It is ironic that at some point before Google settled a click fraud case brought by Lane's Gifts and Collectibles and Caulfield Investigations for $90 million, Google's CFO, George Reyes had told the Wall Street Journal that, "Click fraud is the biggest threat to the internet economy."
But, by agreeing to settle for $90 million, Google is saying that "click fraud is only one percent of sales," wrote Danny Sullivan, editor of SearchEngineWatch.com. "This is the first time Google has actually put a number on it. We've heard estimates that were much higher…a $90 million settlement, compared to Google's revenues, is cheap to get this particular issue resolved."
But to be frank, the issue is far from solved. And in my experience, click fraud isn't a "one percent" problem. Working with over 100 search clients, we routinely see click fraud ranging from 20 to 30 percent on the major search engines and up to 80 percent on the second and third tier search sites. For one client in the automotive industry, we uncovered click fraud of 40 percent and for another in the legal profession, we uncovered click fraud of 45 percent.
So, round it up. You are a small business (or even a large one for that matter) and you have allocated most, if not all, of your marketing budget to search. What happens when you find that close to 50 percent of all the clicks on your ads are fraudulent? Do you just write it off to the cost of doing business in the search space and assume that the results are worth the waste? What would happen if we discovered half of all TV-driven calls to 800 numbers were bogus, or that magazines with rate base guarantees were dumping half their magazines in the trash? Think you'd just "write it off?" Don't think so.
While click fraud isn't new, the methods for carrying it out -- like clickbot software -- are getting increasingly sophisticated. And some advertisers, analysts and consultants, wrote BusinessWeek, question whether web companies such as Google and Yahoo! are doing enough to nip click fraud in the bud. "We've seen indications that the overall losses due to click fraud could equal more than $1 billion [a year] -- larger than the total magnitude of credit card fraud in the U.S.," Kandathil Jacob, Fair Isaac's director of product marketing, told Businessweek.
What exactly is click fraud? With pay-per-click ads that show up next to search results, the more times an ad is clicked, the more the advertiser pays. With contextual ads, where ads are placed on third-party websites, pay-per-click ad revenue is split between the publisher and the search company, such as Google.
Sometimes publishers click their own sites to get more revenue from the search engines. Webmasters sometimes form partnerships to click on each other's advertisements. Sometimes people click on their competition's ads, just to drive up their costs. CNET reported, "…the chief executive of an internet marketing company, enjoys clicking on his rivals' text ads … his competitor must pay as much as $15 each time." There is also bot-like software all over the internet through anonymous "proxy" servers scattered in far-flung locales, creating the illusion that visitors are logging on from all over the place, masking the traffic's true origin.
Then there are even software companies with names like Fakezilla that sell traffic simulators online intended to make sites appear popular and thus boost ranking on search engine pages. They are also used for click fraud.
How do you detect click fraud? There are numerous solutions on the market. Nearly all of them just duplicate ip/persistent cookie checking. To call that click fraud is actually a misnomer -- it's duplicate visitor detection. We think it's important to really detect "fraudulent patterns" which are not evident to just doing a quick log sort. We do not rely on any arbitrary data points to declare click as fraudulent. We give clicks arbitrary "threat levels" or flag all clicks from overseas as fraudulent. We analyze the traffic patterns generated from site visitors who arrive through non-paid means, and then compare the patterns of paid traffic to detect any discrepancies. This is of course done in addition to the general same ip/computer detection, but even there, we do not just declare an arbitrary cut off (i.e. three visits same IP = fraud), we establish that number based on non-paid traffic.
Click fraud hasn't deterred spending on search marketing. The U.S. search market was $5 billon in 2005, and search engine marketing will grow by 33 percent in 2005, reaching $11.6 billion by 2010 according to Forrester Research. But sooner or later major search spenders will stop and demand from the big search player, "Just how much of my traffic is click fraud?" Google and others already issue refunds when their advertisers can provide proof of click fraud. We get those refunds for our clients every day. But the day is coming when click fraud will so degrade the search marketing experience that advertisers will see other alternatives.
Michael Caruso is a veteran entrepreneur with over 20 years experience in business, management, sales, marketing and start ups. As a pioneer in online advertising Michael has worked with companies such as New Line Cinema, Sony Pictures, Warner Brothers, Amazon, Mars Candies and Microsoft to develop some of their first integrated online programs.
Caruso has held senior sales and business development positions for leading websites including: Internet Movie Database (acquired by Amazon), theglobe.com, Hollywood Stock Exchange (a subsidiary of Cantor Index Holdings, LP), and FortuneCity.com. The culmination of his tenure at FortuneCity was a $25 million private label online community for Time/Warner, ACME City and strategic investments and acquisitions, with a focus on international companies.
Caruso founded the first Internet Trade Association in San Francisco, Society for Interactive Advancement San Francisco (SIASF) in 1997. The SIASF ran profitably until its membership base was rolled into the newly formed Bay Area Interactive Group (BIG) in 2004.
Caruso graduated from Indiana University with a Bachelor of Arts degree in Political Science, with a concentration in Economics and Environmental Science.
