As CEO of TopTenWholesale.com, Jason Prescott occupies the unique position of being both a paid search advertising provider and a paid advertiser. He uses search engines such as Google to get traffic for his own site, which connects resellers and wholesalers via paid search.
This past fall, Prescott noticed that one of the ads he placed was getting a lot of traffic from a single domain. When he did a little research he realized that it might be a case of click fraud, he immediately notified his search provider. After a little digging, the provider agreed that the clicks were fraudulent and it immediately issued him a credit.
But Prescott is in the minority, according to experts such as Chuck Richard, VP-lead analyst with consultancy Outsell Inc. While the majority of search advertisers know about click fraud, few are actively looking for it, and even fewer actually know how to correctly identify it, he said. The one thing they all seem to agree on is that it's changing the way they advertise online.
By the numbers
"We recently released a study that looked at how click fraud affects online advertising spending," Richard said. "We found 14% of people planned to reduce PPC advertising, and 35% had already reduced spending because of click fraud. What's important here is that advertisers are concerned, and there's still lots of work to be done by the search community."
One of the problems is that no one really knows how big a problem click fraud really is. The statistics vary widely depending on who's doing the talking. Search providers such as Google estimate that click fraud rates are in the single-digit percentages.
"It's extremely small; it's negligible," said Shuman Ghosemajumder, business product manager for trust and safety at Google. "And the important part is I don't think people understand that we're filtering clicks. If you're going to talk about how much fraud is out there, you have to understand that advertisers aren't charged for click fraud that we are proactively removing from their activity."
Oneupweb seems to agree, saying only 10% of its b2b clients have experienced suspicious activity.
Meanwhile, companies such as search agency Click Forensics report much higher numbers. According to its latest report for the Click Fraud Index, the average rate of click fraud for the fourth quarter of 2006 was 14.2%, while fraud on high-priced search terms—those that cost more than $2—was 20.9%. Click fraud on content networks came in at 19.2%.
Conflicting reports are confusing, said Mik Shore, CTO at interactive agency Engine Interactive, but it's the fact that no one seems to have an answer to the problem that has his clients worried.
"It seems like the click spammers are getting more sophisti- cated. They are taking things into account like day of week. They're spoofing IP addresses. You really have to be on top of a campaign at all times," he said.
They're also hiring people to do their clicking, and creating or purchasing "bots" that go out automatically and click ads using multiple IP addresses.
Making it work
Anecdotally, the outlook for PPC advertising seems to be bright, despite the fact that some experts say spending is down. For its part, Google in January announced Q4 revenue topping $3.21 billion, an increase of 67%. Meanwhile, Yahoo's Q4 earnings were up 13%.
And advertisers said that even with fraud figured in, PPC's overall return is far superior to that of print or other online advertising. Explained TopTenWholesale.com's Prescott: "As an advertiser, I know some of the clicks that come through are not going to be 100% valid, so I measure my success using ROI instead, and it's definitely there."
What's interesting is that the very thing that draws advertisers to search advertising—ROI—may be the best tool for uncovering click fraud, said Paul J. Breummer, director of search marketing at Internet advertising firm Red Door Interactive.
"We're always looking at our clients' analytics details. If, on a keyword phrase, that had a 6 to 1 return—and all of a sudden it drops to 2 to 1, or 1 to 1—then we start looking at why that might have happened," he said.
Advertisers can calculate their own ROI numbers by comparing dollars spent versus conversion and revenue. They can also watch their own log files for suspicious-looking clicks such as those that come in at odd times of day—very late at night, for example, or on the weekend. Or look for domains from outside the U.S., or multiple hits from the same IP address. However, these strategies aren't always foolproof as ISPs often share IP addresses among subscribers, so what looks like an invalid click isn't always. In addition, even the process of log analysis can be daunting if not impossible since a typical log file can have thousands of lines making it difficult to manually do this.
As a result, some companies are making the choice to completely block IP addresses originating outside the country, and are taking ads down after 5 p.m. and on weekends. Others are looking to hire one of the ever-growing list of companies that offer click fraud detection.
"The average advertiser isn't going to know about the server click farms, or the ruthless people who are hiring people to click you out of the top spots," said Michael Caruso, co-founder and CEO of ClickFacts. "If you're bidding on higher-priced keywords, the bigger the chance that you're getting invalid clicks and don't even know it."
Tom Cuthbert, president-CEO of Click Forensics, agreed, but added that the No. 1 way advertisers can help themselves is to work within the search community. "Advertisers should be calling on search providers to improve traffic quality," he said. "We're still seeing a dis- parity. Some search providers are doing a better job at managing and mitigating fraud."
But until there's a solution, advertisers should look at the big picture, said Red Door Interactive's Breummer. "Where else can you get a 7-to-1 return on your investment? Click fraud is just a cost of doing business," he said. "You're winning anyway even though it's out there."