Click Fraud: An Industry Crisis?

The buzz on PPC (define) search click fraud has reached a heightened level. In the past six months, every major and minor publication has run stories on click fraud. Press coverage peaked shortly after Google agreed last week to pay up to $90 million to advertisers in the form of click credits. Details of the settlement are still sketchy and will remain so until the judge formerly approves it.

Opinions differ on the size of the click fraud problem. If you were an advertiser from 2002 to the present (the most likely settlement date), you’ll have to decide if you want to opt out of the settlement. Before you make that decision, there will be significant additional disclosure on settlement specifics, as well as on click fraud in general.

I’ll cover some factors that may help you frame the click fraud issue and decide whether you should opt in to the proposed settlement and whether you need help managing the click fraud problem going forward.

Remember, the settlement’s $90 million cap is less than 1 percent of Google’s ad revenue over the period in dispute. It’s unlikely any award you might receive (click credits or AdWords spend credits) will be more than a percent or two of your total spending over the covered period after the lawyers take their cut and the administrative expenses of running the lawsuit are taken off the top.

In the end, you may have to make a judgment call based on whether you think future class action lawsuits, or suits you might bring yourself, would yield a greater payout than the one anticipated from filling out all the annoying legal paperwork to claim as a plaintiff in the current case. In other class action lawsuits, members who were eligible for participation in a class held out and formed new classes to sue separately. I don’t know enough about the law to predict if this will happen with click fraud, but with asbestos exposure I believe many separate cases were filed.

If you were a Google advertiser for all or a portion of the period covered in the settlement, your exposure to fraudulent clicks not credited by Google during its standard screening process may have been miniscule or, depending on some risk factors, significant.

There are several campaign structure drivers that correlate with the likelihood of click fraud:

  • Participation in Google’s broader networks. If your campaign only ran on Google (not the AOL/EarthLink/Ask/etc., search network), the likelihood of network click fraud is zero. Google traffic has no network click fraud. Sure, you may have received competitive clicks that weren’t caught, but the network was clean.If, on the other hand, you used Google’s search and contextual (AdSense) networks during much of the period during which they were available, chances of being a network click fraud victim increase. This is particularly true of Google’s contextual network, where smaller publishers were accepted into the program with only a modest level of preapproval due diligence. Google’s monitoring of these publishers’ click streams and impression levels was conducted after the fact.
  • High CPC (define) keywords in popular markets. If you run power keywords with high CPCs in markets where click and impression volume are high, your keywords may have been targeted by an unscrupulous publisher. At times, we’ve seen fraudulent publishers targeting advertisers in the legal, hosting, domain registration, dating, and mortgage/loans/debt sectors, to name a few.
  • Monthly budgets under $20,000 in a competitive marketplace with privately held players. If you’re a smaller spender and competing firms are privately held, your competition may have been irresistibly tempted to try to burn your budget through competitive click fraud. This is especially true for local advertisers with particular animosity for one another.

Because conversion rebate and quality are often used as indicators of potential fraud, issues for click fraud and click quality are often intertwined. The reality is click quality can be low even from reputable publishers. Just because your conversion rate from a particular publisher is lower than expected doesn’t automatically prove fraud. In addition, Google attempts to control for differences in click quality through its Smart pricing program, which pays publishers less for low-quality clicks and charges you, the advertiser, less as well. Smart pricing isn’t perfect, far from it. But it’s on the right track.

In summary, click fraud caught by the engines’ filters and clicks that escape detection are quite different across segments, keywords, and bid prices. For some marketers, the occasional fraudulent click can be regarded as a cost of doing business; for others, it may be a major issue. The latest Search Engine Marketing Professional Organization (SEMPO) State of the Market Survey found increased awareness of click fraud by marketers, with over 40 percent of advertisers and over half of agencies claiming they’ve been victims. Nearly a third of advertisers don’t know if they’ve been click fraud victims. One must wonder how those who responded in the affirmative made their determination (perhaps that’s part of a follow-up discussion).

As the issues surrounding click fraud unfold, I’ll continue to report on them and provide my perspective.

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