Click Fraud: Mitigating the Risk

There has been no greater boon to the commercial Internet than pay-per-click (PPC) advertising. With forecasts for 2007 well into the billions, there seems to be no end to online advertising's potential. But there is one threat to the industry, and that's click fraud looming large in the minds of not just professional SEM agencies but the do-ityourself paid search campaigns of millions of Web professionals.

Pay-Per-Click & Click Fraud Refresher

While PPC providers vary in both approach and methodology, the basics of the practice remains the same. Advertisers create campaigns that consist of a website(s) they will promote, keywords users will employ to search for that website and the titles and descriptions that are presented. Across the board, the two core measures of the effectiveness of PPC advertising are the clickthrough and conversion rate. The former measures, in many respects, the quality of the listing itself (titles and descriptions) while the latter measures the quality of the product or service being promoted.

The Varying Degrees of Click Fraud: One of the more confusing issues surrounding click fraud is defining exactly what qualifies as a fraudulent click. There are many types of click fraud - one of the reasons the whole concept is so difficult to understand. Separating malicious advertisers competing for exposure from automated botnets that generate legitimate-appearing clicks is the foremost challenge of PPC advertising networks both large and small.

It Comes Down to Oversight: In a cut-throat industry such as PPC there is no shortage of opinions on the effectiveness of campaigns, as they relate to different sites and providers. Most cite traffic quality as the biggest reason why they will never advertise on specific networks and a big fear factor of click fraud. A common misconception is that smaller networks are not equipped to handle fraud. But in reality a smaller network lends itself to better oversight. A company like Google must monitor hundreds of thousands, if not millions of sites currently employing AdSense - a very complex proposition. For second or third-tier players, relationships are fewer (meaning less traffic) but on a more intimate level - meaning that if you have ten mid-level publishers driving traffic, it's much easier to determine where the fault lies.

The Real Problem: The click fraud issue is real but its breadth is heavily debated. Sellers of click fraud software often cite fraud levels of 30-40 percent of all clicks, while Google (as of February 2007) stated that the percentage of actual click fraud is only .02 percent, with "invalid" clicks at just 10 percent. The real problem may be in understanding the definition of a "quality click.

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Advertisers always want the highest quality traffic, but even in the brick and mortar business world you can never guarantee that someone walking into a store is interested and ready to buy. Consumers may just be killing time or more likely just browsing with no immediate intention of buying. The problem for advertisers is differentiating those with an immediate need from those simply browsing. And it's no different in the online world, where a quality click can be difficult to distinguish from an invalid click of those just browsing.

While those who question the PPC model cite everything from botnets on foreign proxy servers to other malicious tactics like human click networks, they miss the real point. Advertisers will always vote with their dollars and do so to the tune of billions each year. If they don't receive the conversions they are looking for from one source they will move to another. Loyalty comes from providing value - serve poor-converting visitors and you won't be around long enough to answer your critics.

In any case, click fraud will continue to be a problem to some degree, probably as long as PPC advertising exists. It comes down to this: If you don't like the risk associated with online advertising - click fraud and relevancy issues included - find another venue or stop funding your account.

Warning Signs of Click Fraud

There are some indicators that advertisers' campaigns have been the target of click fraud. To know for sure, advertisers must be familiar with several granular aspects of their campaign and its performance. While unexplained influxes in traffic for specific terms should immediately raise a red flag, a better indicator is being able to identify whether wide variations exist in the return on advertising spend from one day, week or month to the next. If advertisers look at the cost per conversion infrequently or are not familiar with how that dynamic number is changing over a period of time, there is no way to identify a specific set of time to know for certain that click fraud is occurring. If, on the other hand you pay close attention and notice a sudden, abnormal spike in activity, it's probably time to take a closer look.

DIY Click Fraud Awareness & Prevention Solutions

While the best click fraud prevention is an individual(s) capable of reviewing raw server logs to identify sources of poor converting traffic, there are some other, easier methods. For one, a good conversion tracker will help you sync the traffic you receive with traffic being billed to your account. There are also several easy steps any advertiser can take to reduce the chances of becoming a target of click fraud:

Focus on a broader distribution of keywords:
Advertising for clicks on the most highly-trafficked search terms in your niche will generate loads of traffic but it will also cost more and comes with a higher exposure to fraud. More costly terms are prone to click fraud because they are worth exploiting. Using broader, long tail terms that typically come with a lower cost have been shown to not only increase return on investment but limit fraud.

Segment campaigns properly:
An organized campaign is an efficient campaign. Running one campaign with thousands of keywords will make it difficult to determine which listings might have been a target of click fraud. Separating search and content campaigns and grouping terms by themes or intent will make the job of analyzing reports much easier.

Bid only what you can afford:
You would not buy a house you can't afford - why do the same for a website visitor? Bidding according to your own well-established ROI metrics means knowing what the product costs versus the margin you can expect, exploring various conversion rate potentials and defining the maximum you are willing to bid for a click and a sale.

Become an analytics expert:
Successful SEMs realize that the "set and forget" approach to PPC doesn't work. Using an analytics package such as ClickTracks or Google Analytics will offer insights into more than just the possible degree of click fraud, but also the success of all aspects of SEO and SEM campaigns. If you have no interest in becoming an analytics expert, at least consider outsourced business intelligence providers such as Omniture and SAS or using any tools at your disposal. Something is better than nothing at all.

Distribution Matters:
While some SEM experts agree that you should only advertise with the top paid search providers, this presupposes that click fraud is less of an issue at larger networks. Better advice would be to use second- and third-tier providers of pay per click solutions as supplemental traffic. While these distribution networks are smaller and produce less traffic, they are typically better suited to shut off distribution partners and refund money when poor quality traffic rears its ugly head.

Why you're not Really Hurt by Click Fraud
Click fraud is less an issue about online marketing than it is macro economics. What most advertisers don't understand and most agencies and PPC providers fail to express clearly is that the price of click fraud is already factored into the cost of doing business.

At the point of purchase it may seem like advertisers are paying one amount when, in reality, there are always additional charges. Consider it the cost associated with the privilege of advertising. Savvy advertisers would always opt to pay more if there was an absolute guarantee that each and every site visitor was legitimate and ready to spend - but we're not promoting our businesses in fantasy land. The world is an imperfect place and Web marketing (regardless of click fraud detection software) is an imperfect science.

The Ultimate Solution: Innovation
In the end it is the advertiser that must take the first step to calm concerns over click fraud. While standards proposed by professional organizations such as SEMPO or the IAB are helpful, they miss the real point - each and every advertiser and each of their campaigns are different. One company's daily standard is another advertiser's best day ever. Standards are only useful when you're dealing with an industry that is not dynamic.

In the end, standards are nearly useless because the Web is still in a state of innovation. For example, companies like AdBrite and Quigo are allowing advertisers to bid on specific networks (Google offers something similar with AdWords/AdSense). The result is that control is squarely with the advertiser, as they are left to determine which sites produce a higher ROI. In one quick motion, innovation has now changed the face of PPC - the driving force behind the success of online advertising.

For now, it comes down to a balancing act - weighing risk versus reward. Online advertising is a hyper-competitive industry so we can all expect innovative changes in the future. It will be of the utmost importance for advertisers to keep their eyes and ears open for the next advertising medium and determine what best works for their individual or company needs. Until then, be sure to keep a close watch on your online advertising campaigns or bring in some outside help to ensure your ad budget isn't pilfered.