Click fraud growing on the Web

A year ago, DiamondHarmony.com, an online jewelry store, decided that it had outgrown its sole source of advertising, which was eBay.

The company added an elaborate marketing effort on search engines that included a pay-per-click advertising campaign based on keywords and phrases. For its trouble, DiamondHarmonyDiamondHarmony became ensnared in click fraud.

Instead of actual prospects, the clicks were coming from fraudulent sources. The fraud, which cost DiamondHarmony $17,000 over seven months, was uncovered through analytical software the company installed from ClickTracks of Santa Cruz, Calif.

Click fraud most commonly happens when renegade partners, who get a portion of the fees earned by a search engine each time a paid link is clicked, deliberately generate excessive clicks with no chance that any of the clicks will result in a sale for the business that is paying for them.

The spurious clicks can be generated through automated programs or by paying people to spend time clicking over and over on a link.

As for DiamondHarmony, the company was initially spending about $45 to $50 a day on each of the eight search engines where it placed advertising, said Joe Tedd, its manager for search strategies.

The week before Thanksgiving, however, Tedd started seeing a large increase in clicks from one engine in particular, while its corresponding conversion rate--the number of sales in relation to clicks--kept going down. "In November, we saw the number of searches going up on all the engines we had placement on,'' Tedd said. "But while all the other engines were seeing higher conversion rates, this one engine was doing so poorly, we actually took the campaign offline."

"The search provider was syndicating the keyword to partner publishers, but while the clicks were being counted on the publisher's site, they weren't coming through to our site," he added.

Businesses can also fall victim to click fraud at their competitors' hands. Companies vying for the same position on a list of paid search results may click often enough on a competitor's ad to push the rival over its spending limit--knocking them out of paid search listings temporarily.

Companies typically set a daily budget for individual search terms as well as their entire campaign.

This year eMarketer, a research firm, estimated that the overall online advertising market for 2006 would be $16.7 billion; paid search was expected to reach $6.9 billion by the end of the year. The company on Monday will revise those figures.

The overall online market is being re-evaluated down by 3 percent to 6 percent. Search engine marketing's share of that market, however, remains constant.

The scope of the problem depends on who is describing it. Business owners like Iain Burton, the chairman of Aspinal of London, a manufacturer and seller of fine leather items, says click fraud is much more pervasive than the search engines acknowledge. Burton, who spends about $50,000 each month for paid search advertising, said he was amazed at how blatant it could be.

"I used to make money on pay-per-click advertising; I'd say it used to be really good. But it has become ridiculously expensive. I've lost tens of thousands on click fraud over time."

Search engine providers disagree and say the overwhelming majority of fraudulent clicks were never seen by advertisers because they were discovered and removed. A Yahoo spokeswoman, Gaude Paez, did say, however, that click fraud is a serious, but manageable, challenge.

"We believe that our entire industry must be vigilant in staying one step ahead of spammers," said John Slade, senior director for Yahoo's Clickthrough Protection.

Click Forensics, a consulting firm based in San Antonio, puts the number of fraudulent clicks at about 14 percent of total clicks, based on a recent survey of more than 1,300 online marketers.

The truth probably lies somewhere in between, said Danny Sullivan, the editor of SearchEngineWatch.com, an online industry newsletter.

Google, the search leader, agreed to pay $90 million to settle a click fraud class-action suit--with up to $30 million of that allocated for legal costs. In July, Google's proposed settlement was approved by an Arkansas judge who called the ruling "fair, reasonable, and adequate."

Still, 556 advertisers opted out of the class-action suit, leaving the door open for additional lawsuits. And in June, Yahoo agreed to pay litigants' legal fees, estimated at $4.95 million, and provide credits to any company that could prove it was a victim of click fraud from January 2004 through this year.

What makes the problem worse, industry followers say, is that many instances of click fraud go undetected. "We're not at a point in Internet history where we can easily point to a number and easily point to a solution," said Dana Todd, president of the Search Engine Marketing Professional Organization. Moreover, "the technology solutions out there to combat the problem are neither free or easy, especially for small businesses that are already overwhelmed by search engine marketing."

Indeed, while larger companies expect--and can usually afford--to pay for some measure of click fraud, smaller companies have no choice but to ferret out inaccuracies, Sullivan said. The best way to start, he said, is to measure conversions to see if the ads are working.

But for many smaller business, Todd says, the only way to monitor the problem are either manually auditing clicks or using campaign management software or services. And often that seems not worth the bother.

"You have to look through all your data and see what clicks came in from where, and why they didn't convert, which is fairly time-consuming and technical,'' she said. "You can use some of the freebie trackers, but they may not give you the level of transparency to be able to understand what's happening on your site.''

"We believe that some of the biggest offenders,'' she added, "are doing it in such minuscule amounts that it stays below the radar--a nickel here, a penny there--but it adds up in a huge way."

Burton of Aspinal said he was forced to hire a professional pay-per-click management company to address the issue, and found that he had lost $10,000 over three months to click fraud.

"It's a bigger problem with companies outside of Google," he said. "When you look at your stats and find that--with a popular keyword--some smaller engine is sending through 10 times more traffic than Google, which gets by far the largest amount of traffic, then you know there's a problem."

Shuman Ghosemajumder, Google's business product manager for trust and safety, said a company's search provider should do the sleuthing.

"We've got a system of real-time detection filters that constantly scan for suspicious activity based on the rules we've set up," he said. "The vast majority of invalid clicks are handled by them. We're also manually reviewing to detect publishers who might be generating fraudulent clicks. When we do find out, we terminate that publisher."