Click Fraud

It's been a hot topic in interactive marketing - are advertisers paying for fraudulent clicks from people who have no intention of buying their products. Here's how it works, briefly: you run Google or Yahoo ads on your site. When someone clicks the ad, the advertiser is charged, Google or Yahoo collects the money, and you get a fee because they clicked from your site (rather than a standard search results page).

So, if you're less than honest, you can set up pages with ads, get people to click them, and collect money.

Google and Yahoo both say they are using sophisticated techniques to crack down on this, but it is hard to tell how successful they are. From a recent BusinessWeek article on the subject:

Most academics and consultants who study online advertising estimate that 10% to 15% of ad clicks are fake, representing roughly $1 billion in annual billings. Usually the search engines divide these proceeds with several players: First, there are intermediaries known as "domain parking" companies, to which the search engines redistribute their ads. Domain parkers host "parked" Web sites, many of which are those dummy sites containing only ads. Cheats who own parked sites obtain search-engine ads from the domain parkers and arrange for the ads to be clicked on, triggering bills to advertisers. In all, $300 million to $500 million a year could be flowing to the click-fraud industry.

Law enforcement has only lately started focusing on the threat. A cybercrime unit led by the FBI and U.S. Postal Inspection Service just last month assigned two analysts to examine whether federal laws are being violated. The FBI acted after noticing suspected cybercriminals discussing click fraud in chat rooms. The staff of the Senate Judiciary Committee has launched its own informal probe.

Many advertisers, meanwhile, are starting to get antsy. Google and Yahoo have each settled a class action filed by marketers. In late September a coalition of such major brands as Expedia Inc.'s Expedia.com travel site and mortgage broker LendingTree is planning to go public with its mounting unease over click fraud, BusinessWeek has learned. The companies intend to form a group to share information and pressure Google and Yahoo to be more forthcoming. "You can't blame the advertisers for being suspicious," says Robert Pettee, search marketing manager for LendingTree, based in Charlotte, N.C. "If it's your money that's going out the door, you need to be asking questions." He says that up to 15% of the clicks on his company's ads are bogus.

In June, researcher Outsell Inc. released a blind survey of 407 advertisers, 37% of which said they had reduced or were planning to reduce their pay-per-click budgets because of fraud concerns. "The click fraud and bad sites are driving people away," says Fleischmann. He's trimming his online ad budget by 15% this year.

Google and Yahoo insist there's no reason to fret. They say they use sophisticated algorithms and intelligence from advertisers to identify the vast majority of fake clicks. But the big search engines won't disclose the specifics of their methods, saying illicit clickers would exploit the information.

With these kinds of reports, it's natural that you might be worried about your own sponsored search advertising (whether you're doing it now, or just thinking about it). A few things to keep in mind:

1. If the ROI on your program is good, you don't want to stop doing it. What you can do, however, is look closely at your reports. If you're geographically targeting your ads and getting lots of clicks from outside those geographies, something might be up.

2. I have usually found that both the click-through and conversion ratios for ads that appear on partner sites run lower than for those on Google search results pages. This is not surprising, because the search pages are getting active buyers, while the content pages may be getting people who are just learning about a topic related to you business but have no purchasing plans. If, however, they're too much lower, or dropping, you might have a problem.

3. Ultimately, there will probably always be some click fraud, no matter how hard Google and Yahoo try to prevent it. Sadly, it's a cost of doing business. Nevertheless, it is in advertisers' best interest to keep pressure on the search sites to deal with the problem - both as individuals, when the numbers aren't making sense, and as a group, as with LendingTree's plans described above.

Over at the Duct Tape Marketing blog, John Jantsch points out that fraud in advertising has always existed, giving examples from outdoor and direct mail. He's got a point. But that doesn't mean that we shouldn't pay close attention; you need to monitor all your advertising, and do some spot checking, to make sure that you're getting what you paid for. Pay-per-click is no exception.