PPC Fraud: Every Click Counts...Or Does It?
Paid Internet advertising has soared in recent years, and it appears there's no end in sight for this trend. According to research by J.P. Morgan, spending on all forms of online advertising will reach $19.2 billion in 2007, with pay-per-click (PPC) advertising at Google, Yahoo and the other major search engines accounting for half, or $9.6 billion. eMarketer Inc. projects that the PPC industry in the U.S alone will grow to $29 billion by 2010. And, while PPC is growing as a business, studies show that PPC fraud is also on the rise, and that the issue is emerging as a primary concern for e-tailers.
As PPC continues to grow in popularity and bring in more money, it has also simultaneously attracted sophisticated scammers who represent a serious threat to the search engine industry's advertising gold mine. PPC fraud is any instance in which advertisers are charged for clicks generated by individuals that have no interest in purchasing a product or service. It is also done through the use of "clickbots," or software programs that crawl the Internet and generate bogus clicks.
In July, 2006 Google settled a class action suit filed for over billing due to PPC fraud and accounting glitches, with the search giant doling out $90 million, $30 million in cash for lawyer fees and the rest in the form of credits to the advertisers participating in the suit. (This translated to $3.82 credit per $1,000 in paid ads, a settlement contested by advertisers but upheld in court.) In June, Yahoo settled a similar suit for $4.95 million in cash for lawyers while setting no limit on Yahoo's liability for over-charges going back to 2004.
This litigation has tainted the outlook for the PPC industry. Last June, according to a blind survey of 407 advertisers from Outsell, Inc., 27 percent had already slowed or stopped their PPC advertising with another 10 percent stating they planned to cut their PPC budgets.
More recently, The Click Fraud Network, a community of 4,000 online advertisers and their agencies, sponsored by Click Forensics, an online auditing firm, published the "ClickFraud Index," a report gathered from data provided by its members. The report indicates an increase in click fraud of 1.1 percent from Q1 in 2006 to the same quarter in 2007. The average industry click-fraud rate for high-priced search terms (terms that cost more than $2 and constitute a majority of the industry's spending,) rose from a whopping 20.9 percent in Q4 2006 to 22.9 percent in the first quarter of 2007. Bad experiences coupled with negative reports in Business Week, The Wall Street Journal, CNBC and other media, has left many advertisers wary of the PPC model.
No one knows exactly how much click fraud is occurring — in part due to secrecy within the industry. Search engines use special formulas to detect whether clicks are legitimate or fraudulent, but these companies are reluctant to reveal their methods for fear of cuing scam artists on how they catch them.
PPC advertisers generally have lots of data on how visitors behave at their sites, but many are hesitant to reveal their success, fearing it will raise their rates. Nevertheless, Click Forensics puts the overall PPC fraud rate at just under 14 percent, their Click Fraud Network has it at 14.8 percent for Q1, 2007. Business Week and industry analysts place it between 10 and 15 percent; or about $1 billion in total billing, of which $300 to $500 million is netted by the fraudsters. (Google claims it catches "invalid" clicks of about 10 percent and that only 0.2 percent slips through their system; the latter stat is refuted by many in the industry.)
The How and Who of Click Fraud With the amount of money involved in click fraud, the methods used to scam advertisers are diverse, to say the least.
Affiliate fraud is probably the largest and most difficult to detect. Advertisers report no problems with ads that appear on Google or Yahoo Web pages, but the giant search engines boost profits by redistributing their ads to millions of "domain parking" companies that host many thousands of dummy Web sites containing little if any content beyond ads. The dummy sites or click fraud rings recruit thousands of individuals around the world, employing them in PTR or paid-to-read campaigns, ostensibly to read articles of personal interest, but in reality to click on payable ads for which they earn about a penny per click, as the bottom rung on the fraud-clicking ladder.
The PTR company owners, who claim to earn anywhere from less than $100 to thousands of dollars a month, send their clickers e-mails touting hundreds of parked sites with Google and Yahoo ads, and urging them to click away. The fraudulent PTR sites are paid by the domain parker networks, who in turn, share the revenue they generate with the large search engines. Click-scammers are able to get away with the fraud by employing fake IP addresses and using algorithms to determine click patterns and blot-out identifying references.
Competitor click fraud usually has the aim of draining a competitor's budget by repeatedly clicking on an ad. This also serves the purpose of driving the competitors ad offline, so that initiator's ad will receive greater exposure. Perhaps more insidious, some companies will "go dark," removing their ads while clicking on their competitors ads. Google and Yahoo, seeing the huge number of clicks with the small percentage of click-throughs, lower the competitor's ranking. However, many, including Jon Lisbon, CEO of Point It! and a recognized expert in the field, believe competitor-initiated fraud may be prevalent among businesses such as online pornography sites, but is marginal in ethical, mainstream businesses.
"Domain Kiting," or "tasting," involves individuals taking advantage of the five-day grace period offered by domain registry sites such as the International Corporation for Assigned Names and Numbers (ICANN). The scammers will register a site, loading it with PPC ads to see if it bears fruit. If it does not, they return the domain for a refund. If it works, they pay the $6 registration fee.
The most frugal of among this group return the domain at the end of the grace period, then instantly and repeatedly re-register it, thus paying nothing. According to Terri Wells' article in Website Promotion, so-called domainers can register thousands of sites, and ICANN notes of the approximate 5 million domains registered each year, only 1 percent are registered with the intent of actually building a functioning Web site, with the rest being "tasters" or brokers involved in the billion dollar domain selling business.
"Cyber or Typo Squatters" use the classic trick of purposely misspelling a company name, such as "Verison" for "Verizon," and counting on searcher spelling errors for traffic.
Automated clickbot software, or Web server scripts, are popular among scammers because it disguises the user's unique IP address and can program clicks minutes apart to disguise intent. There are dozens of such products for sale on the Internet. Last October, Business Week interviewed a Russian programmer who created "Clicking Agent," 5,000 copies of which he had sold to customers worldwide. It was marketed as a means to avoid detection; "the primary use is to cheat advertising companies," the programmer said.
But clickbots are most effective with the smaller search engines that don't have the sophisticated detection systems of Google and Yahoo, who both claim that their technology can detect automated clicks and adjust advertiser's accounts accordingly. Fraudsters generally acknowledge in industry reports that with the exception of the most sophisticated users, this is true, and in any case, pay-to-read sites with live clickers remain a more prevalent form of PPC fraud.
While Click Forensics maintains that 90 percent of click fraud originates in the U.S. and Canada, advertisers and other studies indicate that bogus clicks originate in quantity from such diverse locals as Mongolia, Botswana, Egypt, Syria and South Korea, with China and India being particular hotbeds of click cheats.
Click Fraud Red Flags So, what's an e-tailer to do? Watch for the following warning signs:
IP addresses for visitors that range all over the planet for a distinctively U.S. product or service are suspect, as are large numbers of visitors that leave the site within seconds of arriving.
If your PPC campaign costs continue to increase while Web site sales remain flat, you should investigate.
Be wary if an advertiser's conversion rates for PPC advertising are lower than that for organic, non-paid listings.
Track costs to see if the cost-per-click for the advertisers' best performing key words have been continually rising. (Fraud allows online advertising programs to raise fees based on keyword popularity and the number of competing advertisers.)
Cures for Click Fraud: Some Antidotes There are those who argue that it is not in the major search engines' interest to clamp down hard on their partner sites, given that they produce so much revenue. When asked how much money Google makes from domain traffic, Eric Schmidt, Google's CEO once answered, "A lot of money." According to Jon Lisbon, Wall Street estimated that half of Google's $6 billion in revenue for 2005 was generated from partner sites. This has lead to antidotes and precautions that are being implemented against click fraud by advertisers, search engines and third parties. They include:
Website Analysis: The is the first and most important line of defense. Business Week reported that one company was so tired of being ripped off with bogus clicks costing up to $8 each, that it had an in-house programmer design a system to check every click on company ads, the Web page where the ad appeared, the clicker's country, length of visit and conversion rate, which the owner reviews on a daily basis. While this is a time- consuming and expensive antidote, it works, although unfortunately it may not be practical for the small Web shop owner. Still, there are other methods that are effective.
Referral Traffic Tracking: Lisbon advises his clients to manage content networks very closely and monitor referral traffic, such as individual publishers, domains and so on that are part of search engine content networks. "The search engines can help advertisers by unmasking content and search partners. Many publishers in the content network mask their referral URLs, so even with referral reporting, advertisers cannot see what sites are sending traffic," said Lisbon. "I see that as part of the holy grail of improving performance. Once we can see the individual search partners, we can opt-out of the poor performers."
AdWords Monitoring: According to Shuman Ghosemajumder, Google's business product manager for trust and safety, Google has agreed to show individual AdWords advertisers the clicks it has deemed invalid on their sites, and for which they were not billed, as well as the percentage of their total that the invalid clicks represent. The data will be available on a daily basis going back to the beginning of the year.
Industry Watch Dogs: More networks of advertisers similar to the Click Fraud Network that share information on the problem are being established, and it is prudent to stay up-to-date with these groups. For instance, Clickhaus, a start-up U.K.-based service, is now gathering and identifying IP addresses of known click fraud sites. The goal is to give IT pros, advertisers and search engines the ability to report click fraud IPs that will be published in a database, currently in beta. Quoted in Domainers Magazine, Robert Snell, the director of SEM at Brain Trust, the founding sponsor, said, "We got the idea of Clickhaus from Spamhaus because we were impressed by the way they have helped reduce spam by sharing the IP addresses of known spammers."
Going Forward: PPC Still Thriving Although signs indicate there may be slowdown in the growth of click-fraud on the horizon, no one, including Lisbon, really knows if it has peaked: "I hope so," he said. "Advertisers, agencies and the press have to keep the pressure on so the search engines police themselves better otherwise they have a monetary incentive not to." Despite the fraud threat, PPC advertising remains strong and this is likely to continue, according to Lisbon: "Why? Because (advertisers) tried all the other avenues and didn't get any traction or volume to make it worth the effort. You can talk about CPA and pay-per-call all you want, but at the end of the day, Google gets the majority of its revenue from PPC and it controls 50 to 80 percent of all research traffic, depending on who you believe."
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PPC Fraud: Every Click Counts...Or Does It?