> News > 2004
> Exposing click fraud
July 19, 2004
Internet marketers facing higher advertising
fees on search networks are becoming increasingly
concerned about a form of online fraud that was
thought to have been contained years ago.
The practice, known as "click fraud," began in
the early days of the Internet's mainstream popularity
with programs that automatically surfed Web sites
to increase traffic figures. This led companies
to develop policing technologies touted as antidotes
to the problem. But some marketing executives
estimate that up to 20 percent of fees in certain
advertising categories continue to be based on
nonexistent consumers in today's search industry.
In one recent example of the problem, law enforcement
officials say a California man created a software
program that he claimed could let spammers bilk
Google out of millions of dollars in fraudulent
clicks. Authorities said he was arrested while
trying to blackmail Google for $150,000 to hand
over the program. He was indicted by a California
jury in June.
Matt Parrella, chief of the San Jose branch of
the U.S. Attorney's Office in Northern California,
said that case was "not unique." The problem "is
certainly not shrinking, and we're ready to prosecute
people," said Parrella, whose office handled the
Click fraud is perpetrated in both automated
and human ways. The most common method is the
use of online robots, or "bots," programmed to
click on advertisers' links that are displayed
on Web sites or listed in search queries. A growing
alternative employs low-cost workers who are hired
in China, India and other countries to click on
text links and other ads. A third form of fraud
takes place when employees of companies click
on rivals' ads to deplete their marketing budgets
and skew search results.
Although the extent of click fraud is impossible
to measure with any certainty, its persistence
has exposed a fundamental weakness in the promising
business of Internet search marketing. Google's
pending initial public offering has been widely
anticipated as a barometer of online advertising
and the post-apocalyptic dot-com climate in general.
"It's hard to tell how big the problem is, but
people are looking at it closer and closer as
the cost of search advertising goes up," said
John Squire, vice president of business development
of Coremetrics, a Web analytics firm. "Click fraud
is a fin sticking out of the water: You're not
sure if it's a great white shark or a dolphin."
Unlike advertising in traditional media such
as billboards and print publications, "cost per
click" Internet ads displayed with specific keyword
searches have been promoted as a definitive way
for companies to gauge their exposure to potential
customers. As a result, U.S. sales from advertiser-paid
search results are expected to grow 25 percent
this year to $3.2 billion, up from $2.5 billion
in 2003, according to research firm eMarketer.
From 2002 to 2003, the market rose by 175 percent.
As more advertisers have competed for desirable
keywords in their industries, the cost for clicks
has risen too. On average, advertisers are paying
45 cents per click this year, according to financial
analysts, up from 40 cents in 2003 and 30 cents
in the second quarter of 2002. In certain sectors,
such as travel, legal advice and gaming, the cost
can reach several dollars per click.
But marketing executives say click fraud is pervasive
among affiliates of search leaders Google, Yahoo-owned
Overture Services and FindWhat.com. In a typical
affiliation, any Web publisher can become a partner
of these large networks by displaying their paid
links on a Web page or within its own search results
and then share in the profits with every click.
"There's a fatal flaw in the cost-per-click model
because a ton of marketing dollars can be depleted
in a fraction of a second," said Jessie Stricchiola,
president of Alchemist Media, a search-engine
marketing firm based in Los Angeles that specializes
in fraud protection. "Technology is continuing
to be developed that can exploit this pricing
model at incredibly high volumes."
Google's fraud squad
Google declined an interview for this report,
citing the mandatory "quiet period" before its
initial public offering, which is expected to
raise $2.7 billion. But the company said in a
statement that it has been "the target of individuals
and entities using some of the most advanced spam
techniques for years. We have applied what we
have learned with search to the click fraud problem
and employ a dedicated team and proprietary technology
to analyze clicks."
In recent documents filed with the Securities
and Exchange Commission, the company also acknowledged
the problem as a threat to its revenue, of which
95 percent is derived from advertising. Google
and other search networks provide refunds to advertisers
when click fraud has been discovered.
"If we are unable to stop this fraudulent activity,
these refunds may increase," Google said in its
SEC filing. "If we find new evidence of past fraudulent
clicks we may have to issue refunds retroactively
of amounts previously paid to our Google Network
Google and Overture employ "fraud squads," or
teams of people dedicated to fighting click schemes.
But at least two marketing executives say such
countermeasures are missing fraudulent clicks
that are responsible for between 5 percent and
20 percent of advertising fees paid to all search
Overture spokeswoman Jennifer Stephens refutes
that estimate, saying that the numbers likely
represent acts of fraud that are ultimately caught.
She added that Overture filters most fraudulent
clicks with the best antifraud system in the industry,
which combines technology and human analysis.
"We take this very seriously; it's the foundation
of what we do," Stephens said. "If an advertiser
has a question about it, we look into all matters."
Cost-per-click advertising comes in many forms,
but it essentially lets marketers gain exposure
on a Web site and pay only when people click on
their ads. Google and Overture let advertisers
bid for placement of paid links, which appear
when certain keyword searches are conducted on
the networks' sites or those of third parties
that partner with them. Keyword ads can also be
distributed according to the content of partners'
sites and displayed on non-search pages. (CNET
Networks, which publishes News.com, partners with
Google for shared advertising revenue.)
Most advertisers are aware of the click-fraud
issue but have not delved into it because of the
technical complexities involved. Others are concerned
that they could jeopardize their relationships
with the powerful search networks if they complain
"It is a bigger problem, but folks just
don't want to take the time to track it down because
it's a complex problem," Coremetrics' Squire said.
Given that some of the largest marketers manage
up to 1 million keywords in a campaign, he added,
the data can be difficult to crunch.
Danny Sullivan, who runs a quarterly search-industry
conference, said many advertisers do not raise
their concerns with the ad networks because "they're
afraid that if they complain, it will hurt their
Still, more fraud-detection technologies are
emerging to help advertisers analyze their campaigns
and traffic. Some advertisers and search-engine
marketing companies say they are compiling lists
of sites that generate a high number of clicks
but not sales.
Coremetrics, Urchin and Whosclickingwho.com are
just a few that sell technology to examine click
rates and sales that result from paid searches.
Alchemist Media, which charges flat fees for its
consulting services, has detected fraud while
acting as an intermediary between search networks
In general, Alchemist's Stricchiola estimates
that 10 percent of all search ad clicks could
be fraudulent. But she said the rate can reach
20 percent in particular businesses that have
been targeted for click fraud.
Roy de Souza, CEO of advertising technology firm
Zedo, said his company's geotracking systems have
traced Internet Protocol addresses to detect click
operations in China. In describing one common
scheme, he said a legitimate site is duplicated
under another name, complete with text ads from
a search network. A bot would then be trained
to click on the ad links that appear on the bogus
site, said de Souza, who estimated that click
fraud affects 10 percent to 20 percent of today's
search network ads.
Many policing technologies can counter click
fraud by analyzing Web traffic logs or surfing
behavior. If a page is turned every 1.8 seconds
over a period of time, for example, fraud-detecting
systems will flag the traffic as suspiciously
Human operations can be more difficult to detect
because a wide network of people can click on
ads from different computers across many regions,
without a steady pattern. According to a report
in the India Times, residents are being hired
to click paid links from home, with the hopes
of making between $100 to $200 per month.
In other instances, the source of bogus clicks
can be much closer to home.
Joe, the chief executive of an Internet marketing
company, enjoys clicking on his rivals' text ads
on Google and Yahoo because his competitor must
pay as much as $15 each time he does it. Eventually,
such phantom clicks can add up and drain a rival's
"It's an entertainment," said the executive,
who asked to keep his name and company anonymous.
"Why do you run into a store without dropping
a quarter in the meter? You know it's wrong, but
you do it."
Kevin Lee, chief executive of search marketing
firm Did-It, estimates that fraud from such "drive-by"
competitive clicks and affiliate scams makes up
about 5 percent of the industry's total sales.
Lee concedes that he can only guess at the number,
but he does know one thing for sure:
If it gets much higher, he said, "then we should
all be getting worried."
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Jan Freeman, 415.348.1975