Pay-per-click advertising sounds like a great idea, but it’s not without its drawbacks. And the big one’s just been highlighted by a new study from some folks who’d like to protect you from the cybercriminals out there.

Seems like “click fraud” — the practice of clicking on a Web ad to artificially increase its click-through rate — is at an all-time high.

The folks at Click Forensics have been tracking click fraud for the past four years. According to their latest report:

• The overall industry average click fraud rate grew to 17.1% for the fourth quarter (Q4) of 2008. That’s up from 16.0% in Q3 of 2008 and from the 16.6% rate reported for Q4 2007.
  -    The average click fraud rate of PPC advertisements appearing on search engine content networks, including Google AdSense and the Yahoo Publisher Network, was 28.2%. That’s up from the 27.1% rate reported for Q3 2008 and down slightly from the 28.3% rate reported for Q4 2007.
  -    Traffic from botnets was responsible for 31.4% of all click fraud traffic in Q4 2008. That’s up from the 27.6% rate reported for Q3 2008 and the 22.0% rate reported for Q4 2007.
  -    In Q4 2008, the greatest percentage of click fraud originating from countries outside the U.S. came from Canada (7.4 percent), Germany (3.0 percent) and China (2.3 percent).

The folks from Click Forensics say the rise in the number of botnets is alarming, and that the lousy global economy is seeing the re-emergence of some old schemes, like “click farms.”

A click farm is made up of armies of low paid workers whose job is to click links, surf a target website for a period of time, maybe sign up for a newsletter and then to move on to another link.

It’s tough for an automated filter to figure out this simulated traffic and discover it’s phony, because it has the same profile as a legit visitor.

How do these nefarious folks make their money? Two primary ways:

The first and most common is by hiring out a click farm to competitor criminals who want their opposing companies advertising budget eaten up so their ads can appear at the top of the PPC rankings at a lower cost.

If, for example, the cost per click of a keyword is $1.00, and the competitor pays the click farm 2 cents per click, it is easy to see how a few hundred dollars investment in a click farm can cost a competitor a large amount of money.

Method 2: Clicking on content network links.

Using a system like Google’s Adsense, the click farmer creates a Web site which in turn publishes syndicated advertisements from Google. When an end user clicks on the link, the advertiser is charged and the advertising revenue is shared between Google and the click farmer.

So what’s the answer? Let’s bet the Click Forensics folks have one.

Tags: advertising, criminals, fraud, pay-per-click, report, survey, Web ad