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Click Fraud: If Everyone Benefits, Who Will Stop It?

A nervous temperament permeated the recent Search Engine Strategies Conference & Expo in New York. Whether you were a search engine, a SEM or SEO firm, or a company looking to begin or ratchet up a pay-per-click campaign, the phrase on everyone’s lips was “click fraud.”

Search engines were discussing methods to reveal and prevent it; SEMs were introducing products to detect and combat the problem — and promising to handle refunds with the engines; and advertisers were looking for any hope that click fraud would disappear.

Like spam, the main obstacle in fighting click fraud is the profitability for the fraudsters. With click prices growing steadily, all forms of click fraud are surefire moneymakers for those committing them. The engines stand to profit as well — at least in the short run, as long as click fraud doesn’t alienate advertisers — because they get paid by advertisers for fraudulent clicks that aren’t contested.

According to Jupiter analyst Niki Scevak, who spoke at the SES conference, click fraud has no effect on a search engine’s revenue. Marketers bid based on a cost per order/action basis; if they make $100 from a sale, they can afford 100 clicks at $1. If the 50 percent of those clicks that we assume are fraudulent disappear, they can afford $2 a click and will raise the bid price.

What is click fraud? Click fraud appears in three (or four) major forms, each with its own technique and desired income. Traditional click fraud, in which fraudsters click on advertisers’ pay-per-click ads with no intention of purchasing the advertised product or service, is mostly conducted by two groups: competitors and network partners/publishers. Competitors click on PPC ads to charge money to rival companies.

Generally, competitor click fraud occurs when a competitor clicks a couple times in a row on another company’s ad. Limited by the sheer determination of virulent competitors, such fraud is damaging only to small businesses in competitive spaces with high PPC costs. A lawyer in New York with an average bid price of $10 could lose $300 a month from one extra fraudulent click per day. If that lawyer deals in Vioxx or mesothelioma cases, where keyword prices range from $20 to $50, he stands to lose as much as $1,500 from just one instance of click fraud per day!

Though competitor click fraud often can be noticed by multiple clicks originating from a single IP address, it sometimes may be difficult to be sure that click fraud is the culprit. If clicks are spaced throughout the day using different keywords, it could be legitimate research from a competitor. If the IP can be tracked to a location where you have a competitor, but not to the competitor itself, the clicks could be from a potential client or buyer researching your site.

Click fraud is perpetrated most often by those who benefit directly from the clicks: publishers and search engine network partners. Site owners that run Google AdSense or partner with Overture or other contextual networks earn a percentage of the PPC charge every time someone clicks on an ad on their site. With many click prices exceeding $10, publishers can benefit greatly by disguising their IP addresses and clicking their own ads. Many publishers even use advanced robotic click engines with rotating IP addresses and click patterns designed to look random. Some employ veritable “click armies” based in India who work for minimum wage — which often can be paid for in just a few clicks!

Though such traffic does ostensibly benefit the search engines — after all, more clicks equal more revenue — network click fraud devalues the click stream, driving down click prices and alienating advertisers, especially those with high click prices and CPAs. Google CFO George Reyes said of such fraud: “I think something has to be done about this really, really quickly, because I think, potentially, it threatens our business model.” Google is suing Texas-based Auctions Expert International, which is alleged to have “flagrantly abused [Google’s service] by artificially and/or fraudulently generating ad clicks.”

Two other forms of click fraud don’t involve any fraudulent clicks, and as such are almost impossible to recognize or combat. Impression fraud is exclusive to Google Adwords, where an ad’s placement is determined by both its maximum bid price and its click-through rate. Fraudsters can affect the placement of their competitors by pausing their own ads, and then searching for terms on which their competitors are bidding, but not clicking the ads.

As they keep searching for bid-upon terms, the CTR of their competitors steadily falls, and the competitors need to raise their bid prices to keep their position. Then the fraudster resumes his or her Adwords campaign, which now has a better CTR than its competitor’s and enjoys superior position at a lower price. The engines are generally unaffected by this practice. However, while they do stand to benefit from higher click prices, impression fraud can alienate advertisers.

Content fraud is a similar problem. Publishers who depend on AdSense or network traffic for livelihood prefer ads with high CPAs and click prices. Since the ads displayed are dependent on the content of the page, publishers may place high-priced keywords on their pages, like “search engine marketing” or “debt relief,” just to get those ads to display.

Though their click-through may decline (as the ads are probably less relevant to the site), the increased payout per click more than makes up for the decreased traffic. Overall, the engines are barely affected by this practice, though lower CTRs may persuade some advertisers not to use content match options. “Smart pricing” technologies from the engines that analyze the relative quality of the referring page may devalue these clicks, but they still cost the advertiser something.

What can be done? The major problem with click fraud is that it benefits more people than it hurts. The engines benefit from a limited amount of click fraud, as long as it doesn’t discourage advertisers. Those who commit the fraud certainly benefit and see no pressing reason to stop. Click fraud, like viruses and spyware, has opened a new market for SEMs and agencies to charge for combating fraud and negotiating refunds. Only the advertisers lose out.

To combat click fraud, engines truly have to believe that click fraud is a real threat, which it is. Scevak’s assertion that click fraud doesn’t affect the PPC sphere in terms of engine revenue doesn’t consider the effect on the advertisers: If their conversion rates double with the absence of click fraud, they can afford more volume in their campaigns, thus ensuring more revenue for the advertiser and the engine.

If click fraud continues to grow, advertisers will abandon words with high prices that are abused by network click fraudsters. Impression spam will drive up prices for Google advertisers, forcing many to cut back on PPC advertising. All click fraud devalues the clickstream, which may persuade some small advertisers to give up.

According to a recent SEMPO study, more than 70 percent of search marketers are concerned about click fraud. Some may be concerned enough to walk away from or cut back on PPC advertising. The engines need to fight click fraud, punish fraudsters and issue refunds without being pushed to. Marketers need to track and search for click fraud and present it to the engines, no matter how miniscule it is. Spam never ended up turning people away from e-mail, but do Google and Yahoo want to take that chance with search marketing? Let’s hope not.

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