Below is a brief commentary by FairWinds and a summary of the careful account of the "Click Fraud" phenomenon by BusinessWeek's Brian Grow and Ben Elgin (with Moira Herbst). The practice of click fraud is rapidly skimming the accounts of every corporate marketing department's online budget.
While BusinessWeek's October 2nd cover story has focused on click fraud, the abuses related to pay-per-click run much deeper. FairWinds Partners sees Domain Tasting as a much a broader and quantifiably more criminal abuse of brands, and one that needs our collective attention. Please look for our next mailing, which will be a whitepaper on this fraud, which has also been known as "Domain Kiting."
Pay-per-click is compensation paid by an advertiser to the advertisement listing agent (news Web site, search engine page, etc) that placed relevant ads in front of interested parties, who then "clicked." Pay-per-click advertising is a good thing. Targeting ads to online consumers and pre-purchasers, who have identified themselves as likely buyers of a certain good or service, is fundamental to how the Internet marketplace is quickly replacing print and other media as the most critical means to market to consumers and businesses.
Click fraud describes an abusive scheme, wherein recycled advertising links, human-powered "clicking boiler rooms," automated clicking programs, and other means artificially inflate costs to corporate advertising buyers by disingenuously boosting the number of clicks, for which they are billed. If you are not familiar with click fees, just think of keywords - if your company purchases keywords, then click fraud effects it.
Since pay-per-click will represent roughly half of advertising spending by 2010, and since this technology is being abused, we believe it is worthwhile to know as much about this subject as possible since it is having a major marketing, legal, and overall corporate impact.
The recent two BusinessWeek articles (links below) define it, draw meaningful conclusions about the online ad-buyer's consequences from this fraud, and discuss what may happen next. The search companies (Yahoo! and Google, in particular) are acting responsibly, but the click fraud artists are cunning.
We hope you will look forward to our next Perspectives, which will feature FairWinds-originated analysis and discussion on another pay-per-click misuse, Domain Name Tasting.
If you do not have time to read the full BusinessWeek text, key points from the article include:
"...click fraud: a dizzying collection of scams and deceptions that inflate advertising bills for thousands of companies of all sizes. The spreading scourge poses the single biggest threat to the Internet's advertising gold mine and is the most nettlesome question facing Google and Yahoo, whose digital empires depend on all that gold."
"The trouble arises when the Internet giants boost their profits by recycling ads to millions of other sites, ranging from the familiar, such as cnn.com, to dummy Web addresses like insurance1472.com, which display lists of ads and little if anything else."
"When somebody clicks on these recycled ads, marketers such as MostChoice get billed, sometimes even if the clicks appear to come from Mongolia. Google or Yahoo then share the revenue with a daisy chain of Web site hosts and operators."
"Spending on Internet ads is growing faster than any other sector of the advertising industry and is expected to surge from $12.5 billion last year to $29 billion in 2010 in the U.S. alone, according to researcher eMarketer Inc. About half of these dollars are going into deals requiring advertisers to pay by the click."
"Most academics and consultants who study online advertising estimate that 10% to 15% of ad clicks are fake, representing roughly $1 billion in annual billings."
"In all, $300 million to $500 million a year could be flowing to the click-fraud industry."
"'Google strives to detect every invalid click that passes through its system,' says Shuman Ghosemajumder, the search engine's manager for trust and safety. 'It's absolutely in our best interest for advertisers to have confidence in this industry.'"
"A well-executed click-fraud attack is nearly impossible, if not impossible, to detect."
"According to Randall S. Hansen of Stetson University, 'if we can't fix this click-fraud problem, then it is going to scare away the further development of the Internet as an advertising medium. If there is an undercurrent of fraud, then why should a large advertiser be losing $1 million, or maybe not know how much it is losing?'"
"In late September a coalition of such major brands as Expedia Inc.'s Expedia.com travel site and mortgage broker LendingTree is planning to go public with its mounting unease over click fraud, BusinessWeek has learned. "...If it's your money that's going out the door, you need to be asking questions." [Robert Pettee, search marketing manager for LendingTree] says that up to 15% of the clicks on his company's ads are bogus."
This entire article is visible on businessweek.com.
After BusinessWeek's cover story on Click Fraud, Martin Fleischman issued his viewpoint on October 17th.
Sign up to receive emails from FairWinds.
Sign up to receive RSS News feeds.
1000 Potomac Street NW, Suite 350 | Washington, DC 20007