ON BUSINESSWEEK'S CLICK-FRAUD COVER STORY

WHEAT FROM THE CHAFF

BusinessWeek is running a cover story on click-fraud, where it covers some incrementally new ground.  First, here's how BW defines the problem:

"...click fraud: a dizzying collection of scams and deceptions that inflate advertising bills for thousands of companies of all sizes. The spreading scourge poses the single biggest threat to the Internet's advertising gold mine and is the most nettlesome question facing Google and Yahoo, whose digital empires depend on all that gold.

The growing ranks of businesspeople worried about click fraud typically have no complaint about versions of their ads that appear on actual Google or Yahoo Web pages, often next to search results. The trouble arises when the Internet giants boost their profits by recycling ads to millions of other sites, ranging from the familiar, such as cnn.com, to dummy Web addresses like insurance1472.com, which display lists of ads and little if anything else.

When somebody clicks on these recycled ads, marketers such as MostChoice get billed, sometimes even if the clicks appear to come from Mongolia. Google or Yahoo then share the revenue with a daisy chain of Web site hosts and operators. A penny or so even trickles down to the lowly clickers. That means Google and Yahoo at times passively profit from click fraud and, in theory, have an incentive to tolerate it. So do smaller search engines and marketing networks that similarly recycle ads."

Here's BW's take on the size of the problem:

"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."

Estimates for click-fraud tend to be in fairly wide ranges, from low single digits to up to a third of the paid category.  And the technologies, techniques, and definitions keep evolving.

What's new in the article?  It fleshes out the quasi-grey "paid-to-read" (PTR) segment, which may or may not be defined as click-fraud.  BW continues in it's article:

"In theory, paid-to-read sites recruit members who agree to read marketing e-mails and Web sites tailored to their interests. PTR site operators pay members for each e-mail and Web site they read, usually a penny or less.

   In reality, many PTR sites are click-fraud rings, some with hundreds or thousands of participants paid to click on ads."

It then goes on to give some good anecdotal examples and interviews with various participants in this segment of click-fraud.

There's a lively discussion on Techmeme focused on the article.  I found this bit from a post by Search Engine Watch to be the most candid and stark in it's assessment of the problem:

"We've got a former anonymous Yahoo manager saying click fraud can't be stopped:

"Advertisers should be concerned," says a former Yahoo manager who   requested anonymity. "A well-executed click-fraud attack is nearly impossible,   if not impossible, to detect."

Here's hoping that the industry can come up with new ways to measure, assess, retard, and hopefully prevent click-fraud.  But for now, it seems to be one big game of rapidly evolving cat and mouse.

Comments

[Yaser Anwar]

Unfortunately for any business advertiser, whether they are online or offline, fraud is a component they must all deal with, in one form or another. With brick and mortar businesses, it’s usually in the form of shoplifting or disappearing inventory. With online business the activity is termed, click fraud.

During my short stint working with Dmoz, I learned that: Once Google/Yahoo receive a large number of clicks from a single address, the address and the site that had the AdSense banner will be banned, and the illicit behavior might even get the fraudster sued.

To prevent this from happening, the people who make a living of click fraud use a large number of proxy servers for the purpose of clicking. These are basically trojans, located on computers throughout the world . What's even more daunting is that these clicks will appear to originate from an actual computer so such scams are really hard to detect. They are often cloaked in free downloads, the most famous one being the free smileys which are a bit hit with teens.

The former Yahoo exec. is right, it is next to impossible to control. But discovering click fraud, that's just half the problem. The second half is getting your money back from the search engines. A majority of online advertising is done by Small to Midsize businesses & I'm not too sure they have the time or the resources to commit to this problem.

Having ran advertising campaigns with Google, Yahoo, Looksmart etc, I think click fraud is made to be a larger issue than it actually is. Advertisers will pay for advertising if they're seeing results, it's as simple as that.

If they don't see conversions and are losing money, they'll discontinue the PPC campaign. In my experience, major click fraud is easily detectible by looking at your stats. All in all, PPC advertising still generates a lot of money for a lot of people, and fraud issues are not deterring many [Google has become a 800 pound gorilla by providing value]. If you're not seeing results, other problems may exist, consult an online marketing company.

I'd personally recommend people use at least two stat companies. There are some great frees ones such as www.StatCounter.com & www.OneStat.com

[avneron]

i think the pay-per-click model will have to change. advertisers will strive to define "transactions" (such as a customer buying something of the site, or spending a certain amount of time on the site, or getting through a certain process) and will pay based on completed transactions, rather than based on clicks.

it may not be relevant for all advertisers, but i believe most will go to that direction