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Google settlement or not, click fraud won't go away

Planned $90 million settlement may end lawsuit against search behemoth, but it won't end problem for Net advertisers.

With a planned $90 million settlement, Google could soon dispense with a class-action lawsuit involving so-called click fraud.

But while that may be good for Google, it doesn't mean the problem of bogus clicks on online ads--which advertisers have to pay for--is going to disappear anytime soon. A lack of clear standards for determining what is a fraudulent click, or some sort of third-party clearinghouse to monitor the situation, means some advertisers believe they can't do much more than head to the courts when they think there's a problem.

Certainly, Google and Yahoo, which run the two largest pay-per-click advertising networks, say they're addressing the problem. But some click auditing companies still claim that between 20 percent and 35 percent of clicks on Net advertisements are fraudulent.

"The proof will really be in the pudding going forward," Danny Sullivan, editor of Search Engine Watch said last week. "If this lawsuit gets settled and people six months later still feel like Google is charging them for fraudulent clicks on ads, there could be another lawsuit."

Unfortunately, there's no easy answer. Some experts say the solution is to have an independent auditor that would use data from the search engines and advertisers to determine in a neutral environment whether clicks are fraudulent.

Google and Yahoo, however, appear reluctant to embrace that idea. Google, which makes 99 percent of its revenue off ads on search results and partner publisher sites, says it doesn't want to give up data that rivals could use to improve their business. "Detecting invalid clicks accurately is a competitive advantage and differentiator, and as such, we compete with Yahoo and others to provide the best detection possible," said Shuman Ghosemajumder, business product manager for trust and safety at Google.

A Yahoo representative said in an e-mail: "We're open to coordinating with third parties as long as they truly understand the intricacies of the search advertising space, but feel that it's more important right now for the industry to establish some standards around how to measure click fraud."

What Yahoo and Google think about the issue is critical, because they're the primary networks for online ads. Marketers can bid on keywords that will appear on search results pages through Google's AdWords and Yahoo's Search Marketing programs. Google AdSense and the Yahoo Publisher Network allow marketers to advertise on Web sites that contain content related to the ads. Advertising on America Online's network is powered by Google. Yahoo powers search advertising on MSN, and MSN is launching its own contextual ad network with publisher sites.

Click fraud can occur in several situations. Sometimes, a company clicks on a rival's ads in an effort to deplete the rival's online advertising budget. But usually, it's due to Web site owners clicking on ads on their own sites to drive up revenue. Click fraudsters can either pay people to click on ads for hours in so-called "click farms;" use "clickbots," software programs written to automate the ad clicking; or "botnets" that hijack numerous machines for that purpose.

There is no way to tell for certain how big the problem is, because search engines refuse to provide any statistics or data. They simply say that they have systems to detect the majority of fraudulent clicks and that they credit or reimburse advertisers who are charged for bad clicks that somehow slip through the filtering software cracks.

The perception among advertisers, however, is that it's a growing problem. A study released in February by the Search Engine Marketing Professional Organization found that the number of online advertisers and search engine marketing companies that believe click fraud is a serious issue has tripled in the past year to 16 percent.

Despite those figures, click fraud is not deterring spending on search marketing, which JupiterResearch predicts will rise from $4.2 billion in 2005 to $7.5 billion in 2010.

With that much money at stake, it shouldn't be a surprise that advertisers are looking to companies such as the click audit firm Alchemist Media and credit card transaction auditor Fair Isaac, which are studying the pay-per-click (PPC) market.

"Many advertisers are just at the beginning stages of looking at their traffic data," said Alchemist Media president Jessie Stricchiola. "They don't know how big of a problem it is. They are just relying on the reports search engines send them, even though the search engines don't have access to post-click data" such as purchases.

Google said it gets post-click information, including conversion data, from thousands of advertisers.

Google last month announced the proposed settlement to a lawsuit filed a year earlier in Arkansas by Lane's Gifts and Collectibles and Caulfield Investigations. Google is offering advertising credits to customers who say they were not reimbursed for invalid clicks on their ads, with a cap on expenses of $90 million. It is unclear when the court will rule on the settlement. Meanwhile, the case is still pending against Yahoo and several smaller search companies.

But critics say the settlement doesn't really address the core problem.

"Unfortunately, the settlement doesn't appear to resolve the basic question of what constitutes click fraud and when search engines are on the hook for it," Eric Goldman, assistant professor of law at Marquette University Law School, says on his blog. "On that front, Google still will have an advertiser relations issue that needs further attention."

While the lawsuit would cover all advertisers who claim Google owes them refunds for fraudulent clicks, experts can only speculate as to what effect the settlement would have on , filed in federal court in northern California, whose lead plaintiff is Web hosting firm AIT (Advanced Information Technology).

"Ninety-million dollars is chump change where the issue of fraud is concerned, particularly when the settlement is 'advertising credits,'" AIT spokesman Alex Lekas wrote in an e-mail. "It is almost comical how the resolution to the problem is to simply offer up more of the conduit to the problem."

Advertisers who are demanding auditing and certification for clicks on display and banner ads will eventually demand it for clicks on pay-per-click ads too, said Greg Stuart, chief executive of the Interactive Advertising Bureau (IAB), a trade association for the online advertisers. (CNET, publisher of News.com, is a member of IAB.)

The ad network leaders are, by most accounts, trying to offer their own solution. Google and Yahoo say they already employ several layers of filters to detect patterns that could signal invalid click activity and to determine the source of dubious clicks, looking at things like browser type, time of click and Internet Protocol address, which signals whether the click is coming from the same computer over and over.

Google also says it takes action to curb click fraud on its partner publisher Web sites that display ads for money. "We terminate publishers from our partner network on a daily basis as a result of invalid (click) activity," said Ghosemajumder.

But the ad networks say they also need advertisers' help in curbing the problem.

"There is a common misperception that search engines have all the data they need to make authoritative decisions about clicks," said John Slade, senior director of product management in charge of click protection at Yahoo. "There is data we don't have access to unless the advertiser gives it to us; data in their logs, like how long did a particular visitor stay on a site, or how many pages did a particular visitor view."

The problem only gets more vexing. In a new twist, Harvard University graduate student Ben Edelman issued a report last week that includes video and log data he says shows that Yahoo has inadvertently allowed spyware companies into its pay-per-click food chain, costing advertisers even more in click fraud costs. Yahoo said in a statement that it is investigating the claims.

For some, "black magic"--a term for click fraud in the late 1990s--is just a cost of doing business in an evolving digital world. But for those who aren't so willing to dismiss the issue as that, Michael Caruso, founder of click audit firm Clickfacts, asks: "Who can afford to lose 25 cents on the dollar?"