TELECOM Digest OnLine - Sorted: Click Fraud Looms As Search-Engine Threat

Click Fraud Looms As Search-Engine Threat

Lisa Minter (
12 Feb 2005 11:32:10 -0800

By MICHAEL LIEDTKE, AP Business Writer

SAN FRANCISCO - Like thousands of other merchants, Tammy Harrison
thought she had struck gold when hordes visited her Web site by
clicking on the small Internet ads she purchased from the world's most
popular online search engines.

It cost Harrison as much as $20 for each click, but the potential new
business seemed to justify the expense.

Harrison's delight dimmed, though, when she realized the people
clicking on her ads weren't really interested in her products.

She was being victimized by "click fraud," a scam that threatens to
squelch the online advertising boom that has been enriching Google
Inc., Yahoo Inc. and their many business partners.

The ruse has different twists, but the end result is usually the same:
Merchants are billed for fruitless traffic generated by someone who
repeatedly clicks on an advertiser's Web link with no intention of
ever buying anything.

Harrison figures she has spent about 200 hours documenting the
mischief that drained her budget and diverted customers to a
competitor, costing her an estimated $100,000 in sales.

"Click fraud has gotten out of control," said Harrison, who sells
computer software to doctors. "It's stealing money from my
pocket. It's just as bad as someone walking into a store and taking a

Estimates vary widely on how much click fraud is going on in the $3.8
billion search engine advertising market.

"Click fraud exists, but it's mostly a big paranoia," said Chris
Churchill, chief executive of Fathom Online, a San Francisco firm that
studies the spending patterns on search engine ads.

Others believe anywhere from 10 percent to 20 percent of the clicks
are made under false pretenses.

"Click fraud is like a big elephant standing in the middle of the
living room," said Lisa Wehr, president of Oneupweb, a search engine
advertising consultant. "Everyone sees it and knows it's there, but no
one is quite sure what to do about it."

Both Google and Yahoo acknowledge the perils of click fraud, but
believe improved internal controls and the increased vigilance of
advertisers will prevent the problem from escalating.

"We are always worried about it, but it hasn't been a material issue
so far," said Google chief executive Eric Schmidt.

After recently expanding its staff to patrol click fraud, Google broke
up a scheme that had generated several thousand bogus transactions,
chief financial officer George Reyes told analysts earlier this week.

Yahoo also has been shoring up click fraud protections, said Patrick
Giordiani, a senior manager for the company's advertising subsidiary,
Overture Services.

Such reassurances from search engine executives aren't surprising,
given how much they stand to lose if advertisers curtail spending,
said Jessie Stricchiola, president of Alchemist Media, which helps
businesses detect problems and negotiate refunds.

"There's some serious positioning and politicking going on," she
said. "Click fraud isn't going to destroy the industry, but it's not
going away either."

Harrison said she didn't know a thing about the problem until a former
employee formed a rival firm and started to repeatedly click on her
ads as a competitive tactic. The fraudulent clicks frequently exceeded
spending limits Harrison had set, knocking her ads out of the display

The search engines have issued refunds to cover the bogus clicks, but
Harrison says those payments don't compensate for missed sales

In November, Google filed a lawsuit that revealed the search engine
can't even trust some of its own advertising partners.

Houston-based Auction Experts International never responded to claims
it collected at least $50,000 in illegitimate commissions by clicking
on the ad links that Google delivered to its Web pages.

But the site shut down and Google won a default judgment against one
of its principals.

The suit won't be Google's last to combat click fraud, said Palo Alto
attorney David Kramer, who represents the company.

Stricchiola believes it's only a matter of time before advertisers
become so exasperated with click fraud that they file a class-action
lawsuit against a major search engine.

The incentives for click fraud have increased along with the money
devoted to search engine advertising a concept that didn't exist until
Overture Services introduced it in the late 1990s.

Such advertising, Google calls it AdWords, works like this: The search
engine auctions off the right to have advertising links displayed when
designated words, such as "vacation Hawaii," are included in a search
request. The top bids get the most prominent display on Web pages.

Once widely ridiculed, the idea has turned into a fast-spreading craze
as more merchants realized substantially higher returns on search
engine ads than on more traditional marketing campaigns conducted
through the Yellow Pages, direct mail and newspapers.

By 2008, industry research firm eMarketer expects $7.4 billion to be
spent on search engine advertising, up from just $108.5 million in

The success of search engine advertising has substantially raised
prices, too.

In mid-1999, advertisers paid Overture an average commission of 11
cents per click. By the end of last year, advertisers were paying an
industrywide average of $1.70 for the hundreds of keywords tracked by
Fathom Online.

The cost of prized search terms runs much higher. For instance, the
top price for mesothelioma, a cancer that spurred scores of lawsuits
linking the illness to asbestos exposure, recently stood at $51 per
click, Fathom said.

Higher prices have turned click fraud into a cottage industry.

Some swindlers have hired cheap overseas contractors to sit in front
of computers and click on targeted links all day.

Others are developing sophisticated software to help automate and
conceal click fraud.

On the other side of the fence, entrepreneurs like Dmitri Eroshenko
are trying to develop technology solutions to counteract click fraud.

"This has become a real cat-and-mouse game," said Eroshenko, who runs
Clicklab in Miami. "Advertisers are going to have to accept a certain
level of click fraud as a cost of doing business."

Mike Liedtke can be reached at mliedtke(at)

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[TELECOM Digest Editor's Note: Is it 'click fraud' when a netizen
is casually surfing around the net and clicks on an ad *thinking* they
might possibly be interested in it then they discover they are not

Isn't clicking on an ad more or less the same thing as 'window shopping'
which as often as not does not produce revenue for the owner of the
window? If I return to a store window a second or third time, to
examine the goods more closely and have thoughts of my own about the
merchandise, is that the essence of 'click fraud'?

Merchants need to realize that when they nicely decorate a window on a
well traveled thoroughfare, that people are going to stop and look at
it sometimes, most of whom will not go inside nor buy anything. And
maybe services like Google and Yahoo need to quit the practice of
auctioning off the clicks to the highest bidder and instead just start
selling 'x' number of displays (or page hits) for 'x' dollars, and
when 'x" number of hits has been reached, then quit displaying the ad
at all, and quit playing games with particular 'word popularity' and
such. There is a lot I could say about the kinds of ads they serve up
to me on the telecom pages (and frequently the lack of any ads at all)
but I shall not bother; I'll just go along playing the games I see
other webmaster/publishers playing, making what little I can from it.
But the system does need to be improved, that's for sure. PAT]

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