By Claudia Bruemmer

Wholesalers and retailers are big fans of paid search advertising. For that reason, it’s a good idea to be aware of and guard against click fraud. It is quite possible you’ll never be a target for click fraud. On the other hand, if you must use highly competitive keywords, you could become a victim with the need to defend yourself.

The click fraud controversy has been a constant subject of dissention for over a year. Advertisers and click fraud detection firms claimed click fraud rates were up to 20 percent. Search providers like Google challenged their methodology, claiming it’s only half that much. Then Google’s CFO mentioned that click fraud could threaten Google’s business model. Google executives, including CEO Eric Schmidt, quickly disavowed these comments. Articles in Business Week and Wired gave people cause for alarm over the prevalence and cost of click fraud. And the brouhaha goes on.

Last year’s Outsell survey reported said Internet advertisers paid over $1 million for bogus clicks on their paid search ads. This shook industry confidence and prompted some marketers to reduce their search advertising spend with Google, Yahoo and others.
How Search Advertising Works: Google, Yahoo and others charge advertisers by the click every time someone clicks on the advertiser’s sponsored links in the search engine results pages (SERPs) through services such as AdWords and Yahoo Search Marketing. Advertisers can also opt for a pay-per-click text, image or video ad on a search provider’s affiliate network such as Google AdSense and Yahoo Publisher Network.

Definition of Click Fraud: Click fraud occurs when a person or a program clicks on the search ad without any intention of using or buying the advertiser’s product or service. In some cases, competitors click on ads to cause rivals to be overcharged. In other instances, fraudsters place the ads on their own web sites and then click incessantly on the links to get a portion of the shared revenue from Google or Yahoo as a result of being in the affiliate network. The most pernicious form of click fraud is posed by botnet masters that command tens of thousands of zombie PCs clicking fraudulently without possibility of detection.

Estimates of Click Fraud: Last year, there were reports of click fraud rates as high as 20 percent. Google claimed these estimates were inflated as an artifact of auditing firm methodologies. This year, Google admits to a click fraud rate of “less than 10 percent.”

However, the Click Fraud Index by Click Forensics reports a 14 percent click fraud rate for 2006. While Google has challenged its methodology for calculating click fraud, Click Forensics stands by its estimate as a third-party click fraud detection service. Click Forensics monitors online campaigns for click fraud by correlating data collected from search provider campaigns and the advertisers’ web sites.

Difficulty Tracking Click Fraud: The major obstacle has been the lack of transparency on the part of Google and Yahoo in their click fraud billing and tracking process. Google and Yahoo closely guard their anti-fraud systems over concerns that revealing crucial information might help fraudsters manipulate the system and evade detection. More recently, however, Google is providing a little more information and started letting advertisers opt out of contextual ad placement on competitor sites to avoid the fraudulent clicks by competitors.

Outsell Study Findings: Last year’s study reported that 75 percent of the advertisers surveyed indicated they were victims of click fraud. Subsequently, 27 percent of advertisers reduced or stopped spending on click-based advertising, and an additional 10 percent said they intended to curtail spending.

Outsell estimated the revenue lost by Google, Yahoo and other search providers at $500 million. Only 7 percent of advertisers requested refunds due to click fraud, and the average refund was $9,507. Additionally, unsolicited refunds were paid to 4.2 percent of advertisers, with an average of $9,444 from Google and $4,068 from Yahoo.

Ad Effectiveness: Search ads, which appear mostly as text and a link, are specifically tailored to the search terms. For example, a query for “European vacation” will typically show ads from travel companies. Most paid search campaigns show a healthy ROI, and that’s what makes this marketing strategy so successful.

Google Efforts to Prevent Click Fraud: Google claims “the percentage of invalid clicks actually identified by customers is 0.02 percent of all clicks.” Recently, Google shared information in Inside AdWords on how it protects advertisers against click fraud using a system of filters, offline analysis and investigations. Google’s standard prevention methods include monitoring IP addresses and detecting duplicate clicks and other basic patterns that suggest fraud.

The newer click fraud prevention firms offer algorithm-based programs to limit bad clicks. These programs estimate the statistical likelihood of a click being fraudulent based on behavioral variables in addition to IP address.

The Fuss Over Click Fraud: Click fraud has always been around, but it’s a hot topic now because we have more advertisers in paid search than ever before, making the market keenly competitive. With everybody on board, including small and medium-sized businesses, keyword prices have surged, and we’re faced with a higher incidence of click fraud.

Getting a Click Fraud Refund: All the search providers claim to give ready refunds. However, the onus is on the advertiser to document and prove click fraud. Sometimes this is difficult to do, and many times only partial refunds are approved. Advertisers must be vigilant in monitoring their campaigns with web analytics to spot aberrations that might suggest click fraud.

Paid Search Remains Unstoppable: Despite the click fraud imbroglio, Internet advertising in the U. S. increased in 2005, as did Google’s and Yahoo’s profits. Pay-per-click advertising totaled $5.5 billion in 2005 and $9.4 billion in 2006. Many large firms relegate click fraud as a cost of doing business.