Click Fraud – UtilitesDB

Marketing Muscle

Over the years stories about intimidation and goons knocking on the doors of various affiliates and search marketers have circulated at industry events. Some of these scary accounts have taken on a life of their own – much like a game of telephone where fact and fiction are often intertwined as the stories are told over and over again.

The victims claim to have seen a variety of intimidation tactics including death threats issued over the phone, visits at their homes from large, scary-looking men, threats involving physical harm, character assignation campaigns, general bullying and harassment, as well as cyber attacks on their websites and ultimately their livelihoods.

Most of the victims say the perpetrators of this behavior are typically overzealous business rivals or companies they spoke out against that are seeking to silence them.

Retelling of these accounts is often reserved for late-night, alcohol-fueled chats at a bar with colleagues at trade shows and conferences. But trying to get the sober details is much harder. It’s difficult to confirm and corroborate many of these stories since the alleged victims are hesitant to speak in depth, or on the record, for fear of future recrimination.

So are these frightening tales the equivalent of urban affiliate myths, exaggeration or truth? Actually, it’s often a combination all three.

One industry watcher, who asked not to be named, was skeptical of some of the stories.

“It’s somewhat of a Curtis Sliwa syndrome,” he says, “where he faked some crimes and attacks as a way to get more attention for himself and the Guardian Angels. These supposed allegations on the part of affiliates are a way to boost their profile. I may be cynical but unless I see a police report I tend to believe these stories are a way to raise themselves in the industry.”

However, he does admit that regardless of the veracity of the accounts, “they seem to resonate with people.”

Anti-adware/spyware expert Ben Edelman knows the feeling of having his work, which typically exposes unethical behavior on the part of an adware vendor, spark a negative response from those he has criticized.

Edelman says that he’s experienced several instances of threats at varying levels from a variety of unhappy companies that he’s exposed. The Cambridge, Mass.-based lawyer and Harvard graduate student says that’s he not willing to speak about all the incidents right now. He declined to speak about two incidents that he referred to as “very, very nasty.”

However, he did recall a time in the fall of 2003 when for two weeks, a private investigator hired by Claria (formerly Gator) was parked in a dark-colored sedan in front of Edelman’s apartment. He claims the driver followed him to class, around the Harvard campus and to other destinations. The driver submitted to questioning in a courtroom and admitted to being hired by Claria. The driver also said he was simply attempting to serve Edelman with a subpoena, a claim Edelman, who is an attorney, disputes, noting that if the driver wanted to serve him he could have simply knocked on Edelman’s door and done so.

Edelman says he found the situation “puzzling but consistent with [his] view of the company, which likes to play hardball.”

Edelman also says the “intimidation efforts were unsuccessful.” Although, he claims the company subsequently “did some other things that were more effective.” Those are the matters he doesn’t want to elaborate on.

Others have also seen the nastier side of how unhappy companies deal with dissent. That fear makes most afraid to even broach the subject.

One PPC search marketer questioned about his experiences with a particular company – one that is often named one of the most prolific at stealing commissions from affiliates – yielded this response about the company’s CEO:

“He’s not a guy to mess with either – do your checking very discreetly. I trust you’ll be thorough as well, but honestly, I believe this guy is not someone you want to piss off. It ain’t national security, but my affiliate income depends on keeping my distance from this man. I can go no further than this and provide no details.”

Another source that was contacted via email about the same subject would only say, “This company is a bunch of thugs. Be very careful and watch your back. Seriously, tread lightly.”

So just how far outside the law will a company go to get its message across?

To put things in perspective, Edelman says, “The people that I’m exposing are powerful people, but not that powerful. They can’t rig elections or bribe the government.”

Regardless, Edelman has taken practical steps just in case a company or individual wants to take out-of-court retribution.

“In the event that my apartment building were to burn down, I have an off-site backup of all files,” he says. “It could happen randomly or intentionally.”

He recalled a story from his mother, who actively pursues nursing home reform, where a colleague of his mom’s had her home burned to the ground. “It was proved to be arson; they just couldn’t prove who did it.”

In his Search Insider column from August 2006, David Berkowitz, director of strategic planning at 360i.com, wrote, “Manage your search engine strategies so well that competitors want to kill you – literally.”

The column detailed a discussion Berkowitz had with an unnamed search marketer in the health care field whose wife reportedly fielded a death threat via the telephone from an angry competitor.

According to Berkowitz, “The victim of the threat competes with his search engine marketing firm. He owns more than a few domains related to his business and services, including a growing number of local variations on the top terms. He gives some of the domains to his SEM, keeps some others and sees which sites can rank highest in the natural search results. For more than a few highly searched terms related to his business, he and his SEM will split ownership of the first and second rankings. The funniest part is that he gets irritated when his SEM holds the No. 1 position, since he’s determined to figure out how he can beat it. For several terms, he’s cornered the market, at times holding at least seven of the top 10 listings.”

Berkowitz explains to Revenue that he was shocked to hear this story and that the recipient of the call “was caught off guard ” and they don’t know who was the source of the phone call.”

For the most part, Edelman admits that the bulk of threats he receives are legal “and don’t involve henchmen.”

“Most are threats to see me in court,” Edelman says. “But most are not followed through, because I have the documentation to back up my allegations and I am correct. The best way to protect myself is to be right every single time and be able to prove that I’m right. The bottom line is that if people want to mess with me, they will lose because I have the facts to protect myself.”

Virtual Threats

Still, that doesn’t stop other threats that take advantage of technology. The most common are DNS (denial of service) and DDoS (distributed denial of service) attacks. But someone looking to harm your business via your website can unleash a variety of deadly technical attacks using spam, adware, spyware, Windows Messenger boxes, various worms, trojans, phishing, SQL injection, cross-scripting attacks, botnets, UA porn running, traffic laundering, viruses and rootkits, according to a spyware researcher, who asked not to be named.

In February 2005, Edelman fell victim to a massive DDoS attack that knocked his server off-line for nearly two days. His Web-hosting company claimed he was the target of the biggest DDoS attack they’ve ever suffered – some 600 MB per second. Edelman says Claria did not perpetrate the attack and he still doesn’t know who was responsible.

This potentially harmful behavior is why many of those posting on public message boards claim they prefer to post anonymously.

“It’s not about saying whatever you want without backlash,” says one very vocal poster in an affiliate forum, who asked not to be named. “It’s about protecting your business and your livelihood.”

An event that took place nearly four years ago is probably the one that sparked most of the talk of goons and henchmen being dispatched to the front doors of several affiliates – most of them very vocal posters on the AbestWeb.com forum. Many of the frequent contributors to that message board and community strongly voiced their opinions on the actions of World Media.

At the time, Virus Port had merged with World Media, a big adware company and one of the first to garner people’s attention for redirecting affiliate links. World Media had a huge installed base of users for its popular bundled peer-to-peer program called Morpheus. Many of the ABW posters were not happy with the company’s actions and posted their complaints.

Kellie Stevens, the president of AffiliateFairPlay.com, was among those who received a knock on her front door – but it wasn’t “muscle.” She claims that World Media hired a local private investigator and dispatched him to her home. She refused to let him inside and instead spoke briefly to him through the cracked door so she could get his business card.

Stevens described the man as “preppy and not threatening.” Later that evening she called the PI and had a lengthy discussion with him. He told her he was hired by World Media. He didn’t know the specifics of the situation or why. He was just letting her know that the company was considering filing both civil and criminal charges against her because of something she posted on a message board. She says the conversation went on for about 20 minutes as she explained the situation and the PI, who was also an ex-FBI agent, ended their talk by saying that people have the right to free speech and that, if in the future Stevens needed any help, she could call him.

“I’m careful about what I say and post and I have accurate information,” she says. “As long as I’m accurate in my reporting they [companies] may not like it, but I’m not just trying to cause a flame fest or incite a riot, though I’m aware it can happen.”

A very successful search affiliate says there are a handful of companies that he believes are “dangerous from a business perspective but not a physical one.”

“I point out issues with these companies all the time. I post on message boards. I file consumer complaints. I send information to the CDT [Center for Democracy and Technology]. I have been a thorn in the side of many adware companies,” he says. “My sites are all publicly registered. My name and address are all there. It wouldn’t take much more than five minutes for someone to track me down and it hasn’t happened yet. So, I’m not worried they are going to show up on my doorstep, I’m more worried they are going to launch a DDoS attack and shut down all my sites.”

Still, others who received visitors to their home during the World Media matter say they were intimidated.

“People who might have taken the activism to the next level stopped,” Edelman says. “So it worked – not that those tactics are acceptable, because they are not.”

For most affiliate marketers, the idea of someone showing up at their home is truly frightening – mostly because they work alone and use only the computer to connect to others. It’s not like the typical worker who heads to an office filled with other people, where visitors come and go all day.

“Part of what is scary for most of these people is having others out in the virtual world know where they live, and usually just putting that fear into them is enough to make them stop whatever their activities were,” says one industry observer who asked to remain anonymous.

Berkowitz says this behavior definitely surprises him. Although, he explains that there may be times when a threat is slightly more “merited,” because the person being threatened is not operating in a totally ethical and above-board manner.

“At least when it comes to search there are many ways to game the system,” Berkowitz says. Still, he admits, it’s obviously something that needs to be looked at on a case-by-case basis.

On the flip side, Andy Rodriguez, president of Andy Rodriguez Consulting, an outsourced program management firm, is not at all surprised that this type of strong-arm behavior takes place.

“In this industry, the amount of cash and the revenue potential attracts a lot of people that don’t always make the best decisions and it’s easy to see why threats and violence can come up. Plus, in this day and age, people have the tools and technology to use DNS and computer attacks. It’s the same type of intimidation but they don’t have to go to your front door,” Rodriguez says. “The good news is that the government has the same tools and technology to track down the criminals and those threatening others.”

The bottom line according to Stevens is, “When there is a lot of money to be protected, people will go to great lengths and you need to keep that mind.”

Hybrid Auctions Are Taking Over

As author Robert C. Gallagher observes, “Change is inevitable – except from a vending machine.” And so it comes as no surprise that paid search engines are changing too. The biggest change is one of the most fundamental, affecting which paid ads are shown first in the results. The tried-and-true high bidder auctions, pioneered by Overture (later acquired by Yahoo), are being phased out in favor of hybrid auctions, introduced by Google.

High-bidder auctions are just what they sound like – the search marketer who bids the highest per-click amount for each search keyword gets the top spot in the paid search rankings. But high-bidder auctions are starting to seem so 20th century.

The new thing is hybrid auctions, which set the paid search rankings based on a combination of the bid, the clickthrough rate and sometimes other factors. For example, if one search marketer bids $2 per click to show an ad with a 1 percent clickthrough rate, another bidder could outrank the first with a lower bid – perhaps by bidding $1 for an ad with a 3 percent clickthrough rate. In a high-bidder auction, the $2 bidder would always rank higher than the $1 bidder.

Google has been using hybrid auctions for years, but until recently, all other paid search engines were the high-bidder type. That’s all changing now. Earlier this year, MSN Search introduced new paid search technology that uses a hybrid auction. Yahoo has announced plans to follow suit late this year or early next year. Given Google’s longstanding use of hybrid auctions, the changes at MSN and Yahoo will transform the paid search industry, and nearly a whopping 97 percent of all paid search queries will use hybrid auctions.

Hybrid auctions usually provide more relevant results to searchers, because the most-clicked ads tend to rise to the top of the rankings. And hybrid auctions make the search engines more money, because the combination of clickthrough rate and bid price maximizes the total fees paid by search marketers.

More Complex Planning

If you’re a search marketer accustomed to planning paid search campaigns for high-bidder auctions, hybrid ones bring you some new challenges. With a high-bidder auction, you can see what your competitors are bidding at all times, and can take an educated guess as to what bid could get you ranked No. 1, for example.

Hybrid auctions, however, demand pure guesswork; not only don’t you know your competitors’ clickthrough rate, but you don’t even know your own, so you can’t predict where your ad will land no matter what the bid. Without that information, you can neither project the number of clicks your campaign will get, nor the amount you’ll pay in total, which hamstrings your ability to plan your paid search campaigns.

Google and MSN could help predict the number of clicks you’ll get with your bid, but they don’t, instead merely projecting the number of clicks to expect with an average bid. If your bid is higher (or lower) than average, you’re out of luck.

In contrast, Yahoo has publicly stated that they will provide predictive information based on your bid when they convert to a hybrid system, so we may be able to use Yahoo to help plan campaigns.

Simpler Operations

While hybrid auctions can pose new campaign planning issues, they also make operating your paid search campaigns far easier than high-bidder systems do.

To understand how much is changing, we need to remind ourselves of the work required to manage high-bidder campaigns. The very predictability of high-bidder auctions that aids campaign planning also makes operations tougher than with hybrid approaches. Because changing your bid in a high-bidder auction directly changes the search rankings, search marketers can use bidding tricks against their competitors to manipulate those rankings.

These high-bidder tricks include bid jamming (intentionally bidding 1 cent below a competitor’s bid to force them to spend as much as possible); gap surfing (bidding 1 cent more than a competitor to steal a higher spot); and friendly URL (bidding just under a specific opponent to avoid a bidding war).

Search marketers managing campaigns in high-bidder auctions must be aware of these techniques and must use them for highly competitive keywords. These techniques require constant monitoring and tinkering, raising operational costs for high-bidder campaigns.

In contrast, none of these tactics are needed for hybrid auctions, because the rankings can’t be changed simply with a new bid. And because clickthrough rates can’t be adjusted at will the way a bid can be, hybrid auctions are far less volatile than high-bidder auctions. The combination of fewer bidding tactics and less volatility means that search marketers can spend less time monitoring every ranking fluctuation.

A New Fraud

But all is not rosy. Search marketers are familiar with click fraud, but hybrid auctions have spawned a new kind of fraud, called impression fraud.

Impression fraud is almost the opposite of click fraud. With click fraud, competitors or unscrupulous search partners use low-paid workers or automated bots to click on paid search ads, draining the victim’s search marketing budget. Impression fraud occurs when competitors enter search terms to display your ads and then don’t click on them.

Confused? Stay with me now, because this is a bit tricky. Because hybrid auctions consider clickthrough rate in their rankings, anything that lowers your clickthrough rate helps your competitors. So, when they cause your ad to be shown and then don’t click on it, your clickthrough rate declines, which lowers your rankings (or forces you to bid higher to retain your ranking). It may scare you that some folks have nothing better to do with their time than to dream up such schemes, but it’s apparently the case.

While some observers estimate click fraud to affect as much as 20 percent of all paid search clicks, no one knows how rampant impression fraud may be. Because impression fraud cannot enrich anyone, it is likely less prevalent than click fraud, but its rise demonstrates how every change in search technology has unintended effects.

Despite the specter of impression fraud, the shift to hybrid auctions is generally a boon to search marketers, by making campaigns less work to monitor and operate, even if they are more difficult to plan for. The less time you spend in short-term bidding tactics, the more effort you can devote to improving your clickthrough and conversion rates and finding new keywords your competitors have not yet discovered. It’s better to focus on being more effective than more efficient, and hybrid auctions help you do that.

MIKE MORAN is an IBM Distinguished Engineer and the Manager of ibm.com Web Experience. Mike is also the co-author of the book Search Engine Marketing, Inc. and can be reached through his website (MikeMoran.com).

Dialing for Dollars

Whether it’s fashion, technology or commerce, what’s old often becomes new again. Pay per call is the latest revolution in performance marketing, and it focuses on incorporating a 130-year-old technology – the telephone – into the process.

While it’s not a surprise that pay per call is rapidly becoming a preferred model for local advertisers, it’s remarkable that it hasn’t been a significant part of the equation all along.

The rise in popularity of performance marketing, which now represents 40 percent of online advertising revenues, made it inevitable that someone would create a mechanism for businesses that do not have websites to market themselves, according to Greg Sterling, senior vice president at analyst firm The Kelsey Group.

Instead of ads linking to a website, pay-per-call marketing lists phone numbers, often accompanied by phone icons. Merchants pay a fee to the publisher when someone calls after seeing the ad. The number of calls is easily tracked because each ad is associated with a specific phone number, a practice that has been used for many years in print and broadcast ads.

The pay-per-call market, in all forms of media, is expected to reach $60 million this year, and rise by an astonishing 6,000 percent to $3.7 billion by 2010, according to The Kelsey Group. Pay per call enables small and medium-sized enterprises (SMEs) that do not have websites to spread the word and only pay for phone leads.

“Most local businesses don’t know how to deal with clicks,” says Sterling.

He notes that many small businesses complain that understanding and monitoring pay-per-click advertising is too complicated. Approximately 70 percent of SMEs prefer receiving calls to receiving clicks on their websites, according to Sterling, who estimates there are 10 million SMEs.

A survey of SMEs, by The Kelsey Group, indicates that 74 percent of small businesses would pay up to $1 for a call.

The persistent problem of click fraud will also spur advertisers to shift to pay per call, which is difficult to fake, Sterling says. Most companies that advertise in local Yellow Pages are more comfortable with communicating with customers on the phone. Also, two-thirds of SMEs that have websites do not participate in online marketing, suggesting that companies have been reluctant to commit the money and attention to develop leads online.

SMEs also believe that a person who calls is a better quality lead than someone who clicks on a website for information, Sterling says. “If you pick up the phone, you are more buy-oriented than people who are clicking,” he says.

The promise of pay per call has prompted a variety of networks and technology providers to enter the market in recent years, including ADSclick, Jambo, VoiceStar, Miva, eStara and Ingenio. Publishers currently offering pay per call include Verizon’s SuperPages, YellowPages.com, Local.com and Amazon’s A9. Search giants Google and Yahoo are currently testing the pay-per-call model to attract local and small business advertisers.

Microsoft is also working on a click-to-call solution to be included in its Windows Live offering, according to David Cole, a Microsoft SVP and head of MSN and the Personal Services Group.

The click-per-call capability, introduced in mid- March, will let users connect to businesses via Web-based calls by clicking on MSN search links. Last September, just a week after Google launched its Google Talk instant-messaging service, Microsoft purchased Internet-calling startup Teleo to expand the capabilities of MSN Messenger. With the Teleo acquisition, Microsoft also gained click-to-call dialing capabilities that would allow MSN’s upcoming adCenter service to offer pay-per-call pricing.

Dialing for Dollars

Sterling says the potential rewards from pay per call dictate that eventually all publishers involved in local search will incorporate some form of pay per call. “Calls can generate much more revenue than clicks,” he says.

Pay per call is desirable for publishers because companies are willing to pay a lot more for a call than a click. According to The Kelsey Group, the advertising categories willing to pay the most for leads include mortgage lenders ($35), lawyers ($30) and travel agents ($8).

More than 1 billion searches per month are performed on pay-per-call network Ingenio, according to chief marketing officer Marc Barach. Ingenio’s launched in 2004 and has relationships with America Online, MySpace, Miva and Infospace.

Pay-per-call advertisers can decide if they want their ads to reach local or global audiences. Ingenio ad network can specify geographic region, and the company has also implemented IP tracking to determine the consumer’s location, according to Barach.

One potential limitation of the pay-per-call model for publishers is that unlike clicks, which are generated around the clock, call revenue will primarily be generated during business hours. By specifying that pay-per-call ads only run at certain hours of the day (or “day parting”), customers can make sure they don’t receive calls off hours, Ingenio’s Barach says.

The amount that Ingenio’s customers pay for a call depends on the amount that competitors are willing to pay. Taking a page from the SEM model, Ingenio’s auction model charges one cent more than the next highest bid at the time the call was placed. The company sets prices based on categories, not keywords to simplify the model. The minimum charge for a call is $2, which is the case for many categories.

David Clarke, the marketing manager for American Incorporators Limited of Wilmington, Del., began placing pay-per-call ads on America Online one year ago, and is happy with the results. “The biggest advantage is that those who call are a lot further along in the decision-making process and are more serious than people who click,” he says.

Clarke pays between $15 and $18 per lead for calls requesting information about AIL’s services for forming corporations, and approximately 10 percent of those calls result in a sale.

Publishers will have to weigh the potential revenues to determine if ads that generate money from calls or clicks get top billing. Where they are available, the higher-priced pay-per-call ads seem to get preferential treatment, getting the prime spots on AOL and YellowPages.com.

Pay per call is a “small but growing portion” of Ingenio’s overall revenue, which was $83 million in 2005, according to Barach. Ingenio has deals with networks Performics and Miva to promote pay per call, he says.

While pay per call has promise, it will not overtake traditional ads in search marketing, according to Mike Kerans, a senior vice president at Miva. Pay per call is appropriate for selling complex goods such as financial services, travel and “high-ticket items” like flat screen TVs, but because of the higher premiums charged, “I wouldn’t use it if I were selling ink cartridges,” Kerans says.

Pay per call will grow in popularity for the 25 percent of searches that are local, but national ad campaigns will continue to rely on other models, according to Kerans, whose company began offering pay per call in late 2004. “It’s never been that new media completely replaces old media,” notes Kerans, adding that pay per call is an effective way for small businesses to dabble online, as only one in three have a website.

Miva works with local TV stations, newspapers and larger publishers, including Verizon’s SuperPages and Infospace in the United Kingdom, and recommends that advertisers include a telephone icon to distinguish listings from pay-perclick ads, Kerans says. Companies should also use landing pages with maps to show the proximity to the customer, or promote special offers to induce people to call, he says.

Kerans says publishers have to determine how much ad space to give to pay-per-call versus payper- click ads based on the cost per thousand (CPM) that they expect to receive.

Calling All Clicks

An alternative form of pay per call enables consumers to prompt a phone call from the advertiser by entering their phone numbers online. Click-to-call technology was originally used to provide customer service, and automatically connects the two parties when consumers click a button. Click-to-call work can be financed through a pay-per-call model when applied to advertising, or through a flat fee or volume pricing.

Using click to call for sales enables customers to continue with their online sessions without having to stop to dial the phone, according to John Federman, CEO of eStara, which offers click-to-call and pay-per-call services.

While pay-per-call advertisements require unique phone numbers that identify the referring publisher, eStara’s Web-initiated calls save money by requiring only tracking numbers for each publisher, according to Federman. Using “cross-channel data passing” technology, the customer’s information is automatically forwarded to the advertiser’s call center, where sales representatives can view it on their screens. eStara customizes the pricing for each publisher, offering auction as well as flat pricing and subscriptions.

Click-to-call technology is also being used on commerce websites to prompt customers who are idle on a website. For example, after a shopper is browsing a website for a few minutes and stops clicking, a pop-up window offers customers the chance to talk with the merchant live to complete their order or to ask for more information, Federman says.

Some people aren’t anxious to fill out forms or give credit cards or social security numbers online,” according to Federman, whose company provides click-to-call services for Amazon, DaimlerChrysler and Continental Airlines. Federman said that after switching from formbased leads to click to call, DaimlerChrysler cut its conversion time from 30 days to four days or less, and doubled its conversion rates.

Search engines and local publishers of Voice over Internet Protocol (VoIP) technology reduce the cost of click-to-call phone connections, Federman says. Consumers using dial-up connections may be hesitant to go offline to call an advertiser, but click to call using VoIP enables them to instantly converse online. Technology developed by eStara automatically checks to see if the consumer’s PC has a microphone, and if so, launches a VoIP window.

While clicking an ad to talk live with someone is a “lower barrier to action than picking up the phone,” according to The Kelsey Group’s Sterling, consumers are not yet comfortable with making calls through their computers.

However, the rise of inexpensive VoIP services from Skype and Vonage could change consumer perception. “When VoIP is mainstream, you may start to see ads with phone icons (that initiate PCbased calls), but that is years away,” Sterling says.

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, Alter- Net.org and in MIT’s TechnologyReview.com.

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.

Don’t Give in to Click Fraud Fears

Click fraud is a potentially serious problem faced by any affiliate marketer who uses pay-per-click (PPC) search engine advertising to market their sites.

One study estimated that between 10 and 20 percent of a PPC advertiser’s budget is lost to fraud. That estimate increased to 50 percent for high-priced, highly competitive keywords.

Unfortunately, there is no guaranteed way to prevent unscrupulous competitors from going click-happy and rapidly depleting an advertiser’s PPC budget.

Solving the problem is tedious and time-consuming. Getting your account reimbursed requires proof of the fraudulent activity. However, detecting click fraud demands effort and resources that most marketers would rather devote to increasing their income – not ferreting out thieves.

No wonder the fear of click fraud has some affiliate marketers running scared. Understandably, dealing with the whole ugly scenario might leave an advertiser feeling frustrated and thoroughly disenchanted with pay-per-click advertising.

Indeed many new and aspiring affiliate marketers are using potential click fraud as an excuse not to try pay-per-click advertising, or to abandon their Internet marketing business plans altogether.

Giving up due to problems that may never arise? What sort of response is that? Any activity, business or otherwise, has its potential problems.

Take something as commonplace as fueling a vehicle, for example. Under certain conditions you may risk starting a spark-induced fire at the pump. Does such a horrible prospect persuade you to sell the car, ride the bus to work and add two more miserable hours to your daily commute? I should hope not. Rational people learn and apply safe fueling techniques to keep from being fried.

Likewise, dropping pay-per-click as an advertising option from your marketing arsenal because you’re afraid of click fraud, or want to avoid the cost of advertising, isn’t the smartest approach to Internet business.

Rather than use PPC, some affiliate marketers rely exclusively on using search engine optimization techniques, an option fraught with its own perils.

First of all, you may wait several months to get your site ranked high enough in the engines to attract visitors, only to discover that your copywriting or the product itself doesn’t convert to sales. So the process begins anew with copywriting, site submissions and another long wait to see the results.

Second, income derived from search engine traffic tends to be inconsistent from month to month, varying with a site’s rank. Imagine having your earnings plummet from $30,000 per month to a paltry $2,000 per month, simply because Google changed its algorithm or de-listed your sites.

I often consult with affiliates who’ve taken the SEO-only route but then need a way to rebuild their shattered businesses. So yes, such catastrophes do occur.

So what’s the answer? It’s simple: use pay-per-click advertising to market your sites. By the way, that’s the same solution many “you don’t have to pay for traffic” marketing gurus use to promote their own products and affiliate programs. Why? Because no other traffic- generation method is as easy to implement or immediately effective as PPC advertising.

I LOVE pay-per-click advertising, and yes, it loves me back. When Yahoo Search Marketing’s (Overture) predecessor, GoTo.com, launched its pay-for-performance search engine in June 1998, I recognized the service as a complete godsend to online marketers and have been using it to successfully market my affiliate sites ever since.

You simply write an ad, input your keywords, set your budget and within minutes a Google AdWords campaign can be sending highly targeted traffic to your site. Yes, minutes, not months!

Clickthrough and conversion rates can be rapidly assessed, most often within hours of starting a campaign. Is the impression- to-clickthrough ratio poor? Simply tweak the ad and test again. If conversion to sales is underwhelming, rework the product review and then resume the flow of traffic to your site with just a click of your mouse.

Don’t know whether you should promote Product A, Product B or both on your site? Pay-per-click advertising quickly helps you find the right answer. Simply create two listings to send traffic to their respective product review pages. Five hundred sets of eyeballs to each page will give you a good reading on which is the most lucrative choice.

You can test conversion rates for various products without having to write an endorsement. Scores of affiliate marketers who don’t have their own websites are making scads of money promoting products as affiliates using PPC. Instead of bringing visitors to a product endorsement page, they send traffic directly to the merchant from Google through their affiliate links.

Perhaps you shun PPC because of horror stories about campaigns run amok and credit cards drawn to the limit? Forget them. There’s absolutely no reason that should ever happen. Most pay-per-click search engines permit advertisers to set maximum daily or monthly budgets. Or you can deposit a set amount into your PPC account, and the campaign will automatically suspend itself when the funds have been depleted. Once you are confident that your campaign is producing satisfactory returns on a consistent basis, automatic funding options are available. Eventually you’ll get to a stage where you can set it, forget it and collect your commission checks – month after month and year after year. Some PPC users complain that increased competition in certain markets is driving them out of business as bid prices skyrocket.

Here’s a simple solution. Don’t raise your bids to compete on the most popular keywords in your niche. Instead, lower your bids or drop those keywords completely. Concentrate on building bigger lists of highly targeted keyword phrases on which your competitors are not bidding. This strategy lowers your average cost per click and increases your returns by driving laser-targeted traffic to your sites.

Targeted traffic is the lifeblood of your affiliate marketing business. Don’t let fear of click fraud or any other potential problem keep you from trying pay-per-click advertising, the easiest and fastest way to get traffic to your sites. Spend a buck and make two, three, four or more. Those benefits greatly exceed any associated risks.

ROSALIND GARDNER is author of the best-selling guide to affiliate marketing, The Super Affiliate Handbook: How I Made $436,797 in One Year Selling Other People’s Stuff Online. Her book is available on Amazon and www.SuperAffiliateHandbook.com.

Three Great Search Engine Marketing Myths

As search engine marketing has become ubiquitous and, in most marketers’ minds, synonymous with generating profits from their Web sites, lore has sprung up around the process. Those who have an axe to grind or a product to sell mainly propagate these myths.

When the success or failure of your Web site can be determined by a creature as capricious as the Google spider, then it’s not surprising that rumors and misinformation abound. Let’s try to dispel some of the myths that have been repeated so often that they’ve become accepted as truths.

Myth 1 Anyone can build a Web site and use search engine marketing to make it profitable.

This one is a holdover from the early days of pay-per-click (PPC), when all anyone needed to do was buy thousands of clicks for a penny, sign up for an Amazon affiliate program and watch the checks roll in. I personally spoke with several advertisers when I was at Overture (back when it was GoTo) who made big bucks just buying clicks and sending the traffic to their favorite affiliate program.

Nowadays, with most of the competitive keywords on the Internet costing a dollar or more, you need a strong marketing plan, a well-designed Web site and a good business model to generate a living. Yes, you can put up a site, sign up for a few affiliate programs and display a few banners, but don’t expect to quit your day job. To make it work, you need to know what you are doing. In order to generate significant traffic to your site, you need to have a decent enough profit margin in your product so that you can afford to spend money marketing it.

Whether you are an affiliate or a retailer, the product or service you are selling needs to generate at least $20 per sale for you to even think about doing PPC – unless you already have a guaranteed stream of traffic to your Web site, a very large marketing budget and you are building a business model around volume rather than individual sales. Remember this when thinking about which affiliate programs to join, because there are very few products that can be sold successfully and sustainably on the Web without traffic from search engines.

Unless you know Web design and site optimization very well, you are going to end up having to troll for traffic by buying clicks. In order to do that, you need to have enough leverage in your profit margin to be able to build your sales, and you need a product and Web site that are attractive enough to generate repeat customers and continue to lower your cost per acquisition.

I’m not trying to paint a bleak picture; I know many smaller advertisers who have quit their day jobs and built a business using PPC advertising alone. They just made sure their profit margin was strong enough to allow them to do it, and they didn’t buy into the new get-rich-quick schemes.

Myth 2 You’ll never be the victim of click fraud.

While the search engines take this stuff very seriously (at least Overture and Google do), they are at the mercy of bots and hackers constantly assailing their systems for their own nefarious gains. By now, most people out there realize that they have to have a virus program installed on their computer or they are bound to get burned by a vicious attack. The same thing is true of your Web site. If you are a PPC advertiser, eventually you are going to get hit with fraudulent clicks, especially if you are in any of the competitive channels.

Overture and Google catch the majority of them, but your campaign is still going to get hit by at least 5 to 10 percent of clicks that are not real. This number is not now, nor has it ever been, 50 percent, by the way. That’s another myth that’s being touted around the Web right now that simply isn’t true. I personally know at least 100 advertisers, both large and small, who are getting at least 5 percent conversion rates from their PPC campaigns, and that just wouldn’t be possible with 50-percent click fraud rates.

This is your campaign and your livelihood. Do yourself a favor: Before you spend a whole bunch of money on PPC advertising, set up tracking URLs. Take advantage of conversion tracking from Overture and Google, and buy yourself a good click-tracking solution.

Some good, inexpensive ones include WhosClickingWho.com, Click Auditor from KeywordMax.com and ClickTracks. com. Not only will these programs inform you about the nefarious clicks, but they will also tell you about the real ones so you can determine how much you should actually be paying for clicks.

With your click information in hand, you can go to the search engines and question any clicks that you know are bogus. The search engine companies will research this, and if they find the clicks questionable you will get a refund. Partnering with the search engines in this way is the best way to safeguard your business, and no one benefits when click fraud is allowed to continue.

Another way to guard against click fraud is to be very careful when selecting smaller search engines to work with. Many of them simply don’t have the resources to invest in the technology needed to safeguard their advertisers from fraudulent clicks.

Myth 3 Once you build your Web site and start getting traffic, you are done.

Search engine marketing is one of the most iterative marketing processes ever developed. One of the hardest things about marketing on the Web is that you’re never done. The search engines are constantly changing their processes, and you should constantly test landing pages and creative on your search engine marketing campaigns. New affiliate programs are constantly arriving on the scene, and everyone is in search of the next big thing.

You don’t need to follow what’s in fashion to be successful. You just need to make sure you stay up to date on issues and take full advantage of all the latest marketing channels that become available.

That means trying local and international traffic and seeing how it converts, adding things like contextual advertising to your site to try to monetize every square inch of the page and continuing to learn how you can provide a better product or service for your customers.

One of the great things about the Internet is that it truly does create an even playing field for all. Search engine marketing makes it easy for a small marketer to compete with a Fortune 500 company.

You can sell your product internationally or locally, work at home in your pajamas and generate a good living. All you have to do is play it smart, market to a niche and watch your profit margin like a hawk!

MARY O’BRIEN is a partner at Traffic-Mentor.net. She has worked in Internet marketing for five years and was formerly senior director of sales at Overture.com.