information about publishers/content owners. How can this be resolved? There are two ways: insurance (which compensates for the asymmetric information ex post), or reputation mechanisms (which eliminate the asymmetric information ex ante).
It will be interesting to see which the market chooses. My money's on reputation mechanisms, because I think they're less costly to set up.
It's also worth thinking about the interaction of click fraud and the long tail - because click fraud has the potential to cause serious problems for long tail surfers.