The Cost of Typosquatting

METHODOLOGY CONT'D

4. Determining Costs Incurred as a Result of Each of These Content Categories

In order to determine costs incurred as a result of each of these content categories, one must understand and establish several things. First, one must understand brand owner spending on online advertising.

With the critical importance of digital marketing, brands spend significant portions of their online marketing dollars to ensure that their online audience can easily navigate to the relevant content that they expect to find. This includes money spent on search engine optimization (SEO) and sponsored advertising. An SEO strategy for a website is designed to improve the placement – or rank – of that website on search engine results pages through search engine organic/natural relevance scoring algorithms. Another aspect of search engine marketing is improving the visibility of one’s website on search engine results pages through paid placement or “sponsored” advertising.

When a brand is engaged in paid search, the company will not only have its links ranked at the top or on the right side of search engine results, but will also see its links posted on PPC and other websites unless it has opted out of the search engine’s extended/syndicated ad network. When an Internet user clicks on a sponsored link located on the search engine or another site, the brand paying for that sponsored advertisement will pay a click fee (the cost-per-click or CPC). When these links are displayed on sites with a domain containing the brand or a typo of a brand, the user who entered that domain name in the address bar was clearly intending to go directly to the brand’s own website. By paying a click fee for an advertisement on a site that contains its brand, the company is paying for traffic that is rightfully theirs in the first place. It is important to point out that PPC sites are rarely found on page one of a search engine’s results, so click-through from search engines to a PPC site is highly improbable. Therefore, the traffic figures presented throughout this whitepaper almost exclusively represent type-in or Direct Navigation visitor traffic.

The second key to determining the costs incurred through each of these content categories is understanding how Internet users navigate and seek content.

PPC sites

We have found through past research that roughly 25 percent of Internet users who land on a PPC site will click on one of the links presented. Furthermore, we estimate that about three-fourths of this 25 percent (or 18 percent of the total Internet users that who landed on the PPC site) end up clicking on a link for the targeted brand while the remaining one-fourth (or 7 percent of the total) will click on the link of a competitor. When an Internet user is reminded of a competing brand and clicks on a competitor’s link, diversion occurs.

Advertising Costs

For those brand owners who invest in paid search, we employed the following two formulas to calculate losses attributed to the advertising costs of Potential Squatter PPC sites:

1- (The percentage of users likely to click on the target brand’s link) x (Traffic) x (Avg. cost per click)
2- (The percentage of users likely to click on a competitor’s link) x (Traffic) x (Avg. cost per click)

As we have mentioned, about 25 percent of Internet users who land on a PPC site will click on one of the links presented. Three-fourths of this 25 percent (or 18 percent of the total Internet users who have landed on the PPC site) will end up clicking on a link for the targeted brand, while the remaining one-fourth (or 7 percent of the total) will click on the link of a competitor. The traffic component in this formula varies from domain name to domain name; as for the average cost per click. In order to determine the average cost per click of the brand’s own link, FairWinds leveraged Google’s average cost per click (CPC) for a keyword derived from a brand name. The root of each correctly spelled domain (the portion of a domain before the first dot) was converted into keywords (for example, verizonwireless.com became Verizon Wireless) and then individually run through the Google Adwords Traffic Estimator to determine its individual CPC value. The use of Google’s tool presents a transparent and replicable approach from a reputable, official source. CPCs from third parties such as SpyFu were not incorporated because of the source of their data was not transparent.

The Google Estimator revealed 18 domains whose root term(s) did not have a CPC value, due to the fact that no one is currently bidding for those root terms. These 18 domains were removed from the final computation. Next, we calculated the ratio of the sum of all typosquatted domain traffic for each correctly spelled website and the total amount of typosquatted traffic of all the domains in the study. Every keyword term(s)’ CPC was multiplied by the ratio of the sum of traffic to its typosquatted domains and the sum of traffic to all typosquatted domains in the study. When these values are summed they yield a weighted CPC of $2.03.

Based on these numbers, the two formulas become:

1- 18% x (Annual traffic per domain) x $2.03 = Advertising costs for the target brand
2- 7% x (Annual traffic per domain) x $2.03 = Advertising costs for the target brand’s competitor

Those brand owners that do not invest in paid search will not be featured in links on PPC sites; as a result, the 25 percent of visitors who are likely to click on a sponsored link are guaranteed to click on the link of a competitor. The typo domains of a brand that does not pay for search generate unintended advertising costs for the brand’s competitors, which is calculated by:

25% x (Annual traffic per domain) x $2.03 = Advertising costs for the target brand’s competitor

The total cost of unintended advertising that can be attributed to the Potential Squatter PPC sites in our study is $148,578,020 per year.

Lost Sales

The costs associated with lost sales must be added into the total amount of money lost to Potential Squatter PPC sites. These lost sales occur when an Internet user clicks through to the website of the brand’s competitor. This is calculated by the following formula:

For brands that invest in paid search:
(Average conversion rate of a sale x 7%) x (Average order size) x (Annual traffic)

For brands that do not invest in paid search:
(Average conversion rate of a sale x 25%) x (Average order size) x (Annual traffic)

We calculated the average conversion rate by looking at Internet Retailer’s Top 500 e-retailers. Ranking them in order of conversion rate, we eliminated the top five percent and bottom five percent to remove any outliers and then averaged out the remaining 90 percent. We calculated the average order size in the same manner—by ranking the Top 500 e-retailers by average order size, eliminating the top five percent, and then calculating the average of the remaining 90 percent.

Using this formula for each of these domain names, we found that the combined cost of lost sales attributed to PPC sites in our data set adds up to $32,855,146 per year.

Lost Impressions

Based on Interactive Advertising Bureau (IAB) statistics, we estimate an Internet impression—the monetized psychological value of reaching the intended online destination—is worth roughly between 5 and 10 cents for owners of global brands. For this study, we conservatively estimated that an impression is worth 2 cents per visitor. The Potential Squatter PPC sites in our data set garner 268,646,311 visitors per year; as a result, the annual cost of lost impressions to these sites amounts to $5,855,292.

Finally, to determine the total losses incurred through Potential Squatter PPC sites in our data set, we added up the calculated costs of unnecessary advertising, lost sales and lost impressions. The total losses for Potential Squatter PPC sites add up to $187,288,458 per year.

Affiliate sites

Internet users have no reason to realize that they have landed on a cybersquatter’s site if they see the domain name resolve to expected content. As a result, they behave just as they would on the intended target site.

Losses from Affiliate sites

On June 17, 2009, FairWinds released a study on affiliate fraud. One example in the study demonstrated how affiliate fraud could earn cybersquatters (and cost brand owners) as much as 5.6 times the fees that a PPC site would on that same domain name. However, to be conservative in our calculations, we are basing our estimates on the assumption that an affiliate site brings in three times more for the cybersquatter than a PPC site would on that same domain.

Therefore, to calculate the cost of affiliate fraud sites to brand owners, we used the following formula:
(Traffic) x (Average Cost Per Click) x (3) = Commission paid by brand owners to cybersquatters

The total costs of Potential Squatter Affiliate domains (which accounted for 5 percent of all Potential Squatter domains) added up to $33,010,689 per year.

DNR, Content Infringement and Other sites

An Internet user who does not happen upon a site with any relevant content after the first attempt at Direct Navigation will likely make one of three choices: realize their error and type in the domain again, feel they did not make an error and assume the site is down, or revert to using a search engine to find the desired content. Just as was the case with behavior towards sponsored links, three-fourths of these Internet users will then choose the target brand from amongst the search rankings that the search engine provides, while one-fourth will choose a competitor.

Now that we have established several principles for performing assumptions and calculations on our data, we can delve into determining the losses incurred by brand owners from the Potentially Squatted sites in our data.

Lost Sales

These DNR, Content Infringement, and “Other” sites will result in lost sales, which can be calculated in the same way. This is because, as we discussed earlier, an Internet user who does not happen upon a site with any relevant content after his first attempt at Direct Navigation will likely then use a search engine to find his desired content. Three-fourths of these Internet users will then choose the target brand from amongst the search rankings, while one-fourth will choose a competitor. For the three-fourths of visitors who choose the target brand, that brand will incur no losses. For the one-fourth who choose a competitor, however, the target brand will suffer lost sales. With this in mind, we employed the following formula to calculate lost sales:

We use 25 percent since we predict a user who finds no content will then visit a search engine to find content and will choose a competitor 25 percent of the time.

Lost Impressions

Using the same formula that we used to calculate the cost of lost impressions attributed to the Potential Squatter PPC sites in our study, we added up 2 cents per visitor for the 127,998,753 annual visitors arriving at the Potential Squatter DNR, Content Infringement, and “Other” sites in our study. The total cost of lost impressions for these Potential Squatter sites is $3,011,976.

The total cost of both lost sales and lost impressions resulting from the Potential Squatter DNR, Content Infringement and “Other” sites in our data set amounts to $44,881,439.

Adding up these four Potential Squatter sections—losses from PPC sites, losses through Affiliate programs, and the losses that come from Other, Infringing Content and DNR sites—the total ongoing cost of the Potential Squatter domains is $265,180,586 per year.

Monetary Losses to Sites Owned by Brand Owners

While infringing sites are certainly the lion’s share of the problem, brand owners are also losing value and revenue by not properly using the sites that they do own. Out of the 4,794 Brand Owner domains that we identified, 1,348 were typos of the target domain that had traffic and if used improperly, could negatively impact a brand owner’s bottom line. Out of these 1,348 domains, 313 did not resolve (DNR), 15 were PPC sites, one resolves to a search page, and 1,020 resolved correctly.

When combining the lost impressions of all of these domains and the lost sales that e-retailers suffer, these misused PPC and DNR names cost brand owners an additional $19,986,288 per year. This brings the total cost of typosquatting up to $285,166,873.

 

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