Google’s $6 billion-a-year advertising business is at risk because it can’t be sure that anyone is looking at its ads. The problem is called click fraud, and it comes in two basic flavors.

With network click fraud, you host Google AdSense advertisements on your own website. Google pays you every time someone clicks on its ad on your site. It’s fraud if you sit at the computer and repeatedly click on the ad or — better yet — write a computer program that repeatedly clicks on the ad. That kind of fraud is easy for Google to spot, so the clever network click fraudsters simulate different IP addresses, or install Trojan horses on other people’s computers to generate the fake clicks.

Source:  Wired.com

Source:  BetaNews

In the past, advertisers were allowed to bid on competitors’ keywords if their site provided detailed information comparing the trademarked item to its own, in order to help consumers make a decision. Yahoo! this week began notifying advertisers that had previously bid on trademarked keywords, explaining in an e-mail that the policy would change on March 1.

Source:  ClickZ

The fundamental issue for AOL appears to be how it can best expand its advertising revenue, which it is counting on to replace declining income from Internet access subscriptions. One choice is to forge a tighter partnership with Google, which currently provides the search engine and search advertising on various AOL Web sites. The other is to switch to Microsoft’s MSN search engine and form a joint venture with Microsoft to sell both search ads and the graphical display advertising used to promote brands, the executive said.

AOL is attempting to transform itself from a service driven by subscriber revenues to a free portal which derives revenues from online advertising.  The NY Times reports:

AOL is trying to navigate two competing trends in the growing online-advertising market. On the one hand, advertisers favor the sites that can bring the biggest audiences, and on that measure AOL trails the most popular site, Yahoo!. On the other hand, advertisers have also become enamored with search advertising, which lets them reach people who are actually interested in their products and requires them to pay for an ad only when a potential customer clicks on it.

AOL’s strong privacy policy currently prevents it from targeting users with advertisements based on the demographic data or user’s browsing habits.  Both MSN and Yahoo currently target users in this fashion.  While Google has resisted the trend to date, its Terms of Service allow it to do so in the future.