A quick note on Click Fraud

There has been a slight upturn in the debate over clickfraud.

The generic response seems to be that its “self correcting”. The logic goes that if advertisers using CPC services arent getting the return on investment they expected or need, they will bid lower for the clicks to reflect the reduced success rate.

Sounds right. Except its wrong. It doesnt work that way for a material percentage of advertisers impacted by clickfraud.

First of all not all clicks are purchased to lead to directly to transactions. There can be any number of reasons to purchase a search keyword or contextual link. Do a google search for Corvette. GMs Official Corvette site comes up as a sponsored link opportunity. Click Fraud or not, think GM wants that positioning to go to promote a competitive product ?

Then there is the competitive positioning issue. When i do the same search, Google responds with sponsored links for multiple Chevy Dealers who use the exact same interface to acquire pricing requests and are all based in and around the Dallas area. How long will it take for those Corvette dealers to figure out whether the reduced sell through rate by quotes generated via Google are caused by Corvette vs the competition issues, competitive pricing between local dealers, or clickfraud ?

In fact, its reasonable to presume that the “hotter” the sales of a product, the more vulnerable to click fraud the keywords related to that product are. If Corvettes are flying off the shelf, those pricing inquries are worth more and more because as long as inventory isnt constrained, the dealers are getting a ton of bids and are happily selling a ton of cars. They may bid up the price for Corvette related keywords knowing their product is hot as could be and they want to acquire as much market share for that product as is possible.

Smart clickfraudsters know this as well. They also know that a hot product makes for increased clicks, which in turn creates a greater buffer to hide behind which fraudulent clicks could be hidden.

Then there is the market for branding and saturation advertising. Think Disney is going to care or analyze for clickfraud when they buy every possibly related keyword to market the new Pirates of the Caribbean movie ?

Then there is the bad guys side of the good guys. The sites that just want clicks no matter who the pageview or video viewed comes from.

if a site is selling advertising and needs to hit a critical mass of traffic to their site just to be able to sell advertising, they arent going to care how they get it. As long as the CPC is reasonable versus their traffic needs. clickfraud actually does them a favor. They buy cheap keywords in huge quantities. At a nickel a click, if they are selling CPM based advertising, its obvious what they have to sell their advertising for to get their moneys worth.

And doesnt Google now sell CPM based advertising ? So is it possible a click through from a Google ad to a site selling CPM based advertising from Google could be clickfraud that pays Google twice.

Remember this. The worst bad guys are the smartest bad guys. They use the strength of the CPC system against the advertisers , where they are least susceptible to be discovered. clickfraud is real. its not going away. Its making CPC sellers a lot of money. How much, i dont know.

What i do know is that its not a self correcting problem

47 thoughts on “A quick note on Click Fraud

  1. So why is this Google’s problem? If Disney and GM aren’t policing or analyzing where their marketing dollars are going and instead calling it a “cost of doing business,” what’s the problem?

    Eric Schmidt is saying, it if advertisers were doing there part and analyzing their clicks, they wouldn’t bid as high for keywords. If advertisers all of a sudden realize that the majority of their clicks are fraudulent, they don’t bid for google ad words anymore. Sounds like market forces at work.

    Comment by Tim -

  2. I agree with you completely, Mark. I know you’re really smart and probably don’t care, but it would really help if you used apostrophes with words like it’s when you mean it is. I don’t think eliminating the use of apostrophes in verb contractions is a self-correcting feature of the English language. But, hey, maybe you’re upgrading that too.

    Comment by Sylvia Paull -

  3. Mark, let’s look at a clickstream parameter numbers for a corvette dealer in Dallas who is advertising on Google Adwords. They have the CPC, Cost per App, and a Cost per sell from App. The latter should not change if the sales people are following up on info requests on a timely manner for the prospect. The main factor that needs to be watched closely is the cost per application, which if you keep the same landing page in place the conversion percentage will create a baseline range. If this percentage on sporadic days has a sharp decline, this is a red flag to analyze the IP’s and the exact keyword searches attached to them. If monitored correctly, and click fraud is found, you can take your dispute to the big 3 (Google, Yahoo, and MSN) and get a refund. This is an annoying process no doubt, but if you can get refunded on those clicks, you are defusing the clickfraudsters…

    Comment by Andrew Beckman -

  4. Mark, I completely agree. This is a HUGE risk for Google, and I’m not sure whether it was stated on their 10K or not. Word is that they are easily giving refunds as to avoid a class action. They’re too big now not to be on the class action radar screens — especially given Eric Schmidt’s recent statements.

    Do you have a position in Google? Any chance on openly calling for a short?

    Comment by iNDi -

  5. You are right. Google CEO Eric Schmidt believes there is a “perfect economic solution” to click fraud: “let it happen.”

    I have my doubts though.

    Comment by totoro -

  6. You lost me at “A quick note”….

    Comment by Antonio Howell -

  7. I don’t think eliminating the use of apostrophes in verb contractions is a self-correcting feature of the English language.

    Comment by Chas -

  8. Tim, you raised two issues in the world of Search Marketing

    1) TradeMark Name Advertising. Advertising on your own or competitive trademarks work great on post click conversions, and companies need to do a better job of getting competitors off of their trademark names by going to Yahoo, Google, etc and having those companies accounts disabled for those keyword phrases.
    2) Tracking and Measuring ROI. Most companies put their ads up across the internet without using any form of Web Analytic or conversion tracking tools. They never get a true read on where their marketing dollars are spent on. This is why outsourcing marketing initiatives makes sense for some companies.

    Comment by Andrew Beckman -

  9. Mark,

    What are the chances that Hollywood productions are committing click fraud to vote high on current released movies on IMDB.COM?

    Comment by David-Plano -

  10. Click fraud is the stab in the back for CPC advertisement. I think in future affiliate programs will dominate the market, if Google is not able to minimize click fraud.

    Comment by Michael Mueller -

  11. I think Eric Schmidt is right about the economic theory, however he should have said the problem will self adjust, not self correct. Meaning, advertisers will adjust their prices over the long term.

    Comment by Chic -

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    Comment by ben -

  13. Click fraud is a huge problem for many industries, but other industries see very little of it. With time, search will fix click fraud but not with tools rather with targeting.

    What I mean is … in the future, ads are going to be served to exact target market and thus competitors will not even see the ads as they won’t be the target market that the advertisers is trying to reach. Marketing will take a completely different toll. No one knows what will happen then and I am sure marketers will experience new problems similar to click fraud, but I guess that’s the name of the game. New problem arise and we try to fix them.

    Comment by BizMord Marketing -

  14. Click fraud is gonna drive the PPC business model down under.

    Comment by process -

  15. Mike, I think Mark’s comment about smart click fraud has some merit. For inactive or marginally active items, a run up in clicks is more likely to be noticed than that same run up for a hot product that’s getting a lot of clicks.

    Comment by CPCcurmudgeon -

  16. Click fraud is when people click their own ads, encourage others to click them, or use click bots..
    All the rest has nothing to do with it.
    Mark, imo, what you call “smart click fraud” is not click fraud at all and it’s just smart😉
    There’s a big difference.

    – Mike

    Comment by Mike -

  17. Techguy, let’s not forget that the lawsuits that were filed against Google (and the other engines and ad networks) cover a period of time when the risks of PPC advertising were not widely discussed. Most certainly, Google did not discuss them openly (although arguably, they were mentioned in their original prospectus). I suppose you can make the “caveat emptor” argument, but there is no guarantee that the courts will see it that way.

    Ryan, I actually believe that fixed fees are the least risky business model for online advertising. Some advertisers agree with me (particularly ones that have been burned by click fraud). Others don’t, pointing out that they only want to pay for clicks. Since you can’t please everyone with one model, the best thing to do is offer choices. I’d be happy if all the SEs and ad networks offered several payment options: CPC, CPM, CPA, fixed fees, perhaps any others that are developed that meet advertiser’s needs.

    How does AT&T Yellow Pages guarantee a certain amount of visitors? Do they offer make-goods? I imagine that AT&T Yellow Pages doesn’t deliver anywhere close to the ROI that Google does, which is one possibility why most advertisers don’t consider it an option (provided that they even know the option exists).

    Comment by CPCcurmudgeon -

  18. PPC will eventually be a zero sum game. If your worried about click fraud bid lower. Your competition is obviously bidding in a way that makes sense for them. Track your results and bid based on that, not what your competition is doing.

    Comment by Casey -

  19. CPC is a problem. I am in a niche industry where key terms are at a premium ($100). Ebay sells a guide to teach idiots how to make money off of Google CPC ads within our industry. They put together a website using the key terms. You click on their website thinking you are reaching a company within our industry, but instead, you find yourself on a website that appears to be an educational site with a list of Google Sponsored links. The problem is these websites have misleading content. Our customers are being misled and we are paying for it (literally). Google does not give us the option to pick and choose where our sponsored adds go. As long as this sham website uses our key terms, Google puts our adds on their site for a premium price. They are getting paid every time someone clicks on their Google Sponsored link. There are websites that teach people how to do this as well by getting your friends to click on your site and then click through the sponsored links. At $100 a pop, it does not take long to make some serious cash all at our expense. Because we are in a niche business, we do not have a lot of alternatives. I do not see the market correcting itself anytime soon!

    Comment by Kaine -

  20. Do your hits go down in number when basketball season is over?

    Comment by Sandy -

  21. CPA – Cost per Action option for Adsense will hammer out clickfraud. In theory, CPA and CPC should give you similar Return on Investment.

    Self-correction is round the corner

    Comment by Paul Salber -

  22. There’s no click fraud free method except for the obvious “pay per sale”.

    Comment by Leonardo Armando Iarrusso -

  23. In reality, as with any competiting advertising system online or off, this helps regulate the keyword CPC rates. They simply have to pay off or they self regulate down and CPM/Action/offline ads go up.

    Comment by Mag -

  24. You seem to be assuming that GM has the right to be the top sponsored link when somebody searches for Corvette. If GM wants to be the top link, they’ll have to pay more than what some other company would pay. Both companies know about click fraud, so how isn’t it a level playing field?

    Comment by Erik -

  25. “What i do know is that its not a self correcting problem”

    I think you may be missing the point all together. Why do you say that its even a problem?

    A business that doesn’t know how to account for click fraud in their business is going to fail.

    Business is about execution and understanding possible threats(including click fraud). If you can’t handle click fraud, then you probably can’t execute in other areas of your business and are bound to fail.

    Is people failing quicker a problem? I don’t think so. It’s just quickening the inevitable.

    Comment by techguy -

  26. The risks of click fraud to the business are discussed on the 10-K, but not the recent statements of Eric Schmidt regarding the “perfect economic solution.”

    Comment by CPCcurmudgeon -

  27. I agree that click fraud COULD be a major issue. I have personally used Overture/Google and only ran into 1 issue with click fraud over the past 2 years, I was credited by the way and it was easy to find. Maybe im in a small market but some of the phrases im bidding on are 5 bucks plus per click, that stuff adds up.

    I have found most of my success is done through PPC on with Google/Yahoo ONLY. I have tried over 5 other companies and it was all crap. When these guys get you on the phone ask where there traffic comes from, if its the search engine do you know of anyone that uses xyzsearch???? I dont think so.

    The only problem is you want to find other revenue sources so were always looking for advertising opps and marketing ideas. Click fraud is an area I feel that you shouldnt worry about daily.

    That being said you should know where your money is going!

    Comment by Manager Assistant -

  28. Saying that the “market” will take care of click fraud is pretty much the same as my getting overcharged at a store and then having the store say, “oh well, the market will make it up to you in the long run.” Please, give me a break. I wonder how long that excuse would last if Wal-Mart used it?? One of Google’s corporate rules is “Don’t be evil.” Well, the last time I checked FRAUD fell into the evil category. And as long as click fraud exists then Google is profiting from fraud. It is high time for Google, and all the other search engines, to allow advertisers to actually see who is clicking their ads and just maybe, through that simple act of transparency, click fraud can finally become a non-issue. If they don’t do it voluntarily then perhaps, and I hate to say it, legislation might be in order.

    Comment by Joseph -

  29. Having advertised with both Google and Overture, I think click fraud is made to be a larger issue than it actually is. Advertisers will pay for advertising is they’re seeing results — it’s as simple as that. If they don’t see conversions and are losing money, they’ll discontinue the PPC campaign. In my experience, major click fraud is easily detectible by looking at your stats. If something is majorly off, chances are you’re being frauded and with the proper actions you can get your cash back. All in all, PPC advertising still generates a lot of money for a lot of people, and fraud issues are not deterring many. Usually, if you’re not seeing results, other fundamental problems are prevalent.

    Comment by Nik Papic -

  30. Companies like AT&T yellowpages offers services at flat rates that guarantees a certain amount of visits to a companies website every month. So, if a company is worried about click fraud, they have inexpensive alternatives.

    Comment by Ryan -

  31. As long as you have tracking in place this isnt a big deal. You have conversion rate and as long as your making money with this rate its all good. If you suddenly see your rate drop consistently you can check your logs and reports and see the offending words/ip’s.

    Their are some holes in your analysis though its good to bring this subject to the forefront.

    Google is now launching CPA that will only charge the advertiser once the sale is completed a la Google checkout.

    Click fraud is an issue but more of a HOT TOPIC amoung the media. Not currently a huge problem in my mind. Now second teir PPC engines (wont mention them here) that buy traffic from india at 3c per click and charge the advertiser 50c is an issue. This is a big problem for people who look beyond the big 3.

    Comment by Casey -

  32. Well, the worst bad guys were good guys, but then they get smarter and realized that there are cheaper ways of earning money

    Comment by Mary -

  33. Hi – this doesn’t change the point of the post but the example of the ‘hot’ cars driving up CPC prices is actually inverted in the automotive lead generation business. (of which I am a member – contact me if you want to see the site, I’m not plugging it here)

    Hot cars (like the Mini Cooper, Z06, Prius, 400h, etc) don’t need leads, because auto dealers sell all they physical inventory they can get. They’re supply constrained.

    So the price for keywords related to those products & attracting potential shoppers of those products is (relative to other vehicles) much lower – retailers of those products don’t need to spend incremental dollars to attract more customers, the manufacturer of the product is spending enough to get consumers in the store already (via many mechanisms beyond CPC ads).

    It’s really the “cold” vehicles (American sedans, all SUV’s, etc) that have premium cost per click prices. (by “cold” I mean demand relative to available inventory, not a subjective comment on product quality.) And in those cases the people with an interest in the product (retailer, manufacturer, etc) all have a much higher tolerance for pain, so click fraud is low on thier concerns. (if I’m GM handing out $$$$ rebates on the 1000’s of H2’s I have rotting on a lot nationwide, even a material percentage of my Google spend can be fraudulent and it’s not going to make much of a difference to my bottom line).

    it would be interesting to know if this happens in other industries (I only advertise in Auto) – I’m betting it does.

    [re: punctuation: if you know what he meant, it’s spelled / punctuated sufficiently.🙂 ]

    Comment by Steve -

  34. Another weird little point that probably has no relevance is, if a company is making money off the use of your name, slogan, logo etc wouldn’t you automatically be entitled to a piece and be allowed to right of refusal to license out the name of your product,company and all the rest?

    It seems like a real violation, the more I consider it, this should not be swept under the rug. I suspect the revenue generation is pushing the “ignore it” attitude from those in a position to protect the rights of companies.

    Sometimes an appeal to consumers is the only viable route when no one is listening elsewhere.

    Comment by Rebecca Shaw -

  35. Mark, sorry to be the interloping consumer in an obvious professionals game here, but I’d like to say it drives me crazy to be misled.

    Clickfraud wastes my time and I have better things to do than end up accidentally looking at something unrelated to my actual search. Make me mad, I’m less likely to buy your products. In the end I think this phenomenon *may* sort itself out as consumer ire becomes more targeted at companies using these practices.

    The flipside even I can see is: these tactics are irritating to me, but surely actually have ill effects on big business concerns. As well as the misdirection of potential revenue stream, there’s the potential misdirected backlash. Some people get frustrated at Corvette when they end up clicking on a “corvette” site and looking at a competitive product.

    I admittedly could be better at looking before I make the mouse-leap but why should I? I pay for convenience when paying for my net service, not to become a marketing target, and it is frustrating.

    If you can’t yet go directly after sites using your company name or slogan in their search thingy, (sorry for the technical jargon, heh) perhaps some public uproar could help speed that along. Most people like myself don’t really give it enough thought, though it is a daily annoyance. I will prod my readers.

    It would benefit me to know who best to direct our complaints to, if anyone could provide that information, it’d be well appreciated and put to beneficial use by a whole bunch of sportbike enthusiasts. Like I mentioned, I’m not well versed in the marketing game, so I’m not sure who to kick.

    Comment by Rebecca Shaw -

  36. Hey Mark, this is random, but what kind of car(s) do you drive?

    — Huge Fan

    Comment by Mohammad Khan -

  37. Mark,

    I agree. As someone who runs a company that has the majority of its budget going to PPC marketing, click fraud has been a huge issue for me.

    Google/Yahoo talk out of both sides of their mouth, anyone who has tried to get refunds for obvious click fraud has seen how difficult it can be to work with their “fraud departments”.

    Google is beta testing thier “Pay Per Action” program. It will be interesting to see if this solves much of the issue, especially for advertisers that are just creating awareness (your Disney/Pirates example) rather then a specific action.

    Comment by Jeremy -

  38. Could zapping commercials be a form of fraud, in which the consumer gets free content without viewing the advertising? I don’t think most people would agree, and this has already been factored into the costs of advertising. While there are some recent changes in the market because of the increasing prevelance of DVR’s (TiVo et al), click-fraud will self-correct, either by managing the fraud or eliminating CPC as a viable marketing option.

    Comment by Drew -

  39. Mark, My views on click fraud have changed, largely due to your writing on the subject. I agree there is a significant amount of click fraud today. For the reasons you have stated here, and before, advertisiers are not too bothered by it, and don’t seem to know what to do about it.

    In the short term the marketplace is not efficient and self correcting. In the long run I believe it is.

    Competition from Yahoo and Microsoft will force Google to solve the problem. I know Yahoo and Microsoft are working on plans right now to dramatically reduce click fraud. they will use this as a competitive advantage against Google. This will force Google to address the problem more aggressively.

    If advertisers have the choice of getting a better ROI from Yahoo and Microsoft due to far reduced click fraud, they will migrate their ad busgets over time.

    I think Eric Schmidt is right about the economic theory, however he should have said the problem will self adjust, not self correct. Meaning, advertisers will adjust their prices over the long term. Self correct means that the problem will be eliminated which I do not believe is possible. There will always be some level of undetected click fraud.

    If you are not totally bored at this point you can read more about this on my blog. http://dondodge.typepad.com/the_next_big_thing/2006/07/eric_schmidt_sa.html

    Don Dodge

    Comment by Don Dodge -

  40. Tim wrote
    “So why is this Google’s problem? If Disney and GM aren’t policing or analyzing where their marketing dollars are going and instead calling it a “cost of doing business,” what’s the problem?”

    Agreed. There is fraud in all fields of commerce. There is insurance fraud, there is shoplifting, there is music/movie piracy yet we still see Safeco, Walmart and Hollywood making billions of dollars a year. You could also argue that these costs are being borne by their customers as is the case with click fraud but what are the alternatives? Should the customers stop watching movies because the cost of ‘pirated movies’ is factored into the price they pay? They could, but they don’t.

    Similarly from my perspective, the only real question is whether Google can justify the ROI on PPC advertising to advertisers or not. That’s it.

    Comment by Dare Obasanjo -

  41. are you suggesting that a site might pay 5 cents CPC and make out profitably due to their own pass-through advertising? effectively profiting from click fraud? Even 5 cent CPC traffic would only break-even (via advertising alone) if your site had $50 CPM revenue intake.

    of course CPM advertising avoids click-fraud completely (I don’t think there’s much “visit fraud” and if there is, it amounts to little). So does action based selling (ie.. affiliate revenue structure google announced they’re supporting). In reality, as with any competiting advertising system online or off, this helps regulate the keyword CPC rates. They simply have to pay off or they self regulate down and CPM/Action/offline ads go up. Keyword fraud can only be effective while keyword advertising is effective itself. that’s self regulation if you back up your perspective a few steps.

    Comment by Snapster -

  42. I am very impressed that someone like Cuban would follow this topic so closely. However, click fraud is nothing new. Whenever you have a service that requires direct user “clicks” to make profit, there will be cheaters. Google knew this from the start, they are not that naive, plus they have brilliant programmers. The goal is to minimilze cheating to an acceptable percentage. . .

    Several years ago there was a company called Alladvantage that had an advertising application run on people’s computers. In order for the person to get money, they had to sign up other people under their user ID or continue to run the app while they serfed the web. Needless to say, cheaters made thousands and they went out of business.

    Google needs to develop a brand new business model to gain revenue. Google stock as high as it is should have something other than clicks for revenue, dontcha think ? Then again, once a brand gains trust, they can pretty much do whatever they want.

    Comment by brant -

  43. While I certainly don’t condone it, isn’t click-fraud about the online equivalent of an offline retailer’s shoplifting expense? Of course there is going to be theft any time there is money. Until they invent the “honesty” vaccine and force feed it at birth…I think it’s just a cost of doing business. Of course if I was Google, I’d be going mad trying to detect it…and I have a hunch they have enough money on the line to realize that.

    Comment by Jon Symons -

  44. My experience with adsense/adwords did not result in the search traffic I expected, so I discontinued using it.

    “In theory, there is no difference between theory and practice. But, in practice, there is.” – Jan L.A. Van De Snepscheut

    Comment by Ben Adams -

  45. Clickfraud is a serious problem. I had to stop using my adwords accoutn coz almost all the clicks generated were fraudulent.

    Comment by Stainless steel kitchen utensil -

  46. I bet General Motors wishes their biggest problem was click fraud, instead of losing $1B a quarter.

    Comment by Clark -

  47. The only way that click fraud is adjusted for properly in the market is if the amount of click fraud can be reasonably estimated, and estimated for each advertiser reasonably accurately. A global spread of unknown levels of click fraud is not compensated for properly by the market, or at least leaves a lot of uncertainty about the value of ads.

    But Eric Schmidt is smart to say the market compensates because, first of all, it helps (falsely) sooth advertisers. And more importantly, it moves the argument from one of the validity of per-click advertising models to a discussion of what the price adjustment should be for fraud. Now the main goal can be identification of fraud levels rather than elimination of fraud in the first place. That’s much more palatable to advertisers.

    I’ve written more here, that is too long for this BlogMaverick comment, “Why Dr. Eric Schmidt (Google CEO) may be wrong and right about click fraud”…
    http://www.mobileread.com/forums/showthread.php?threadid=6957

    Comment by Bob Russell -

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