Advertisers: Beware of "Click Fraud"

Search engine advertising now counts for 2% of U.S. advertising investments, equivalent to all billboard and outdoor advertising in the United States. [1] On the US$962 million in revenue earned by Google in 2003, roughly 95% was generated by a type of advertising known as PPC (Pay Per Click). [2] PPC advertising consists in displaying textual ads that relate to the keywords entered in a search engine by an Internet user. The price per word is based on a bidding system and the advertiser pays only when someone clicks on the ad. Therefore, campaign costs are directly tied to the results achieved.

To all appearances, everything seems rosy for search engines as they keep raking in positive financial results. At least that’s what the major players in this industry have led us to believe. Some sceptics, however, suspect that search engine companies are attempting to cover up important weaknesses in their revenue models. One such shortcoming, known as “click fraud”, is gaining momentum online. Click fraud is defined as any click on an ad that aims to make the advertiser lose money. Certain marketing managers estimate that nearly 20% of clicks could be directly linked to click fraud. [3]

So who are the culprits responsible for cheating the search engines? Generally, the guilty parties are competitors or angry individuals who wish to harm the advertiser. The India Times revealed that “professional clickers” are offered from $100 to $200 a month to click on various types of ads. [4] Worse yet, there are now automated software programs that can simulate individual clicks. Imagine if a competitor programmed software to visit the sites where you have placed your ad and to automatically click on it numerous times a day. This would rapidly bring about considerable financial losses for your company.

In response to this problem, Google and Yahoo (via its search affiliate Overture) have created anti-fraud squads. Yet, as the following statement taken from Google’s SEC Filing reveals, it is uncertain as to whether these squads are capable of eradicating the problem entirely: “If we are unable to stop this fraudulent activity, these refunds may increase.” [5] It is, in fact, possible to obtain a refund if you are a victim of fraud. However, the procedure necessitates a solid dossier proving that fraudulent activity did indeed occur. Google and Yahoo have issued guidelines for advertisers who would like to request a refund. These guidelines can be consulted on their respective web sites at the following addresses:

https://adwords.google.com/select/faq/guidelines.html http://www.content.overture.com/d/Usm/ac/fa/faq_as.jhtml

If you carry out PPC advertising or if you are planning on doing so, it is increasingly important that you analyse the profiles of Internet users who click on your ads in order to verify whether you are the victim of click fraud. There are a number of ways to perform such analyses. Faced with this growing problem, many businesses offer innovative solutions. By ensuring that you do not fall victim to fraud, you will maximize the spin-offs of your search engine marketing campaigns.

[1] “A Marketer’s Guide to Search Engine Marketing,” MarketLeap Newsletter , Feb. 20, 2004.

[2] Ari Weinberg, “Google’s Feeling Lucky,” July 19, 2004.

[3] “Exposing click fraud,” CNET News.com, July 19, 2004.

[4] N. Vidyasagar, “ India ’s secret army of online ad ‘clickers’,” Times News Network , May 3, 2004.

[5] http://www.sec.gov/Archives/edgar/data/1288776/000119312504073639/ds1.htm