July 5, 2006 4:19 PM PDT

Study: Click fraud could threaten pay-per-click model

Online advertisers estimate that about 14.6 percent of the clicks on ads for which they're billed are fraudulent, costing them about $800 million last year, according to a study released Wednesday.

The study, called "Click Fraud Reaches $1.3 billion, Dictates End of 'Don't Ask, Don't Tell' Era" and released by research and advisory firm Outsell, claims that "Google, Yahoo and MSN...are stonewalling on click fraud, to their own and others' detriment."

Search engines have refused to release figures on the amount of fraud in search advertising, most of which comes from Web sites boosting their revenue by clicking on ads on their own sites.

A recent study from the Click Fraud Network put the click fraud rate at 14 percent, while other companies that sell click fraud detection and prevention services have pegged it at 20 percent to 30 percent. Search companies say it is much lower than that and is under control.

The total effect of the $1.3 billion mentioned in the Outsell study represents $800 million spent on fraudulent clicks by advertisers and $500 million that advertisers say they no longer spend on pay-per-click advertising, the study said. Pay-per-click is the primary revenue source for Google and a big revenue contributor for Yahoo.

The survey of 407 advertisers also found that 27 percent said they had already slowed or stopped their pay-per-click advertising, including 16 percent who have curtailed such spending entirely.

Seventy-five percent of those surveyed said they had experienced click fraud, and 7 percent said they'd requested refunds and had netted an average of $9,507.

In response to an e-mail seeking comment, a Google representative sent a statement that said: "We take this issue very seriously, have devoted significant resources to it, believe we manage it very well and believe the problem is small."

A Yahoo representative provided this statement: "Yahoo views click fraud as a serious, but manageable challenge. In fact, it was one of the first challenges we identified when we created the pay-per-click advertising model in 1998, which is why we built a robust, proprietary click through protection system very early on."

Yahoo's click through protection system has identified and not billed advertisers for billions of clicks, including those resulting from click fraud and clicks that were improperly billed, Yahoo said.

"We are very confident in our system's ability to detect fraudulent clicks, but we also recognize that our customers--and the industry as a whole--have many questions and concerns about click fraud, especially given the litigation that Yahoo and other search engines have been engaged in over the past few years."

A Microsoft representative released a statement that said: "Microsoft recognizes that invalid clicks, which include clicks sometimes referred to as 'click fraud,' are a serious issue for pay-per-click advertising."

Both Google and Yahoo have been sued over click fraud and both have settled the cases.

Last week a judge gave preliminary approval to a settlement agreement Yahoo reached with Checkmate Strategic Group. Under the deal, Yahoo would pay about $5 million in legal fees and review advertiser click fraud complaints from January 2004.

Earlier this year, Google announced that it would pay $90 million in advertising credits and attorneys fees to settle a class-action lawsuit over click fraud.

A lawsuit designed to block the settlement has been filed by advertisers who claim Google is getting off too cheap.

Some experts have said the only way to solve the problem is to create an independent auditor to monitor click fraud.

The Search Engine Marketing Professionals Organization is teaming up with Fair Isaacs, an independent company that tracks credit card fraud, to measure the true size of click fraud and its effects on search-engine advertising.

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click fraud, pay-per-click advertising, advertiser, Yahoo! Inc., study

8 comments

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Like any advertising compaign...
You have to experiment to see if it is doing any good. In marketing if you suspect that something is not working or worth it then pause the comapaign or slow it down and see if sales change accordingly. It should be noted that internet advertising can be extremely targeted over blanket ad methods. Its still new so buyer beware and all that. As an example, try dropping a 100K on classic media ads with no perceptable sales increase and tell me how that feels. Its not fraud, you just didn't reach the right audience, but go ahead and drop another 100K and see if you do better this time!
Posted by sgeng (7 comments )
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Google and Yahoo enable Vast Criminal Conspiracy
The numbers that the SE's spout are downright insulting. Sure, possibly 15 percent OF ALL SEARCHES are fraudulent, but the vast majority of fraud happens on the segment of keywords that are the most expensive. Fraudsters choose to go after the most valuable keywords like "cancer", "mortgage", "financial planning", etc.

I have painful experience with the financial terms. My financial advisory site was paying $3-5 per click. After suspecting that fraud was going on, I enabled a cookie to activate 1 second after the page loads. As it turned out, a full 86 percent of my visitors never loaded that cookie, providing incontrovertible proof that the vast majority of clicks were not human eyeballs.

The result is that a much larger percentage of their revenue originates from fraudulent activity than what they claim. I would put it at 50-50.

Why would they go about fixing the problem? Google has built up a company worth 100 billion based on this conspiracy. Even a hint that 50 percent of their revenue is bogus would cause billions in market cap to vanish. Same with Yahoo. They are going to milk it as long as it takes for executives to cash out, and leave shareholders holding the bag. Hey, it's worked so far.

Mark
Free Link Building E-Course at <a class="jive-link-external" href="http://www.viralinks.com" target="_newWindow">http://www.viralinks.com</a>
Posted by 208mbrandon (23 comments )
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You are absolutely right on target, but:
Well written.
But lets be clear that the click fraud is occurring not from Google &#38; Yahoo search results.
Since click fraudster have NO incentive to fraudulently click on Paid listings then.
But that the click fraud is occurring due to Google AdSense and Yahoo equivalent since then there is 100% incentive for unscrupulous web site owners to engage in Click fraud and absolutely NO full proof way for Google and Yahoo to prevent this, assuming they wanted to prevent it. Of course they really do not want to prevent it, because they are making Billions of dollars from this conspiracy to commit fraud by the web sites that they enable to display Ads and make money from click on paid listings on those web sites. I mean 99% of these web sites have NOTHING to sell, their only source of income is click on paid listings from Google &#38; Yahoo Adsense, what an invitation for click fraud :(
Posted by caudio_roma (57 comments )
Link Flag
Click fraud occurring from Adsense and not regular search
Lets be clear that the click fraud is occurring not from Google &#38; Yahoo search results.
Since click fraudster have NO incentive to fraudulently click on Paid listings then.
But that the click fraud is occurring due to Google AdSense and Yahoo equivalent since then there is 100% incentive for unscrupulous web site owners to engage in Click fraud and absolutely NO full proof way for Google and Yahoo to prevent this, assuming they wanted to prevent it. Of course they really do not want to prevent it, because they are making Billions of dollars from this conspiracy to commit fraud by the web sites that they enable to display Ads and make money from click on paid listings on those web sites. I mean 99% of these web sites have NOTHING to sell, their only source of income is click on paid listings from Google &#38; Yahoo Adsense, what an invitation for click fraud :(
Posted by caudio_roma (57 comments )
Reply Link Flag
Already seeing this
If you're in the PTR industry, you can easily get human bots to click ads for you, either ad sence, OR search and make the money.

Your cost? As little as a fraction of a cent per click.

Your gain? Target the right key words, and it could be a lot.

And with some PTR people intrested only in 'the money' and program owners caring only about the money, and forcing people to search/click ads to make their money, it's a hot breeding ground for human click bots, and hard to track click fraud.

And let's not forget iframe scams that are running in there too.

There are stories of advertisers who have actually tracked the fact that their entire advertising budget was cleared out in a week by PTR clickers. And there's been discution about it on boards where it's confired that a 95% human click bot rate for PTRs is not impossible, in fact it's the norm!

Dosen't seem too bad until you realise programs can send out 200+ search links a day. And if you have 1000 memebers in a program, you can get over 200000 fraud clicks from just one program. And there are a TON of these programs! Over 100 I'm posative.
Posted by jsmith12 (24 comments )
Reply Link Flag
Will Google Toolbar kill PPC Model?
Google Toolbar seems a step from Google in the direction of preventing click-fraud by killing direct navigation traffic or typed-in traffic, which is part of the reason behind click fraud.
Posted by s_ketharaman (3 comments )
Reply Link Flag
See article in www.freewebtoolbars.com
That's the subject of a story on this website. Check it out, it makes a lot of sense.
Posted by s_ketharaman (3 comments )
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