When Scott Hendison launched his Portland-based online insurance consulting business OregonHealthInsurance.net in the summer of 2003, he opted to promote it using keyword search advertising on Google and Overture.
After initial happiness with the results, eight months later Hendison discovered someone with a Portland-based IP address had been clicking on his ads at over 20 times the frequency of a person looking for an online insurance quote. Hendison calculated that, at a cost of $6 per click, the extra activity from that IP address alone was costing him between $200 and $300 per month.
It was a classic case of click fraud, the intentional defrauding of online advertisers by clicking on ads in order to drive up their marketing costs.
"I thought I had found an easy way to get sales leads, but when I looked closely at my Web logs, I saw one IP address showing up with very suspicious frequency," Hendison said. "No one can be that stupid to need to search for a health insurance quote a couple times a day, every day of the week, every week."
After doing some research, he located a company called WhosClickingWho.com, which specializes in preventing, detecting, and eliminating click-fraud on behalf of customers like Hendison. "It was either that or discontinue pay-per-click advertising entirely," Hendison said. "As a local advertiser with a small, independently owned business, an extra $300 added to my budget per month was killing me."
For $30 dollars a month, WhosClickingWho allowed Hendison to get more data on the suspect IP address and send a customized pop-up window to the person behind it when he or she clicked on his ad. The message, which Hendison wrote, read, "Stop, you weasel! I know who you are and have reported you to the proper authorities."
"I never got another click from that address afterward," Hendison said.
Hendison's story is one local example of a poorly understood trend search engines and advertisers small and large around the country are growing more concerned about, said John Squire, vice president of product management at Coremetrics.
"I recognize three aspects to click fraud nowadays," Squire said. "It's bigger than most people realize. It's hard for your average person to understand. And, for larger advertisers at least, it's easy to ignore."
But for local advertisers like Hendison, the difference between being cash flow positive versus negative could be the result of a single individual attempting to defraud them, Squire added.
"For those local guys, Clicklabs, WhosClickingWho, ClickAssurance and the rest offer services that address a critical piece of the market and probably will be profitable," Squire said.
For his part, Hendison took the additional step of reporting the incident with documentation to both Google and Overture, asking for reimbursement. He estimates he was reimbursed for 95 percent of the fraudulent click charges by Overture. He was reimbursed for only 50 percent of the charges by Google, which he said took longer to get back to him, and later contested whether what looked like minimal traffic qualified for click fraud at all.
Google spokesman Steve Langdon declined to comment specifically on the incident, saying, "Our customers are very important to us, and we very much want to make their experience a good one."
Hendison closed his business due to cash-flow problems in May 2004, choosing to devote himself full-time to his other business, an IT consulting company called PortlandConsulting.com. He continues to invest in pay-per-click advertising through both Google and Overture for that company and issues his own customers the following advice on keyword search advertising: "If you're spending at least $300 a month in pay-per-click advertising, then a $30 a month investment to prevent click fraud makes sense."
Since Hendison first purchased the product, the price of WhosClickingWho's yearly package service has gone up to $499 a year, which amounts to approximately $42 per month. Customers who pay on a month-to-month basis are charged $79 a month.
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