Domain ad networks must stop fraud to survive in the long run.

Austin, Texas based click fraud prevention company Click Forensics just picked up a $10 million venture funding round, bringing its total raised to $15 million. Click fraud is a big problem, and I like Click Forensics’ two prong approach: help advertisers block (and get refunded) for fraudulant traffic, but also help publishers improve traffic quality sent to advertisers.

The second point is very relevant to the domain community. Regardless of how direct navigation traffic actually converts compared to search, there is a negative perception of domain traffic. Perception can be more important than reality. When advertisers see referrals they don’t like, they tend to cut back on advertising.

I’ve read a number of forum posts where people complain about Google “Search Network” traffic coming from domain names. They believe it should be considered “Content Network” traffic. And while investigating Yahoo’s (YHOO) decision to nix arbitrage for parking company customers, I saw the same sentiment over and over: advertisers don’t like seeing traffic come from sources that don’t seem natural. It doesn’t matter how much it converts; if an advertiser sees a high amount of traffic coming from some-lame-domain.com, they assume it’s fraudulant.

The net-net is they stop advertising altogether. Why did Yahoo kill arbitrage (except with direct clients, it turns out)? Advertisers were nixing the entire Yahoo ad network because they didn’t like where some of their traffic was coming from. Opting out of content network traffic didn’t help because many parking services use a search feed.

It’s the responsibility of the domain name industry to police itself and provide the highest quality traffic possible. I predict there will be a day when Google (GOOG) and Yahoo have a separate opt-out box for domain traffic. If people don’t trust this traffic, they will opt-out. Game over.

Tags: arbitrage, click forensics, click fraud, google, yahoo