Click-Fraud Threat: 'Staggering' Or 'Overblown'?

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Click fraud, long a bothersome fact of search advertising, garnered increased discussion after George Reyes, Google's chief financial officer, declared recently that click fraud "threatens our business model."


Reyes' comments, made Dec. 2 during Google's first presentation at an investors conference, ignited speculation that click fraud could derail the expansion of search marketing.


The level of click fraud is difficult to peg. Estimates run from 5 percent of search clicks to 20 percent. One vendor of click-fraud detection software thinks as many as half of clicks on high-priced keywords are fraudulent.


Stephen Messer, CEO of affiliate network provider LinkShare, on Dec. 13 told an investors conference in New York devoted to search marketing that click fraud is "rampant" and "staggering." He said it could wipe out ROI in search marketing in 2005.


"It's probably the last big year for search before it blows open or people start looking for alternatives," he said.


However, some search marketers say click fraud has not increased recently and remains a manageable problem nowhere near the threat it is often made out to be by investment research analysts and in many news accounts.


"I think it exists, but it is overblown," said Andy Beal, vice president of search marketing for KeywordRanking.com, Morrisville, NC.


"The engines have done an unbelievable job of reducing click fraud in the last few years," said Josh Stylman, managing partner of Reprise Media, a New York search marketing firm. "From what we see, click fraud exists, but it seems like people are looking for a story."


Stylman said Reprise often finds its clients' bills credited for clicks that Google and Overture deem to be suspect, typically 5 percent to 7 percent of all clicks. Reprise has needed to lobby the main search engines only "a handful" of times for suspicious traffic.


Nate Elliott, a Jupiter Research analyst, thinks click fraud is "a non-issue." He notes that click fraud is factored into advertisers' bids already, at least those who bid based on their ROI.


Beal compared it with a retailer knowing that 5 percent of sales will be wiped out by shoplifting. The retailer is vigilant, but he also concedes that merchandise will get stolen.


"I think the solution providers are the ones who are making it a big issue," he said.


Jessie Stricchiola, president of Alchemist Media, which sells click-fraud detection services, thinks click fraud is a major problem that Google and Overture try to downplay, partly because they benefit from it in the short term.


"The tighter they clamp down on click fraud, the less money they bring in," she said at a click-fraud panel Dec. 16 at the Search Engine Strategies conference in Chicago.


She estimates that 15 percent to 20 percent of all clicks are "artificial."


Click fraud comes from various sources, Stricchiola said. Sometimes it is from disgruntled former employees. Other times, competitors try to drive up a rival's costs. Another big source is from search engine affiliates, particularly Google's AdSense for Content publishers, which can generate revenue from fraudulent clicks, she said.


Search engines and many search marketers reject the idea that Google and Overture do not police click fraud closely out of self-interest. They note that Google's and Overture's business models are based on delivering profitable leads to customers, who will stop advertising if the clicks they get are not turning into customers.


"We try to be very liberal in our refunds because a big part of what we do is instill trust in our model," said Patrick Giordani, senior manager of Overture's loss prevention and analytics team.


Overture and Google are loath to discuss the methods they use to ferret out fraudulent clicks, because doing so might give tips to fraudsters. Overture does not receive many requests for refunds from marketers seeing fraudulent clicks, Giordani said, and it has not seen a rise in fraudulent clicks recently.


"I think we're catching a majority of it," he said.


Stricchiola allows that Google and Overture, in particular, have improved at crediting advertisers, a reaction she credits to advertisers raising the click-fraud issue loudly. But she urges clients to monitor their search campaigns closely, look for abnormal traffic spikes and investigate irregularities.


"If it was just about technology, the problem would be solved," she said.


Brian Morrissey covers search marketing for DM News.com. To keep up with the latest search marketing news subscribe to our free e-mail weekly newsletter Search Engine Marketing by visiting http://www.dmnews.com/cgi-bin/newslettersub.cgi


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