Click fraud is growing concern

Online marketers have embraced pay-per-click advertising, enriching search engine-based ad networks such as those run by Google and Yahoo. Unfortunately, fraudsters also participate in the clickfest. Click fraud incidence is unclear, say experts, but it has become a gnawing concern: 70 percent of online advertisers were concerned about the phenomenon or considered it a problem, according to a recent survey from the Search Engine Marketing Professional Organization.

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How does click fraud work?

Understanding click fraud requires grasping the pay-per-click (PPC) advertising model. PPC ads are short, text based and link to an advertiser's website. When an ad is clicked on by a visitor, the advertiser pays a fee to the ad network provider. If the ad runs in a website created or published by Google, the payment goes to Google. Companies such as Google and Yahoo also beam the ads out to websites affiliated with their ad networks. If the ad runs in an affiliated site, then Google splits the payment with the site.

Click fraud occurs when someone clicks on a PPC ad maliciously, without intent to do business with the advertiser. There are two main types of click fraud. In one, a company will repeatedly click on competitors' ads to run up their advertising costs. In the other, an affiliate of an online ad network clicks on ads at its own site to increase its commission. Both people and software are used to click on ads in these schemes.

Why should CMOs care about click fraud?

Fraudulent clicks dilute PPC campaigns' efficacy because the advertiser pays for clicks that weren't made by potential customers, says Su Li Walker, a Yankee Group analyst. They also skew campaign results, cost money and drain marketing budgets. PPC ads are usually delivered based on keywords entered into search engines. Multiple advertisers often want their ads triggered by the same keyword, so keywords are sold by bid. The bid is the amount the advertiser will pay when its ad is clicked on. The higher the bid, the higher an ad will rank versus others triggered by the same keyword. The most popular keywords tend to be the most expensive--and the most likely to attract click fraud.

However, some CMOs ought to worry more than others, says Kevin Lee , executive chairman of Did-it, a search engine marketing company. "The incidence of click fraud varies greatly among industries," he says.

What can marketers do about click fraud?

Owners of ad networks, search engine marketing firms, consultancies and advertising agencies are all developing systems and services to detect click fraud, experts say. A CMO should make sure his PPC partners are aware of click fraud, proactive about detecting it and capable of documenting it. That way, if a fraud is detected, the CMO can request a refund from the ad network provider.

How serious is the problem?

Legal battles are erupting over this issue. Google, for example, has been on both ends of the fight. It successfully sued one of its affiliates for engaging in click fraud, and it is being sued by an advertiser that charges Google isn't doing enough to curb the problem.

How can you tell if click fraud is taking place?

Marketers should keep a wary eye on the following indicators: visitors who don't stay long on the advertiser's site or don't click around it much; clicks on ads aimed at a U.S. audience from faraway countries such as India or Romania; repeat visitors from the same IP address and hits from anonymous proxy servers; and click-to-sales conversion rates that fall below expectations.