How to Protect Against Click Fraud

August 15, 2006
By Kevin Ryan

The president and founder of SmartSearch Marketing says that if you take away their motivation, the fraudsters will stop.

Click fraud has been receiving a lot of press recently. People are fascinated with anything that could potentially bring the booming online advertising industry to its knees and Google and Yahoo! along with it.

Although click fraud is being talked about, it is still relatively misunderstood. Marketers and stockholders alike are asking themselves: "Is this a significant criminal activity that is costing advertisers millions of dollars and could ultimately render the pay-per-click business model irrelevant? Or is this an insignificant nuisance that search engines have largely under control?"

At this point, the answer depends on who you ask.

Click fraud defined
Click fraud is the process of artificially and/or maliciously generating clicks without the good-faith intention to visit a website to purchase goods or services or to obtain information. This can be done manually by people, or through automated technology referred to as bots.

With search engine advertising (also called pay-per-click advertising), advertisers pay not when an ad is shown... but when it is clicked on. Thus, the click is the billable event. This means that search engines can actually make money from crimes that artificially inflate the number of clicks.

The motivation
There are two main reasons people engage in click fraud:

First, many third-party websites host ads as a means of leveraging site traffic and, subsequently, increasing revenues by sharing in the advertising fees. Websites that display ads provided by Google, Yahoo and other networks can receive a percent of the click revenue when people click on the ads they host. By artificially increasing clicks, sites increase the profits paid by the search engines.

Second, advertisers try to drive competitors out of the market by increasing their costs. By artificially inflating the number of clicks, a competitor is forced to pay more fees for its online ad program without any corresponding value in website actions or sales.

How big is the problem?
Two years ago Google's chief financial officer, George Reyes, told investors that click fraud is the single biggest threat to the internet economy.

Indeed, in April of this year a judge approved a preliminary settlement worth up to $90 million between Google and advertisers who claimed the company overcharged them for clicks. In a similar move, just this June a federal judge gave preliminary approval to a settlement in a lawsuit accusing Yahoo of not adequately protecting advertisers from fraudulent clicks.

Yet with all these lawsuits and settlements the official position of search engines continues to be that illegitimate clicks are a small, manageable problem, caught either before advertisers are charged or credited to their accounts once detected.

Search engine marketers aren't so sure. A recent report by the Search Engine Marketing Professional Organization (SEMPO) found that 40 percent of online advertisers say they've discovered fraud among their clicks. This is 16 percent higher than what was reported the previous year. In fact, some monitoring firms have pegged the fraud rate as high as 30 to 40 percent of all clicks. Other advertisers report as little as five percent of their clicks as illegitimate. The national average is estimated to be somewhere between 15 and 40 percent, but most experts admit that this is really just a wild guess.

Most advertisers agree that the problem seems to be worse in highly competitive industries, such as electronics, financial services or travel, and when advertising on the smaller pay-per-click networks.

Battling the hackers
The leading search engines (Google, Yahoo and MSN) have robust, ever-evolving click fraud prevention technology in place. Details are obviously not published, but the large engines are continually refining their programs and investing serious resources to combat this problem.

Anti-fraud systems analyze things like: IP address, a users' session information and browse/click patterns. Once detected, advertisers don't pay for fraudulent clicks. If an advertiser has already been billed, credits are applied to their account.

Second-tier engines just don't have the resources that Microsoft, Yahoo and Google have to combat this problem, so click fraud tends to be a more significant issue.

What advertisers should do
Be pro-active. Understand your advertising results and review your web logs. Look for unusual trends such as a sharp rise in click volume without any accompanying increase in website activity, transactions or sales.

Use anti-fraud software, such as ClickTracks or PPCtrax or a service like ClickLab to protect yourself. Many web analytics packages now include this functionality. If you see something unusual, provide the trend data to your search engine representative and ask them to investigate further. All the large players have teams of people trained to investigate potential click fraud situations.

Clicks vs. actions-- the future of search advertising?
What if search networks didn't make money on clicks... but rather on sales, leads or other types of website conversions? The motivation for click fraud would disappear virtually overnight. This might be exactly why Google just announced that they have started to test cost-per-action ads. The other search engines are sure to follow with tests of their own. With its program, Google and its network of participating websites would only get paid when a prospect clicks on an ad, visits the website, and performs the desired action.

This means that advertisers must determine what it would be worth to have a prospect register for a newsletter, sign up for a demo, or purchase a product online. As the industry moves toward performance-based ad models, advertisers won't be willing to pay for impressions or even clicks-- but will gladly invest in bottom-line results.

Additional resources:
Read Kevin Ryan's In Focus on how to fight click fraud.

Patricia Hursh is president and founder, SmartSearch Marketing.
Read full bio.

Posted on August 15, 2006 06:15 PM

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