VentureBeat

Chinese search engine Baidu is apparently having more problems with click-fraud that Google is — and it has hurt Baidu’s stock.

Click-fraud is a major problem, and it is rampant in China. Click-fraud is when people click on an online ad and have no intention of buying anything, thus driving up the cost for the advertiser, who pays on a per-click basis. The fraudsters can be any number of people, including competitors who want to drive up the advertiser’s costs.

The study, conducted by Peter Lu, of the China IntelliConsulting Corp (copy of pdf here), found that advertisers believe 34 percent of all clicks on Baidu ads are fraudulent, compared to 24 percent on Google. The report has other warning signs for Baidu, including suggestions that more advertisers plan to cancel campaigns with Baidu, compared with Google, and that more advertisers plan to begin campaigns with Google.

Also, note the graphics below, which also show Baidu is inserting ad keywords in its generic search results, a blurring of ads and results that would cause a furor here if Google tried that.

Related but seperate: We’ve learned more about the investors in the new anti click-fraud company, Fraudwall. It is an impressive group that Google is likely to be partial to, but only if it can execute. Aside from early Google backers Ram Shriram and Ron Conway (as reported here and here), investors include Paul Buchheit, the former Google engineer who wrote GMail; Steve Anderson and Frank Caufield, both formerly at venture firm Kleiner Perkins; Michael Parekh, of Goldman Sachs, Rajeev Motwani, a Stanford professor and former Google advisor, Peggy Taylor, a board member at Fair Isaac, which does credit and fraud scoring for the financial industry, and others. Among its board of advisors are Chuck Geiger, chief technology officer at Ask.com; and two executives at IAB, which is a trade association that has played a significant role in creating standards between advertisers and ad networks: Rich LeFurgy, founder, and Greg Stuart, chief executive.

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FraudWall raises $1.01 million — We reported on the click-fraud company, Fraudwall, launched by Ron Conway and Jim Pitkow, in January. It has now raised $1.01 million of a $1.5 million planned first round, from Sherpalo Ventures and Baseline Ventures, according to PE Week. Sherpalo’s Ram Shriram is a new investor. Shriram, still on the Google board, is especially likely to have good insight into how important the click-fraud problem is for Google to solve.

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Updated

Ron Conway, a well-known Internet investor, and entrepreneur Jim Pitkow have co-founded a company to stop advertising fraud online. They’ve invested an undisclosed amount of millions, alongside other angel investors.

The secretive Palo Alto, Calif. company, Fraudwall, also appointed former eBay executive Ken Miller as chief executive, the company told VentureBeat last week. Miller, 34, was the first employee at PayPal hired to tackle fraud. He joined in 2000, as PayPal employee number 22, and became vice president of risk management.

The company is saying little about its exact approach, other than to say it is focused on stopping click-fraud, which is when Web site publishers or others click on an advertiser’s ads to force the advertiser to pay more. The problem has caused distrust among some advertisers, and lawsuits filed by advertisers against both Google and Yahoo. Yahoo and Google have chosen to settle such suits, and maintain they’ve got click-fraud largely under control. Google reportedly now maintains fraud makes up less than 2 percent of clicks. (Update: Turns out, the report is untrue; see Google’s response here, which says Google does not know what the percentage of clicks are fraudulent). Though some people contest that, saying Google has a bigger problem than it admits to. Miller says Fraudwall will partner with advertisers, ad networks and search engines to track clicks. The team is already in the “double digits” of employees, and hiring mathematicians and people with roots in online payments fraud.

We think the company may be raising another round of capital, but is not certain.

Both Conway, who invested in search engine Google, and Pitkow, an entrepreneur active in the search industry, have close personal ties to Google, which is one of the leading targets for click-fraud — Pitkow was chief executive of Moreover Technologies, sold to VeriSign in October of 2005. Before Moreover, was chairman of Outride, which was sold to Google. Miller told VentureBeat that Conway is taking an active role in the company, leading its business development — the first time Conway has taken a hands-on role since SnoCap. The two came up with the idea for Fraudwall two years ago.

It joins a field of several players, including the young Clickfacts and the more mature OptimalIQ. (See our piece here.)