Click fraud growing on the Web

A year ago, DiamondHarmony.com, an online jewelry store, decided that it had outgrown its sole source of advertising, which was eBay.

The company added an elaborate marketing effort on search engines that included a pay-per-click advertising campaign based on keywords and phrases. For its trouble, DiamondHarmonyDiamondHarmony became ensnared in click fraud.

Instead of actual prospects, the clicks were coming from fraudulent sources. The fraud, which cost DiamondHarmony $17,000 over seven months, was uncovered through analytical software the company installed from ClickTracks of Santa Cruz, Calif.

Click fraud most commonly happens when renegade partners, who get a portion of the fees earned by a search engine each time a paid link is clicked, deliberately generate excessive clicks with no chance that any of the clicks will result in a sale for the business that is paying for them.

The spurious clicks can be generated through automated programs or by paying people to spend time clicking over and over on a link.

As for DiamondHarmony, the company was initially spending about $45 to $50 a day on each of the eight search engines where it placed advertising, said Joe Tedd, its manager for search strategies.

The week before Thanksgiving, however, Tedd started seeing a large increase in clicks from one engine in particular, while its corresponding conversion rate--the number of sales in relation to clicks--kept going down. "In November, we saw the number of searches going up on all the engines we had placement on,'' Tedd said. "But while all the other engines were seeing higher conversion rates, this one engine was doing so poorly, we actually took the campaign offline."

"The search provider was syndicating the keyword to partner publishers, but while the clicks were being counted on the publisher's site, they weren't coming through to our site," he added.

Businesses can also fall victim to click fraud at their competitors' hands. Companies vying for the same position on a list of paid search results may click often enough on a competitor's ad to push the rival over its spending limit--knocking them out of paid search listings temporarily.

Companies typically set a daily budget for individual search terms as well as their entire campaign.

This year eMarketer, a research firm, estimated that the overall online advertising market for 2006 would be $16.7 billion; paid search was expected to reach $6.9 billion by the end of the year. The company on Monday will revise those figures.

The overall online market is being re-evaluated down by 3 percent to 6 percent. Search engine marketing's share of that market, however, remains constant.

The scope of the problem depends on who is describing it. Business owners like Iain Burton, the chairman of Aspinal of London, a manufacturer and seller of fine leather items, says click fraud is much more pervasive than the search engines acknowledge. Burton, who spends about $50,000 each month for paid search advertising, said he was amazed at how blatant it could be.

"I used to make money on pay-per-click advertising; I'd say it used to be really good. But it has become ridiculously expensive. I've lost tens of thousands on click fraud over time."

Search engine providers disagree and say the overwhelming majority of fraudulent clicks were never seen by advertisers because they were discovered and removed. A Yahoo spokeswoman, Gaude Paez, did say, however, that click fraud is a serious, but manageable, challenge.

"We believe that our entire industry must be vigilant in staying one step ahead of spammers," said John Slade, senior director for Yahoo's Clickthrough Protection.

Click Forensics, a consulting firm based in San Antonio, puts the number of fraudulent clicks at about 14 percent of total clicks, based on a recent survey of more than 1,300 online marketers.

The truth probably lies somewhere in between, said Danny Sullivan, the editor of SearchEngineWatch.com, an online industry newsletter.

Google, the search leader, agreed to pay $90 million to settle a click fraud class-action suit--with up to $30 million of that allocated for legal costs. In July, Google's proposed settlement was approved by an Arkansas judge who called the ruling "fair, reasonable, and adequate."

Still, 556 advertisers opted out of the class-action suit, leaving the door open for additional lawsuits. And in June, Yahoo agreed to pay litigants' legal fees, estimated at $4.95 million, and provide credits to any company that could prove it was a victim of click fraud from January 2004 through this year.

[felizecanto]

frauding companies should be brought to justice

"When we do find out, we terminate that publisher."

Apparantly this is the easy way out. Frauding companies should be brought to court, but this would give too much negative publicity to click fraud, so this isn't done. This way the problem will grow and grow.

[208mbrandon]

Billions of Market Cap Depends on Click Fraud

I, too, had a pay per click account, until one day, I decided to place a 1 pixel, unblockable java popup on my web site. Any visitor coming to my site would load this pixel 1 second after the page loaded. About five percent of my non-PPC traffic will not load this graphic, which is what you would expect, since 5 percent of all browsers don't have java enabled.

For PPC traffic coming from Yahoo, a full 85 percent of my visitors did not load this graphic. Remember, the graphic popped up after 1 second. This gave me incontrovertible proof that Yahoo was not sending me real, human eyeballs. Google and MSN were only slightly better. And, as the story mentioned, the 2nd tier PPC providers (E-pilot, Kanoodle) were worthless.

The SE's try to address the problem not by implementing fraud-proof technology, but by trying to narrowly frame the definition of click fraud. They will try to say that click fraud is only clicks originating from the same IP. Only, the real fraudsters have evolved past that rudimentary tactic eons ago.

They could stop click fraud in its tracks, but that would mean that half of their revenue or more would disappear. Do that, and billions in market cap will vanish. So, the conclusion is that Google, Yahoo, et al are willing accomplices in one of the greatest rackets of all time.

Mark
Free Link Building E-Course at www.viralinks.com

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Flaw in your theory

If it weren't for fraud each click would be more valuable and therefore the charge would be higher. The current rate for clicks includes the devaluation caused by fraud.