Click Fraud: What Merchants Can Do Washington DC

provided by: 
Originally published at Internet.com

In 2001, the Chase Law Group, a group of attorneys based in California, was spending huge sums on pay-per-click advertising. Because they were competing for traffic in a crowded (and lucrative) niche, they were paying a hefty $3 to $10 per click. The firm's PPC bill was "in the six figures monthly," says Jessie Stricchiola, president of Alchemist Media, the Internet marketing firm that was handling the account.

As Stricchiola supervised the account, she noticed odd traffic patterns. "When we started identifying some anomalies, we had the data to look at to get really granular and say, 'Gosh, what's this traffic about? Why are we seeing these spikes and repeated clicks on these really high priced words, with no conversions?'"

As she dug deeper, her suspicions were confirmed. "We had the data to identify that it was actually a competitor clicking on the ads from multiple locations, as well as some of their colleagues." After presenting Chase's log files to search engines, "We got a significant refund from both Goto and Findwhat," Stricchiola says.

It was one of the first documented cases of click fraud, which is the act of clicking on an ad just to run up the advertiser's bill. But it would certainly not be the last.

Zooming Growth
The newly born PPC industry has grown into an oversize hulk overnight. It's unknown how much of Yahoo's $5.3 billion 2005 revenues come from PPC, but some estimates peg it at about half. Virtually all of Google's $6.1 billion 2005 revenue came from PPC, which means — gasp — that the search engine raked in more advertising income than the top-ranked television network. Clearly, the ad world is changing.

As the industry has grown, click fraud has grown with it. Exactly how much click fraud goes on is impossible to know: No systematic study has yet been conducted.

"It's definitely something to be concerned about," says Jamie Low, president of Search Engine Marketing. But due to the lack of information about the problem, it's hard to combat. "Right now it's kind of the cost of doing business with paid search."

Jessie Stricchiola, who has become a leading expert on click fraud, explains that click fraud doesn't affect every advertiser equally. "Google might have 1,000 AdSense partners for one set of keywords, and only 500 AdSense partners for another set of keywords," she says. "But within that thousand, perhaps 99 percent are legitimate and sending good clicks, whereas in the 500, possibly 75 percent are sending bad clicks."

"You can't always compare niches and say this niche has more fraud than the other, because it's a volume vs. validity issue — it's difficult to quantify in that way."

Adding confusion to the issue, scammers now use advanced software to create fake clicks. This so-called clickbot software is getting ever more advanced. Clickbot software "presents one of the most difficult threats, because it's constantly adapting and trying to outsmart the filters," Stricchiola says.

An e-tailer who competes in a competitive market might be victimized by a competitor who's "developing some pretty high-end click software to generate clicks from all over the world that can't always be identified as 'invalid' or 'fraudulent,'" she says.

In some instances, click fraud is perpetrated by Web site owners who host PPC ads. Stricchiola points to the example of a small site owner who hosts PPC ads and wants to boost the commission on those ads. "He happens to be a hacker and an engineer, and he either buys or develops an application that, just under the radar, generates a good $1,000 of commission a day - which is nothing in the scope of overall traffic volume," she says.

"We have this nagging problem that's going to stay connsistent as long as the industry's around," she says. "And as the industry grows, the problem will grow in rough proportion."

"It just so happens that the PPC advertising model is the biggest money generator on both sides, so it's most prone to this kind of thing. And we're at the stage where we get to figure out how the industry's going to deal with it."

What Can Merchants Do?
Online merchant who have been victimized by click fraud should definitely take action, experts say.

"A number of times we've found erroneous clicks or patterns that were kind of suspicious," Low says. "And we've reported it to Google, and they're usually pretty good about negotiating a portion of the clicks. So you can negotiate with them directly."

Providing proof is key, he notes. "Typically what they'll do is they'll ask you to send them a copy of reports from your log files so they can take a look at it and verify."

Indeed, watching your traffic data like a hawk is essential in combating click fraud, Stricchiola says. Sites need to create benchmarks that describe routine site activity. "Get familiar with what your conversion rates are from search traffic. Get an idea down to the keyword level how your traffic is behaving and performing," she says. "And keep benchmarking."

She points to some helpful technology. Keyword Max Direct is "a bid management platform and they also offer the click monitoring tool." Also, "Optimal IQ is a Web analytics platform but they also offer click fraud monitoring support."

Yet in many cases the best software is the Web analytics tool that a merchant already uses, she says. "So merchants who use software like Omniture, Urchin, or WebTrends — the first thing they should do is look at those applications and find out if they offer some kind of click fraud auditing technology, instead of moving entirely to another application."

Contacting Yahoo and Google
If a merchant feels they've been victimized by click fraud, "We would absolutely encourage them to contact us," says Yahoo spokeswoman Gaude Paez. Not only is Yahoo interested in investigating any such claims, but advertisers play a key role in helping the engine guard against click fraud, she says.

Yahoo has three layers of defense against click fraud, she explains. The first is a series of thousands of software filters that have been written to filter out any suspicious activity, for example, "clicks that are repetitive within a certain time frame." Its second line of defense is a team of data analysts working in combination with pattern recognition technology.

"The third layer of defense really comes from the ongoing dialogue with advertisers," Paez says. "Advertiser input helps us build additional filters for our system to protect advertisers from whatever type of click fraud they may have encountered."

Merchants can contact their account rep or use the Yahoo customer service page. Yahoo will ask the merchant for their Web log files, Paez says. "We'll take a look at it, and if we determine that there is click fraud, or activity that's suspicious that we shouldn't be charging, we will refund the advertiser."

It's not just the big accounts that get service, she says. "We have often spent our time looking into the Web logs of small advertisers. Even something like a $20 in a month is actually a significant spend for some advertisers, so we are completely agnostic about the size of advertisers. Because if we can find a pattern, we want to filter against it."

Merchants buying PPC advertising from Google also have recourse. "If an advertiser feels that there may be some invalid click activity in their account, we encourage them to contact us,"