Introduction

In the next few pages, I'm going to walk you through what click fraud is, how to identify it and how to stop it. However, if you're not sure of the basics -- not sure what paid search marketing is in the first place -- please skip to the "About paid search" page of this In Focus, then come back.

Let me open with a hypothetical -- but very realistic -- example of why you should take click fraud seriously.

An online retailer selling consumer electronics noticed something interesting about his search campaign one Monday morning. In the last month, his top earning terms like "iPod Nano" have gone from an average $2.00 per click to well above $5.00. His conversion rates, usually in the 1.5 to 2.5 percent range have dropped below .05 percent. Search activity for less than popular targeted terms like "iPood Nannu" have gone from 12 to 15 searches a month to almost 500, and those terms have skyrocketed from five to 10 cents per click to almost $3.00 per click with almost no increase in sales over the previous 30 days.

What happened? The most likely explanation is that a competitor started clicking on our online retailer's sponsored search ads over and over and over in order to drive his costs up, drain the amount of money he can spend on search, and open up those key search terms for his own business.

The takeaway: No other aspect of this retailer's business has changed. Yet in a month’s time, his search marketing costs have increased by more than 500 percent and his sales have plummeted from $16 million a month to just under $2 million.

Click fraud can cost you a lot of money.

Click fraud is an intentional disruption of the pay per click advertising model with malice and forethought for competitive or financial gain.

Click fraud is often associated with unwanted or unqualified clicks but while unqualified visitors may not generate revenue, this activity may not constitute fraud in and of itself.

Left unchecked, fraudulent or erroneous clicks threaten to erode revenue generated from search listings and may ultimately call into question the credibility of search engine advertising.

While no one is certain of the exact size of click fraud in the search engine advertising world, we know it is responsible for perhaps hundreds of millions of dollars in advertiser losses each year.

Fraudulent click traffic can also be seen in much higher frequencies in highly competitive and popular search categories such as electronics, auto, finance and travel.

Click fraud exists in many forms. Automated bots, competitors and even large click farms are rumored to exist in third world countries.

But each type produces a common result: erroneous click traffic that advertisers have to pay for.

The most common types and motivations of click fraud are:

Competitive fraud: As its name implies, competitive click fraud is most often seen but not limited to heavily competitive categories in which a competing advertiser seeks to remove a competitor by endlessly clicking on the competitor's search terms. The end result is a forced removal either by budgetary attrition or by the advertiser deeming the keyword or phrase ineffective.

Affiliate or contextual fraud: Many websites generate revenue from listings placed on each of their sites: each time a user clicks on a listing, the website gets paid. So, to put it simply, an unscrupulous website owner might arrange for a lot of clicks on the site ads in order to increase revenue from content listings.

Impression fraud: Searches are conducted repeatedly on a term but no clicks are registered. This drives the clickthrough rate for that paid search listing down. At that point, either a search provider's automatic tool will disable the search term (due to a low clickthrough rate) or the advertiser will do it manually. This clears the way for another advertiser's paid search listing to move up in the rankings. Since there is no money changing hands, and technically there is no click action, this type of fraud is difficult to detect.

Automated fraud: Software applications that verify links can contain robots or crawlers that automatically enter sites or follow links; sometimes these robots can inadvertently click on paid listings.

Click fraud can be wildly unpredictable, and the action has to occur before it can be identified.

Some of the most common methods of identifying click fraud are:

Internet Protocol address: IP addresses provide a multitude of information. Geographic targeting tools in search advertising (if you use them) can stop outsiders from clicking on your ad and clicks from countries beyond your scope of business may indicate fraud. A high frequency of clicks from the same IP address can also be an early warning sign that somebody is clicking fraudulently.

Unusual activity: A problem may exist if a search term or keyword grouping normally receives 10 searches or clicks a month and you suddenly receive 1,000. Similarly, if keyword costs begin to skyrocket for no apparent reason, you may be a victim of click fraud. Abnormally high abandonment rates may also tip you off.

The business of click fraud prevention is growing almost as fast as the search engine advertising industry itself.

The search engines themselves deal with a lot of the automated and other types of click fraud before advertisers are ever invoiced. However, this does not mean that identifying click fraud should be left solely in the hands of a search provider.

As an advertiser, you have quite a few options in taking action against click fraud.

Do it yourself, but be warned that manually checking IP addresses and reviewing log files for thousands of terms is arduous and impractical.

Outsourcing click fraud prevention: There are literally hundreds of options in selecting a click fraud prevention vendor. Your search engine marketing firm or agency probably offers an automated tool, or you can go with one of the many third parties that have entered the space.

What to look for: If you outsource, make sure that the solution you choose offers tools that provide a high frequency of tracking reports. Look also for a solution that search providers acknowledge.

If you find click fraud, what then? Most often advertisers receive compensation in the form of future advertising credits, but if you are bent on a cash refund be prepared to take an aggressive posture.

The search engine advertising industry has grown so quickly there has been little time to deal with issues that arise, much less regulate them. So, at the present moment shutting down click fraud farms in Kazakhstan -- if they even exist -- or stopping competitors from executing fraudulent click initiatives is unlikely.

Another way of saying this is simply that there has been little activity by industry groups in acknowledging or acting on click fraud.

Search providers like Google and Yahoo have been forthcoming about their general attempts to prevent fraudulent traffic. However, these search providers keep their specific fraud detection technologies secret, ostensibly to make things more difficult for click fraud perpetrators.

Many unhappy advertisers have taken matters into their own hands and initiated litigation against search providers. Still other third parties have endeavored to create forums for advertisers to voice concerns and share best practices.

Regulation in the space is inevitable given the growing concerns over click fraud.

Learn more about click fraud:

• Debunking Click Fraud
• Google's Click Fraud Settlement and You
• Click Fraud On the Rise
• Click Fraud Back in the News
• The Click Fraud Culture
• Putting an End to Click Fraud
• Why CPA is Not a Cure for Click Fraud
• A Click Fraud Solution?

If you're not even sure what paid search marketing is, let alone how to define click fraud, take a look at this brief introduction, then go back to the introduction for the rest of this In Focus on click fraud.

Second only to email, search is the most popular online activity.

Advertising in search engines -- for example, the sponsored listings that show up on the right-hand side of the screen every time you run a search on Google -- have risen to become the largest portion of online advertising spending in recent years.

Google, Yahoo, MSN and many other search sites generate revenue by selling search listings that can be purchased by keyword or keyword matching in the form of "sponsored" results.

Listings are auctioned and advertisers compete for placements in keyword search results. Search providers also place listings on content or destination (e.g., Google AdSense) pages to generate revenue for content owners. These "contextual" or "content search" listings are also sold on a cost per click basis and revenue is shared between content owners and search sites.

Paid search is a good deal because advertisers pay only for clicks sent to their websites, and this performance-based model has proven itself suitable for many types of marketers. The rapid growth of pay-per-click advertising in search has meant tremendous economic growth for online advertising.

Written on May 15th 2006

Do you think that people are too ready to sue each other in this country? That’s positive thinking, but the reality is that in the good old USA, litigation is business by any means. So, it was inevitable that the click fraud issue would end up in the courts.

Yes indeed, click fraud is now a court issue; there are now three interrelated lawsuits affecting one online giant: Google. First, there is the case that got filed filed in Arkansas, Lane’s Gifts. Second, is AIT, a case that got filed in California. Then there is the most recent case Kinney vs. Lane. This third case is quite a twist. It’s a suit against the plaintiffs that filed the first lawsuit in Arkansas, claiming that they aren’t fairly representing all the Google advertisers and that the settlement the plaintiffs agreed to is a bad deal.

Let’s start with the first suit: Lane’s Gifts. When the case began, both Google and Yahoo argued that the case should be dismissed because it was in the wrong venue, which means the suit was brought in the wrong location. If you look at your Google contract, it likely says that you have to sue them in California, and no other location. To quote the Terms and Conditions, it says the contract is “governed by California law . . . and adjudicated in Santa Clara County, California.” Bringing a case in the wrong venue when the contract specifies the venue usually means the case automatically gets dismissed.

But this first case in Arkansas went forward while a motion to dismiss the case, based on the venue provision, was getting scheduled. Someplace midstream, Google and the lawyers for Lane came to terms. There’s nothing a judge likes better then when the two parties come to terms; it’s off his docket. But these are the terms of the settlement:

1. Based on the amount of money that Google has made over the last 4 years with AdWords, the settlement comes down to less then ½ cent on the dollar. What this really means is that the small advertiser has almost no chance at some sort of reasonable recovery. It simply isn’t worth the effort.

2. If you decide to apply for a fraud refund guess, who gets to decides if the claim is legitimate? Google is the final judge and jury.

3. If Google decides that you merit a refund, it isn’t for cash. You get a credit against your future ad spend. That’s good; it will partially cover future click fraud which most experts put in the 14 to 30 percent range.

4. It brings us up the last point, which is that there is no guarantee that Google will help stop click fraud moving into the future. Welcome back to court because you’re not getting any relief.

So why did Google change its mind and decide to settle in Arkansas? That is simple, the terms are totally one-sided in Google’s favor. Because Google was about to have the case against it dismissed based on the fact that it was in the wrong venue, it forced Lane’s Gifts’ lawyers into a bad deal. Google’s lawyers figured they could give a small amount of cash to these lawyers and limited refunds to the advertisers. If you’re saying to yourself that 30 million dollars is a lot of money, it is–for the lawyers. But where does that leave the advertisers, who had billions of dollars in possible losses and will continue to have them moving into the future?

The latest information on the first case is that Google should be notifying all advertisers that they can accept the settlement or reject it. If you do not reject it, you will have to accept whatever this ½ cent on the dollar settlement comes to.

If you’re like most people and you see a “refund” class action letter, you might not even open the envelope. If you do open it, the amount and the terms for the refund discourage you from even sending in the paperwork. This is what Google is really counting on. This is why a number of law firms from around the country have filed the third suit, Kinney vs. Lane’s. To give businesses, especially small businesses/advertisers, a shot at getting a reasonable refund.

Let me return to the second suit, AIT. Brian Kabateck, one of the lawyers involved in AIT and Kinney vs. Lane described how his interest in click fraud started. Kabateck had been looking into search engine marketing for his law firm. In the process of talking to search engine marketing experts, the subject of click fraud came up. One of the SEM firms mentioned that one of their clients was having a problem getting a refund.

In this case, it was a rehabilitation center. Its hard to believe that something that borders on a social service would have a click fraud problem, but it did. When the center tried to ask Google to correct the problem and/or get a refund, that’s when they were met with stone-cold silence.

After hearing this type of story from numerous businesses, a number of law firms got together and filed the suit in California Federal court, via Click Defense/AIT. AIT was asking the Federal court to give the suit class-action status when Google suddenly announced its settlement in Lane’s Gifts. To make maters worse, Google was then able to have the AIT action delayed because it had reached a settlement in Lane’s Gifts.

This issue won’t go away. Clarence Briggs, AIT’s Chief Executive, has gone to Congress and appears to have raised the interest of a number of members of Congress. Staff members of the Judiciary Committee have asked for additional information and he has been told he may be called to testify as a witness. The search engines have already been in the spotlight with Congressional hearing on issues like privacy and their relationship with the Chinese Government.

So as things stand right now you should, if you are an AdWords advertiser, be getting legal notification of the pending settlement.