Analyze This

Affiliates are capitalizing on the predictable behavioral patterns of consumers by using Web analytics tools to decode customers’ habits and boost revenue.

So if you’re a publisher and want to know who exactly is visiting your site, how different types of visitors come back, what they are looking for when they arrive and what specifically makes them want to leave, you should be thinking about tools that help you sort, analyze and understand your customers.

Web analytics is an emerging category of software that purports to answer all those questions and many more that could help you identify the steps for your site to reach the top of its game.

“Affiliates have tremendous opportunity,” says Barbara Poole, a revenue improvement consultant at PoolResources.com, “because they already understand what it is to drill down to the specific customer relationships.”

And if you find the right software to help with that decoding you’ll already be ahead of the curve.

That’s what Miami-based affiliate Pedro Sostre did. Through a collection of analytics software that includes AWStats, ClickTracks Pro and WebSideStory’s HitBox, he has determined the success of ad campaigns, discovered new opportunities based on analyzing what keyword terms are being searched and routinely improved overall performance for his sites including FreeBookClub.com, iTravelMagazine.com, AudioBookDeals.com and Tax-Stuff.com.

“We use Web analytics every day,” Sostre says. “When we found that 88 percent of that search engine traffic wasn’t converting, we where able to save $2,000 per month at FreeBookClub on pay-perclick advertising alone.”

These tools don’t cost much: AWStats is free, HitBox is $30 per month and Click- Tracks’ basic level is a one-time license of a few hundred dollars.

“Eliminating pay-per-click listings at Aha and Kanoodle alone saved me the cost of the software,” Sostre says. “And then there is the value you get from seeing what people are looking for as far as clicks and what campaigns are working. I absolutely could not do what I do without being able to analyze the sets.”

New analytics tools actually create a snapshot of who your ideal customers are and what makes them tick. And it even can determine the different types of customers your site might draw. Once you can do that, “you get the ability to really use that information,” says Brent Hieggelke, vice president of software analytics company WebTrends.

Merchants and affiliates are catching on to this power. The Web analytics market grew 13 percent in 2004, marking what global market researcher International Data Corp. calls a “second coming.”

Analytics has officially grown up from its beginnings a decade ago, when eyeballs and unique page impressions were all that mattered, or at least all that were measured. “Who really cares if someone is sitting on a page for 20 minutes? People have realized how dirty those metrics are,” says SAS Web Analytics’ Richard Foley. “Basic metrics just aren’t cutting it.”

So what is? There are several Web analytics advances, some still in beta, that could be huge for affiliates. Segmentation, intuitive analysis and 360-degree views are among the latest advances that have affiliates applauding.

“We just started using [analytics], and we’re just blown away by the power of seeing day-to-day metrics,” says Joe Beruta, director of interactive marketing for Jenny Craig, which gets anywhere from 5 to 10 percent of its online registrations through affiliates. “We used to look at the month after the fact, with no real-time metrics. Now we’re looking at things like clients versus non-clients as they come to the site – and we haven’t even gotten into segmentation.”

Segmentation

Segmentation is the hottest way to analyze customers on the Web, and at as little as $35 per month it’s finally affordable for small publishers. The technology records and visually tracks a single visitor’s interactions at every touch point. Assigning each visitor a unique identifier, it compares its findings with its growing database of other users’ patterns. Similar users are grouped into one segment. The more a visitor interacts with your site, either by clicking links or making purchases or answering questions about interests, the more data the technology collects on what makes that segment tick.

“It’s a little bit like taking a helicopter and flying over a freeway to see where the bottlenecks are,” says Michael Chavez, vice president of analytics maker ClickFox. “It’s not about predicting a user’s behavior; you’re looking at what they actually did. And you now can link that to actual demographics.”

One of the first companies to make segmentation accessible is WebTrends, which rolled out version 7.0 of its program a year ago. The latest version includes actual breakdowns of how profitable each link is and all of its segmentation tools. There’s a free 14-day trial at WebTrends.com.

Today “this broad, comprehensive picture of the process is one of the absolute hot spots in the market,” says WebTrend’s Hieggelke.

This type of analytics can even help you find new merchants or improve the deal you have. “You get to know based on buying habits what someone wants from your company,” says Mark Bradley, vice president of product shopping at shopping comparison engine NexTag. “If you know people are heading off to buy another product from a third party, then you negotiate with that merchant to get a special deal to sell it yourself.”

Intuitive Analysis

With intuitive analytics, you also get recommendations specific to respective goals for sales, IT, marketing and Web design. Now, if a certain segment of customers are spending three times more time on your site, but buying half as often, the software automatically searches for commonalities like coupon codes, free shipping offers or site navigation and tells you what about your site or where the customer came from influences their buying behavior. It tells you what to keep doing to get more customers (including determining the best advertising avenues) and what to start doing to get them to shop more often.

“That’s what analytics is,” says Stephen Messer, CEO of LinkShare, which in May launched its Synergy Analytics application for its network of affiliates. “It says: ‘Let us do the analysis that you would otherwise do on your own.'”

With basic analytics, you may conclude you bought the wrong keywords if your search engine results are down – with nothing in your reporting to tell you exactly what you did wrong. Intuitive analytics will point out six, nine, maybe 10 different things that might be affecting why search engine returns were low. It may be that your landing pages were too slow or down, it might be the time of day, it might be that you actually do have some keywords that aren’t effective. Intuitive analytics does a report for each and more of these things, providing an immediate blueprint for what steps you could take to improve search engine conversions.

360-Degree View

The third big analysis development builds its reports not only on your site’s Web data, but also on all of your other campaigns. Email, direct mail, traditional advertising, search engine placements and keyword buys are all cataloged online using distinctive links, coupon codes, SKU numbers, even unique telephone extensions. It integrates offline and other marketing and sales data for a complete view of your business activities and a complete read on what works and what doesn’t. It is, however, the most expensive of the Web analytics tools: SAS, which released its 360-degree SAS Web Analytics product in mid-2004.

“A 360-degree view can really determine what people are doing on your site, by digging through and mining the Web data so you can see ‘these are my specific segments,'” says Evan Shelby, product manager for SPSS’s Web analytics products.

SPSS bought NetGenesis several years ago and has integrated it with another SPSS product – Web Mining for Clementine – to offer a 360-degree view. Its SPSS for Windows 13.0 is $1,499 for a business customer and $599 for a single academic user. SPSS server licenses start at $15,500.

“We look at things like affinities, segments, what activities might be associated for cross-selling and upselling – really digging into the data,” Shelby says.

In the end, most site publishers use a combination of tools like Urchin and ClickTracks, says Chris Winfield, president of 10e20, which concurrently manages hundreds of search engine marketing campaigns for clients like Virgin and Coldwell Banker. Other than high-end analytics like SAS, “there isn’t one package yet that we’ve found to truly meet the need to really be able to track all of these things at once,” Winfield says.

Analytics in Action

“It’s a very unusual combination of sophisticated technology and sophisticated math and analytics, when integrated together with merchandising and marketing communicating,” says Matt Moog, president and CEO of CoolSavings, an online direct marketing and media company.

Using analytics software from SAS, SPSS and Coremetrics, CoolSavings was one of the first to give online retailers a holistic view of customers that includes strategies for acquiring consumers, lowering churn and retaining consumers.

“It all starts in knowing what data to collect about the consumer, and storing that data – whether self-reported, behavioral or transactional data – in such a way that it can be used for those purposes,” Moog says.

It’s something Erick Barney, marketing manager for Medford, Ore.-based MotorcycleSuperstore.com, knows well. He added WebTrends 7.0 one year ago. “It’s amazing to see what kind of product you get from a company where that’s what they do,” Barney says. “It’s just leagues beyond what we had. We had all the basics. We knew where we stood, but we didn’t have the nitty-gritty. We didn’t know all the screws to tighten, all the design elements to tweak or all the things to do better – bidding on keywords or writing sales copy. Now, we dream up our metric and [our analytics provider] help[s] us put together the reports to analyze it.”

Using WebTrend’s overlay feature, which shows click-through and revenue numbers above the actual links on a screen capture of each page, Barney has been able to analyze everything from the placement of tables to clickthroughs on email communication links and automatically sees a red flag on those pages with frequent cart dropouts. Since adding WebTrends, MotorcyleSuperstore.com’s revenues have jumped nearly 50 percent.

“I’ve had access to most of the analytics from one source or another, but I had to log in to Overture, extract the numbers and build my own report to compare programs and make decisions,” Barney recalls. “This puts it all in front of you. I go ‘Campaign Drill Down’ and it’s all right there, and it’s really cool.”

On the other side of the coin are the affiliate sales that can be made on a product like this.

“Many of our partners use our technology to not only optimize their marketing efforts, but also complement their service offerings,” says Dan Shapero at NetApplications.com, which integrated Alexa Data Services into its Hitslink analytics tool in late-2003. Hitslink includes pay-per-click conversion tracking, click fraud analysis, referrers, search engine keywords and page navigation paths. It can track an Overture listing, for instance, all the way to orders and revenue, plus it sends out email traffic alerts when your traffic spikes. (There’s a free 30-day trial, good for up to 20,000 hits, at Hitslink.com/trial.)

Already taking statistics for a reported 40,000 publishers, most of Net Application’s customers come through its affiliate and private-label partner programs, Shapero says. “A big part of our vision is if we can enable these partners to use our technologies to market our products, they become our biggest evangelists.” Most of its 3,000 affiliates not only get 40 to 50 percent of every $9.95- to-start monthly hosting fee their users pay, but also get up to 50 percent off the price of using the software for themselves. (Hitslink now has $20 sign-up incentive.)

Meanwhile, Sostre is helping other sites master the analytics tactics he has learned as an in-the-trench affiliate. Using intuitive analytics reports, he helped one site change small things like the color of the button, where the sign-up is and what copy they put next to it. The results, reports a company spokesperson’s blog, were a 60 percent jump in EPC.

“These days,” reminds website strategy consultant Philippa Gamse, “you have to get into the behavior patterns – what you want to do better and what you want to stop doing – to be successful.” These new innovations in Web analytics, at a price range affordable to smaller sites, may be just what ROI ordered.

“The money there is real,” WebTrends’ Hieggelke says. “It’s the kind of thing that shows running your business by the numbers can absolutely have a fast payoff.”

JENNIFER D. MEACHAM‘s stories have been featured in The Wall Street Journal, Kiplinger’s Personal Finance, AARP The Magazine and at CBSMarketWatch.com. She’s a former reporter for The Seattle Times.

Stand By Me

The last of the big independent affiliate and performance marketing networks was finally swallowed up by another large international conglomerate.

In early September, Japanese e-commerce portal Rakuten took its first step into the U.S. market by agreeing to acquire privately held New York-based performance marketing network LinkShare for approximately $425 million in cash.

Speculation was swirling around the online marketing community for several months that LinkShare, which has investors including Mitsui & Co. Ltd., Mitsui & Co. (U.S.A); Internet Capital Group, and Comcast Interactive Capital, an affiliate of Comcast Corp., was looking for a buyer.

Enter Rakuten. The public company, with a market capitalization of $9.7 billion (as of September 5) was looking to break into the U.S. market and wanted to establish an immediate presence. Founded in 1997, Rakuten has several divisions and is involved in e-commerce, media, travel and financial services and owns a professional baseball team in Japan (the Tohoku Rakuten Golden Eagles).

“LinkShare’s performance-based marketing expertise across affiliate, search and email capabilities provides Rakuten with an excellent first step to launch our U.S. operations and continue our international expansion,” said Hiroshi Mikitani, chairman and CEO of Rakuten. “We can leverage LinkShare’s client relationships and technology advantages worldwide, so that LinkShare will be able to achieve significant growth in the future.”

For many big players in online marketing, pairing up with larger, more diversified companies that provide additional financial resources is nothing new.

LinkShare rival Commission Junction was bought for $58 million in cash and stock by ValueClick in October 2003; ValueClick previously purchased affiliate network BeFree in March 2002 for $128 million in stock; Performics was acquired by DoubleClick in a cash deal estimated at $58 million (plus an earn-out of up to $7 million) in May 2004; DoubleClick was acquired in July 2005 by Click Holding Corp. in a deal valued at $1.1 billion.

There are conflicting views on why LinkShare sold for so much more than its competitors.

One poster on affiliate marketing forum AbestWeb.com called the sale price “An insane amount of money!!” while another wrote, “I was actually surprised they got it for as little as $425 million. Especially considering MySpace was purchased for around $580 million and Shopzilla.com went for around $560 million. I guess the going price for big sites like these is between $400 million and $600 million I can’t believe ValueClick paid so little for CJ; they certainly got a deal there.”

Other industry watchers claim that the high selling price is a combination of a better economic climate and the growing popularity and desirability of performance marketing.

“The price – especially compared to their competitors – is startling,” says Shawn Collins, a consultant. “But the economy is in better shape than a year ago. Affiliate marketing is more respected and on firmer ground. It’s a real testament that affiliate marketing is going well.”

Haiko de Poel Jr., president of online affiliate community AbestWeb.com, says that affiliate marketing is only a little hotter than when CJ was purchased two years ago.

“Even though the climate is better and affiliate marketing is a little hotter, it’s not enough to justify $425 million. There is no way you can tell me that LinkShare is worth twice what was paid for CJ and BeFree combined. There’s just something wrong with that. In fact, there are just too many things wrong with this whole deal.”

LinkShare, which was established in 1996, has a network of more than 500 merchants including J.C. Penney, 1-800-Flowers .com, American Express, Avon Products and Dell. It has more than 10,000 affiliates in its network and claims that for 2004, approximately 2 percent of U.S. retail e-commerce, or $1.4 billion, passed through the LinkShare network.

LinkShare’s chairman and CEO, Steve Messer, says, “By partnering with a successful portal with global aspirations, LinkShare has positioned itself to take advantage of the increasingly universal nature of the Internet and e-commerce.”

Messer goes on to say, “Our merchants and our affiliates will benefit because taking the network worldwide can only increase volume, which means growth for everyone.” Messer, along with the rest of LinkShare’s senior management team, including President and COO Heidi Messer, will remain with the company.

Affiliate Alan Townsend, marketing manager for PersonalizationMall.com, says the sale of LinkShare is bittersweet.

“I can tell you that Steve Messer is passionate about affiliate marketing and LinkShare. I don’t think this deal is just about money. I think if anyone wants LinkShare to succeed, it’s him. I’m confident that he’ll help make decisions for LinkShare that will allow them to grow well into the future,” Townsend says. “With that being said, I think it’s always bittersweet to see a great company that you love get sold. It’s much easier to buy a company than it is to build one.”

In the short term, affiliates are questioning everything. When will they be paid? How will they be paid? Who will pay them? What changes are going to be made? What improvements are going to be made? How will current issues be resolved?

Townsend notes that continued communication with affiliates will be key for LinkShare’s future success.

“I think LinkShare has to keep the affiliate community informed throughout this entire process. Affiliates deserve to know how this is going to impact their livelihoods,” Townsend says. “In the long term, affiliates are going to benefit. The new owners will want to see growth. LinkShare will be trying to expand into new markets quickly. Eventually LinkShare will have a global presence that will attract more affiliates and more merchants. As a result, LinkShare services, such as check processing, affiliate support, etc., will have to improve to meet the growing needs of these affiliates and merchants.”

Danger: Clicking Ahead

Sometimes a click isn’t really a click. Sometimes the person knocking on a website’s door is really a wolf in shopper’s clothing, perpetrating a fraud that wastes marketers’ advertising dollars or steals commissions.

Skip Pratt says his Web hosting company BAPort.com was being defrauded on 20 percent of its clicks. He was so frustrated by the problem that he developed a click fraud analysis application and started PPC Trax, an analytics company.

While most agree click fraud is a growing concern, there is no consensus on just how widespread or costly it has become. Depending on whom you ask, the amount of advertising dollars lost to fraudulent clicks ranges from negligible to as high as 40 percent.

The Interactive Advertising Bureau estimates that from 20 to 35 percent of ad clicks are fraudulent. When asked about click fraud, 25 percent of online marketers say it is not a problem, 45 percent say they are concerned about it and 6 percent view it as a serious problem, according to a 2004 Search Engine Marketing Professional Organization (SEMPO) study.

The study also indicates that the majority of the click fraud is thought to occur on publisher and affiliate sites, not on search engines websites.

Chris Henger, vice president of marketing at Performics, says click fraud is not occurring on a large enough scale to have a material impact on the return on investment of advertisers that are Performics partners. He says click fraud is analogous to shoplifting in the retail world: companies have to watch out for it, but it won’t ruin the industry.

“I recognize that it is an issue, but it has gotten blown out of proportion,” Henger says.

He says that if click fraud really constituted 20 percent of advertising, it would show up in advertisers’ ROI and would cause search-marketing prices to fall.

But some think click fraud is a much bigger deal. ClickRisk president and CEO Adam Sculthorpe says the click fraud he has observed for his clients ranges from 15 to 70 percent of the total traffic. Sculthorpe has detected click fraud occurring on more than 1,200 websites and says his random sampling of log files indicates that “potentially there has been several hundred million dollars of total click fraud since 2003.”

Regardless of the actual numbers, there has been more media coverage of click fraud over the last several months. That media attention fuels the perception that click fraud is on the rise, and that is creating a real problem for search engines and threatening the pay-per-click model.

“After The Wall Street Journal published its article (in April), there was panic in the streets,” says SEMPO president Dana Todd.

Todd says that while the majority of smaller companies have heard about click fraud, many feel they do not have the resources to compare their performance with the reports they get from their search engines.

“Thousands of businesses that spend less than $1,000 a month are not going to spend the time to go through extensive reports,” she says.

Unfortunately for online marketers, there is no surefire technology solution to prevent click fraud from occurring, and it is becoming increasingly difficult to detect. “Despite what anyone tells you, it is technically impossible to stop,” says Steve Messer, CEO of LinkShare.

Messer says click fraud first became rampant in 1998 and 1999, causing LinkShare to shut down its pay-per-click TrafficShare network. “We had Ph.D.s working around the clock on click fraud defense technologies,” Messer says. But like many other cost-per-click networks at the time, LinkShare could not maintain a profitable business.

Commission Junction similarly ceased its pay-per-click advertising in 2001 because of click fraud, according to Elizabeth Cholawsky, the company’s vice president of marketing and product development.

Fraudian Slip

Companies that generate revenue for themselves by clicking on their ads use websites both created expressly to defraud as well as legitimate destinations, according to Ben Edelman, a Harvard law student who tracks online activities. Edelman says legitimate websites that artificially raise their revenue by a small percentage are very difficult for search engines to detect. “The system is set up so companies should be a little dishonest,” Edelman says.

While there are many not-so-bright fraudsters who do not mask their IP addresses and are easily identified, other more nefarious types are developing sophisticated software applications to commit click fraud.

LinkShare’s Messer says software that covertly requests advertisements or other Web pages is freely available on hacker message boards. Clever click fraudsters embed that code within other software – such as chat applications – so that each time a user sends a message, a “click” is also made.

Such click fraud software can be distributed through viruses that exploit software vulnerabilities and permanently reside on users’ machines, creating a network of unknowing accomplices with IP addresses that look genuine, according to Messer.

While ISPs can somewhat protect against spam by blacklisting known spammers and blocking messages with phony IP addresses, there is no automated mechanism for identifying click fraud in real time, says Messer. He says the only way to protect advertising dollars is to identify what appear to be fraudulent clicks after the fact by sorting through server logs.

Also, because advertisers and search engines are unwilling to share information about who is committing click fraud, there is almost no industry coordination in fighting it. Industry groups are talking about it more openly, though, including the Dallas/Fort Worth Search Engine Marketing Association, which has made click fraud the subject of several recent monthly meetings.

Defensive Measures

Along with Pratt’s PPC Trax, several other startups including ClickDefense, WhosClickingWho and VeriClix now offer fraud protection services that separate the wheat from the chaff in Web traffic data. These companies place snippets of code within ad pages that capture and analyze data from the computer requesting the page to look for signs of click fraud.

Pratt says PPC Trax’s software algorithm compares 22 to 24 characteristics of a click, including IP addresses as well as other factors that he considers proprietary information. However, sorting legitimate clicks from fraudulent ones is an imperfect science at best. “It’s virtually impossible to prove click fraud,” according to Pratt, who says he has more than 35 clients.

VeriClix offers a free pay-per-click auditing service that monitors ad programs from Google, Kanoodle, Overture and others. VeriClix founder Jeff Martin says he was working for an advertising agency when he saw an “obvious need” for a service that scrutinizes clickthrough rates. VeriClix is able to provide the service for free because it receives funding from search engine optimization firms Zunch and Search Engine Optimization Advantage.

VeriClix determines suspicious activity based on an algorithm that tracks the frequency of clicks, originating IP address and other identifying information. Advertisers can adjust the number of repeated clicks that are observed before a warning of suspicious activity is generated, according to Martin.

Foxes Guarding the Henhouse

At the heart of the issue for many Web publishers is the role the search engines play in click fraud. Internet advertisers spent $9.6 billion in 2004, and because the lion’s share of advertising dollars are spent through search engine marketing (over $4 billion in North America in 2004 according to SEMPO), the heat is on Google, Yahoo and others to act to limit click fraud.

Search engines have an obligation to monitor clicks as part of the service that they provide to advertisers, Martin says. However, he notes that the search engines have an inherent conflict of interest, since actually identifying click fraud reduces their revenue. Instead Martin suggests that combating click fraud requires an unbiased third-party auditor.

“Yahoo and Google have created a new business model that has grown beyond the proportions of what they ethically should be handling themselves,” Martin says.

But search engines have been slow to address click fraud, according to Greg Sterling, managing editor with analyst firm The Kelsey Group. “Click fraud threatens to erode confidence in the pay-per-click model,” he says. “Search engines haven’t done a lot to counteract the negative publicity.”

LinkShare’s Messer says that, for now, Google is growing faster than click fraud so it is not as noticeable, but advertisers’ return on investment may depreciate over time. Messer tells his customers not to bid on Google’s keyword program. “We won’t work with AdWords,” he says.

Performics’ Henger says that Google and Yahoo have always paid attention to customer concerns and are doing what they can to fight click fraud. “Google would not be so foolish as to turn a (blind) eye to click fraud just to make a few extra million dollars today and jeopardize its long-term business,” he says. Henger notes that Google and Yahoo have the proper financial incentives to control click fraud.

Google’s Role

Google CFO George Reyes shook up the search world when he told audience members at an investor news conference that click fraud poses the single biggest threat to the company’s business model.

Google business product manager Shuman Ghosemajumder wouldn’t say how much click fraud the search engine sees on its website, but contends that the amount is not increasing. “Overall losses due to click fraud are very small,” he says.

Google employs Web analysis software that automatically filters out any traffic that the company considers fraudulent before the company sends reports to its advertisers, according to Ghosemajumder. “We can’t prevent it from happening, because the action comes from an external source, but we can prevent the action from having an effect on advertisers,” he says.

Google has scientists and artificial intelligence experts on staff to fight click fraud, but Ghosemajumder declined to say how many employees are involved in the effort.

Google provides free conversion tracking software so that its customers can look for suspicious fluctuations in clickthrough ratios, and the company has a department dedicated to resolving customer disputes over click fraud. Detecting click fraud “is all about finding patterns,” and Google is spending a lot of money researching how to identify those patterns, Ghosemajumder says.

Ghosemajumder says that fraud (such as inflating circulation numbers) occurs in print media as well. “We provide one of the most accountable forms of advertising available,” he says.

Click fraud perpetrators may be unafraid of their actions because thus far there have been no criminal prosecutions. Ghosemajumder thinks that may change someday, noting that people have been successfully prosecuted for writing viruses or denial of service attacks, which are similar activities aimed at interfering with the operation of a business.

The Price of Isolation

Finding broad patterns of click fraud across the advertising universe has been a challenge because companies consider Web analysis data proprietary information. Unlike group efforts to combat spam and track computer viruses, search engines, advertisers and click fraud analysis companies have not shared information about when and how fraudsters are acting.

PPC Trax’s Pratt says his company does not compile click fraud statistics because the data is the property of his clients. VeriClix’s Martin says that search engines should provide more data to give advertisers a better view of their clicks.

“Google is holding information [about click fraud] close to the vest,” says Martin. He believes that search engines should make public all information about click rates that are not trade secrets.

Martin says that search engines should provide an application programming interface that would allow click data to be automatically extracted and compiled by third parties.

The data would not identify the advertiser and makes it possible to identify patterns of click fraud across the Internet. Impartial clearinghouse companies could mediate between advertisers and search engines and give advertisers greater confidence in the pay-per-click model since search engines have an inherent conflict of interest in tracking fraud (each click identified as spurious reduces their revenue).

Requiring search engines to turn over click data to third parties would be a reasonable request, according to Henger of Performics. Akin to the debate over global warming, some parties will continue to say that click fraud is an imminent threat of apocalyptic scale, while others say it is merely a mild irritant. However, search engines wanting their industry to continue its incredible growth will have to persuade the court of public opinion that click fraud is not a significant problem, and that they are doing all they can to fight it.

“Search engines have a responsibility – it’s a trust issue,” says SEMPO’s Todd. She says search industry participants should work together to “create a massive anonymous data pool” that would enable click fraud to be more easily tracked. “We don’t want to go back to the insanity of the ’90s where ad dollars are taken for granted.”

Regardless of where you rank click fraud on your scale of big cyber offenses, most agree that some level of action needs to be taken to help stop it and to move online marketing forward.

JOHN GARTNER is a freelance writer in Portland, Ore. He is a former editor at Wired News and CMP. His articles regularly appear on Wired.com, AlterNet.org and in MIT’s TechnologyReview.com.

Defend Yourself Against Click Fraud

The sky is falling! The sky is falling!” That’s what the Chicken Littles of the world would have you believe when they discuss how click fraud will doom the world of pay-per-click (PPC) advertising. Of course, some Chicken Littles have a vested interest in raising awareness of this supposedly rampant problem, considering many of them are the purveyors of products that help protect you from this threat.

I don’t mean to make light of click fraud. It certainly exists and if it is left unchecked it has the potential to cause serious harm to advertisers. But does anyone really expect the search engines to sit idly by waiting for hackers to kill their very substantial profit margins? The search engines take click fraud very seriously and have teams of folks whose job it is to try to protect advertisers from spending millions in a tide of click spam.

The search engines are not waiting for the problem to go away, and neither should you as an advertiser. You need to protect yourself from an issue that has the potential to kill the golden goose of PPC marketing and severely impact your return on investment.

First of all, if you are spending a decent amount of money on PPC (in excess of $1,000 per month), assume that you will become the victim of click fraud at some point. If you are marketing in a competitive channel, with a large number of keywords, top positions, high click value (over $1 per click) and a large marketing budget, you may have already seen traffic to your site rise in a suspect fashion on certain keywords.

As with any impending threat on the Web, protection comes down to vigilance. If you are a frequent Web user, you know you shouldn’t surf the Web unprotected. You need a firewall and an Internet security program to protect you from the shenanigans of those who propagate trojans and worms and phishing schemes. Seriously, if you have an unprotected computer, you better drop this magazine right now and go purchase the necessary software. You’ve got bigger problems than PPC fraud.

A good vigilance campaign deploys the following methods: take advantage of the tools the engines provide to you; purchase tools that allow you to see immediately if there are spikes in traffic and their source; and monitor your campaigns frequently.

Tools From the Search Engines

All of the major search engines monitor clicks across many different points of data. The majority of click fraud gets caught by the engines and never shows up in your reports, because they strip out those clicks before they bill you. Unfortunately, a small percentage can slip through mainly because the algorithms that perpetrate fraud are constantly adjusting. Just as it’s hard for the antivirus programs to keep up with the worms, etc., it’s also hard for the search engines to catch every piece of fraud when they are constantly under attack.

This is where you come in. Constantly review the reports that the engines provide to you, and if you see a spike in traffic start looking for reasons. Maybe it’s simply because one of your products was listed in a press release, but it could also be because one of your keywords is under attack.

The engines also provide billing reports. Pay attention to emails you get advising you of charges to your credit card. If you see an increased frequency of charges, it’s time to start investigating.

Tools You Can Purchase

Any of the basic tracking solutions allows you to see at a glance where spikes in your traffic are coming from. By viewing click data at the IP level, you can see if a large amount of traffic is coming from a specific IP address. That can be a good indicator that the traffic source may not be a good one.

Going to the search engines with these types of reports in hand will guarantee you an investigation and will likely result in a refund if the traffic is found to be bogus. Unfortunately, the types of reports you get from just viewing most Web logs are not detailed enough for search engines to conduct a thorough traffic investigation. You need the more detailed analysis that a tracking solution provides.

If you just want tracking on your pay-per-click campaigns, two good tools are Who’sClickingWho and Click Auditor from Keyword Max. These tools allow you to see at a glance what might be amiss with your PPC campaign.

Of course a more extensive tracking solution allows you to see traffic from every marketing campaign you are running and enables you to determine where you should be spending your money. Before buying one of these tools decide whether you just want to analyze PPC or if you would prefer to calculate ROI and conversion rates across all your campaigns. There are many great tracking solutions out there – both inexpensive and expensive – that let you do so. Many will give you a free trial version of the software.

Monitor Your Campaigns

Checking your campaigns frequently enables you to see patterns in your traffic and determine if something is wrong. If you are in the retail space you will definitely see seasonal and monthly changes in traffic, but service and B-to-B sites can also see varied traffic patterns.

If you have deployed a good tracking solution and are also using a bid management tool, you may only need to monitor your campaigns on a monthly basis. However, if you haven’t implemented those tools, at the very least you should take advantage of the free conversion analysis tools the engines provide, and watch your campaigns on a weekly basis.

Resign yourself to the fact that click fraud, just like phishing scams, isn’t going away. While the Net creates a global competitive marketplace for business and products, it also creates the same opportunity for thieves and scoundrels. But just as Chicken Little protected herself with the umbrella, you too can protect yourself and your business. Stay vigilant and monitor frequently, and you will be fine. Remember, PPC works and we all have a vested interest in ensuring it continues to do so.

MARY O’BRIEN is a partner at Telic Media. She was formerly senior director of sales at Yahoo! Search Marketing and is currently presenting their Advertiser Workshops around the country.