Monday, July 21, 2008

Click Fraud and How to Counteract It in Ad Campaigns

Unfortunately for any advertiser or businessperson, whether they are online or offline, fraud is a component they must all deal with, in one form or another. With offline businesses, it’s usually in the form of shoplifting or mysteriously disappearing inventory. With online business, however, the fastest-growing type of fraud concerns a phenomenon called “click fraud.”

On its most basic level, click fraud is defined as any click that is maliciously made on an advertiser’s PPC ad with the intent of depleting the amount of money in the advertiser’s account.

As a simple example, let’s assume you have a pay-per-click ad set up on Google and your keyword bid is $1 per visitor. Therefore, each time someone clicks on your ad on the results page for that specific keyword, your account is charged $1. If the amount of money in your account equals $1,000, then you can have 1,000 clicks on your ad before your account is depleted of funds.

If someone decides to target your ad via click fraud, they can use various methods to arrange to have your ad clicked on repeatedly until your $1,000 is gone. This can occur within a matter or minutes, or over a number of days or weeks, depending on what method is used and how blatant the fraudsters are about the process.

Obviously, this is an incredibly destructive type of fraud, especially since it occurs online, where many people feel they are acting anonymously. Some click fraud campaigns do not even try to hide their location or identity if they make a lightning attack on your ad; instead they wait and change their online “identity” after they had made a significant dent in your account, if not having drained it altogether.
The Growth of Click Fraud

Excessive clicking on links to websites and forms of online advertising not tied to a cost-per-click payment is nothing new to the online community. Ever since the beginning of the Internet as a commercial enterprise, excessive clicking on search engine listings was used to create a sense of “popularity” of the website. which often led to improved rankings on the search engine (Stefanie Olsen, “Exposing Click Fraud”).

It is partly because of this early type of questionable clicking that search engines began to explore different methods of ranking websites, leading eventually to today’s reliance on complex algorithms, robot crawls, the infamous Google Dance, relevancy ratings, related links, content, popularity, and so on.

Repeated clicking on pay-per-click advertising is not a recent development, but it has become a major problem for all parties involved.

This phenomenon, now referred to as “click fraud,” has been a part of the Internet for quite some time. One of the earliest successful strikes against this type of fraud was conducted by Jessie C. Stricchiola, President of Alchemist Media, Inc., who identified and successfully procured a refund on behalf of the national corporation Chase Law Group against (now Yahoo! Search Marketing) late in the year 2001.

It wasn’t until later in 2002, however, that many companies began to discuss the issue in online articles and forums. One of the main problems with combating click fraud seemed to be that there were so many different interests involved.

Or course, advertisers were concerned that their ad dollars were being wasted. Yet, if they were also affiliates, they saw the potential of making back some of their own click fraud losses by practicing click fraud themselves.

Search engines were interested in maximizing ad revenues (which click fraud accomplished for them), yet realized that if they didn’t help control click fraud, eventually they would lose those very advertisers and their ad revenue.

In addition, some people who were involved in click fraud didn’t understand that what they were doing was wrong. This was particularly true if they were not very computer literate or had themselves been a victim of click fraud. In some cases, they had even been told they were helping the very people whose ad dollars they were depleting, because clicking on their ads increased the popularity of the website.

However, click fraud didn’t really become a huge problem until pay-per-click advertising became more prevalent. Logic dictates that if there is nothing to practice click fraud upon, it is unlikely to be a large problem. Unfortunately, the increased popularity of pay-per-click advertising has concurrently revived the practice of fraudulently clicking on paid advertising.

Although many suspected fraudulent clicks were depleting their ad accounts, it wasn’t until a few landmark cases came to light that the online advertising industry began to react to the growing problem.

Estimates of the extent of the problem today vary widely, and this is a subject of much discussion among advertisers and PPC search engines. Estimates range from a low of 10% to as much as 50% of clicks falling into the fraudulent category. The search engines usually claim that, although it is a significant problem, it falls toward the lower percentage. Developers of tools and software to counteract click fraud, however, lean toward the higher figure.

However, everyone does agree that click fraud has been a problem in the past and that it is becoming an even greater problem now. Left to flourish on its own, click fraud ultimately could bring the entire pay-per-click industry grinding to a halt, with advertisers losing enough money on their ad campaigns to drop their ROIs to negative numbers. This, in turn, could lead them to withdraw from this type of advertising altogether.

The domino effect from such a retreat could have a massive effect on search engines in general, most of which now rely on paid advertising as a prime source of income for growth in the marketplace. Both sides have a great stake in controlling and ultimately bringing click fraud statistics down to the lowest possible percentage.

As long as there are people willing to commit fraud, however, click fraud will never be completely eliminated. Advertisers and search engines agree, however, that the issue needs to be addressed now, before it gets completely out of hand.

Probably the most infamous and audacious click-fraud case, which caught the attention of the industry and alerted them to the potential danger of click fraud, involved an individual named Michael Anthony Bradley. Mr. Bradley developed a software program that he called “Google Clique.” He claimed that the program allowed clicking on pay-per-click ads in such as way as to be virtually undetectable to search engines.

Bradley told Google that if they were not interested in purchasing his software at a reported price of $100,000, he would send copies of it to at least 100 spammers worldwide. This would result in fraud in the neighborhood of at least $5 million in the course of six months. Bradley was charged with extortion and wire fraud in March of 2004.

Later in the year, another significant lawsuit brought to the forefront another type of click fraud, this time involving affiliates. On November 15, 2004, Google sued one of the advertisers on its AdSense program (which involves websites including a PPC ad on their site in return for a portion of the income earned by Google when someone clicks on that ad).

The lawsuit claimed that Auctions Expert International, a Houston, Texas-based company, “ flagrantly abused (Google) by artificially and/or fraudulently generating ad clicks…. These clicks were worthless to advertisers, but generated significant and unjust revenue for defendants.” Key to the lawsuit was the claim by Google that the site itself was set up specifically for the purpose of click fraud and was never intended to be a legitimate auction website.

Experts in click fraud are of two minds concerning these two significant cases. One side believes that businesses need to accept the fact that a certain amount of click fraud is inevitable, just as offline businesses accept the fact that they will be subject to a certain percentage of loss due to shoplifting and other means.

Those who adhere to this view generally believe that the search engines are doing all they can to identify the culprits and rectify the situation via refunds to their advertisers. They also believe that advertisers need to consider click fraud part of the cost of doing business online and that they should take whatever steps are possible to detect it (more on this later in the chapter).

Other experts, most notably Jessie Stricchiola from Alchemist Media, who is one of the earliest analysts to identify and deal with click fraud issues in paid advertising, see the problem slightly differently. They tend to view the public actions by Google against click fraud activities as a means of deflecting advertisers’ concerns. To these analysts, search engines appear to be either unable or unwilling to commit the resources needed to combat click fraud. Instead, they place the onus on the advertiser to detect and report it; then the advertiser must rely on the search engine’s judgment as to whether or not the incident is true click fraud, or not.

As for the search engines, many have begun to institute click fraud detection programs. Google itself claims that both the Bradley case and the Auctions International lawsuit show that Google is sending a warning to all who participate in click fraud that they “…have sophisticated technology that detects and eliminates fraud…. This lawsuit … demonstrates the success of our antifraud system and that we will take legal action when appropriate.” (Steve Langdon, Google spokesperson.)

These high-profile legal cases are, however, just the tip of the iceberg in terms of click fraud in general.