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Lost Per Click: Search Advertising & Click Fraud

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Click fraud -- the practice of clicking on a text advertisement served by a search engine for the sole purpose of forcing the advertiser to pay for the click -- is emerging as an important concern for search engine marketers.

Click fraud is not a new phenomenon. It has been happening for years, since the original installation of the cost-per click (CPC) pricing model. Click fraud has been increasing in frequency and impact as more advertisers launch CPC campaigns and as the overall cost of online advertising (both search and non-search related) continues to rise.

This year, the amount of exposure click fraud has received has increased dramatically as a result of increased advertiser savvy, increased overall CPC advertising costs, and increased scrutiny into the CPC pricing model as a revenue stream.

Click fraud has become more newsworthy in the months leading up to Google's initial public offering, perhaps because the company's AdWords program generates 95% of its overall advertising revenue.

A notable example is the case of affiliate click fraud uncovered by the Times of India. This is certainly not the first click fraud case of its kind, nor is it limited to India and Nigeria -- this activity has been, and is occurring all over the world. Unfortunately, it takes the Google IPO for the industry to start lifting the hood on what has heretofore been considered a perfect - and perhaps even brilliant - online pricing model.

"Click fraud" refers to any kind of click received from a CPC search engine that is generated artificially through human or technological means with the sole purpose of creating a debiting click, resulting in zero possibility for a conversion to occur. CPC engines are, to their defense, dedicating internal resources to the click fraud problem.

Overture in particular has gone to great lengths to improve their fraud filtering technology, and they have dedicated additional resources to handling advertiser fraud cases. Patrick Giordani, senior manager of loss prevention and analytics for Overture, works closely with Overture's internal teams to identify non-legitimate click activity.

"Click-through protection is a key priority for Overture and we believe we have the most sophisticated system in the industry for identifying and filtering these types of clicks," Giordani wrote in an email message. "Overture uses a combination of proprietary systems and click protection technologies. Additionally, we have a dedicated team that consistently monitors clicks, updates our systems and technologies and works directly with our advertisers to protect the integrity of our marketplace."

While this type of auditing is a first defense, no single application or filtering mechanism will identify and filter out all of the fraud all of the time.

This increased focus on the issue of click fraud during a time in the industry when the CPC pricing model is generating the majority of online ad revenue creates a fairly large motivation for CPC based advertising companies like Overture, Google, FindWhat.com, Kanoodle and others to minimize their exposure and the amount of advertiser refunds they will have to issue.

Google, for example, has remained tight-lipped on the issue of click fraud since the day they began their AdWords program. Although Google issues sporadic refunds, the company has remained fairly unaccountable to advertisers, perhaps believing that the incorporation of CTR (click through rate) in their ad ranking algorithm would prevent any fraud from happening. However, since the inception of AdSense (described in more detail below) I've only seen an increase in the number of fraudulent clicks coming through their network.

And if we see it, we know Google sees it. The company rolled out a program called SmartPricing to address the lower traffic quality in their contextual advertising program that distributes ads through non-Google web sites. In their IPO S1 filing this year Google admitted: "We are exposed to the risk of fraudulent clicks on our ads. We have regularly paid refunds related to fraudulent clicks and expect to do so in the future. If we are unable to stop this fraudulent activity, these refunds may increase. If we find new evidence of past fraudulent clicks we may have to issue refunds retroactively of amounts previously paid to our Google Network members."

Why does click fraud exist? There are numerous reasons. For CPC affiliates, including network and content partners, the obvious incentive for artificially generating clicks is to increase commissions received on the traffic they send. This situation has been exploited to a great extent since Google launched AdSense, the content-delivery platform that allows individual webmasters to publish AdWords ads on their sites and receive per-click commissions on the traffic they generate for the ads.

Additionally, competing advertisers are driven by competitiveness to "stick it to" their competition by clicking on their expensive CPC ads, to cost them money and potentially knock them out of competition for top positioning, resulting in a lower cost for the term(s) in question.

With regard to AdWords, there is a new fraud issue that has come to light -- impression fraud. Competitors are apparently using the same technology used for click fraud to generate search result impressions to decrease the click through rate of their competitors' ads. They do this by halting their own campaigns during the times of the attacks, so as not to have their own click-through rates affected by the increased impressions.

There are also different methods of fraudulent click generation. One form of artificial click generation, perhaps the most difficult to identify, comes by way of manually generated clicks induced by CPC competitors within the same keyword niche or by human-driven operations created for the sole purpose of generating affiliate revenue off of the CPC pricing model.

Another method of click fraud is generated through automated clicking methods, using software applications (hitbots) specifically designed to click on paid listings. This kind of activity is often initiated by both competitors and by affiliates, the latter often instituting extensive technology arrangements to enable their fraudulent click traffic to slip past the internal filtering methods used by the CPC engines.

At this stage of the game, the burden still rests squarely on an advertiser's shoulders to identify click fraud, build a legitimate case, and demand a refund where a refund is due. In my opinion, one half of one percent of traffic is still advertising dollars spent unnecessarily.

If you're running a CPC campaign with the search engines, it behooves you to audit your logs for suspicious activity, and contact the search engine if you suspect foul play from your competitors. After all, how many of you check your credit card statements to make sure that all of the charges on that bill are legitimate? Auditing your CPC campaigns for click fraud should be just as important.

Jesse C. Stricchiola handled one of the first click fraud cases in 2001 for a nationwide law firm, and her firm Alchemist Media specializes in providing click fraud auditing and refund services.

Want to discuss this story? Join the Click Fraud: A Case Study discussion in the Search Engine Watch Forums.

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