| Click Fraud is Not a 'Self-Correcting' Problem |
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by Dave Morgan, Thursday, July 13, 2006, 12:00 PM
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Last week, market researcher Outsell released the results of a study on click fraud in the pay-per-click advertising market. Based on interviews with 407 advertisers representing approximately $1 billion in ad spending, the study found that confidence is dropping in pay-per-click advertising as advertisers estimated that more than 14 percent of the clicks that they're billed for are fraudulent. This would represent more than $800 million in wasted spending last year. The results of the study were reported broadly in the online ad trades, since $800 million is a big number, but to many the story didn't seem much different than the dozens of other click fraud stories that we have become accustomed to reading over the past year or two. But that changed.
Earlier this week, Donna Bogatin in her ZDNet blog uncovered comments from Google's CEO Eric Schmidt made in March of last year discussing Google's point of view on click fraud. He described how the pay-per-click advertising model was inherently "self-correcting" and that click fraud should be viewed by Google advertisers as a "cost of doing business." Google's logic, it seems, is that to the extent that click fraud becomes rampant, advertisers will understand its extent and will factor the cost of those "bad clicks" into what they are willing to bid and pay for ads. Thus, even if it becomes a serious problem, it will "self-correct." Advertisers will not overpay for the value that they actually receive. If the click fraud becomes too great, they will stop buying Google ads or paying the bid prices.
Essentially, Schmidt is saying that Google knows that some of its distributors of ads (Web sites) are falsifying clicks so that they can get paid more than they deserve and that this problem isn't that much of a problem since advertisers seem to be happy paying the inflated numbers. Thus, the logic goes, the clicks must have been undervalued to start with.
This certainly raises some questions in my mind, such as:
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What about the advertisers? How do they feel about this? I suspect that they do not feel the same way. I suspect that most of the hundreds of thousands of Google advertisers, particularly the small "mom and pops," have no idea about the level of click fraud that exists and that if they all knew, they would not be happy paying for the fraudulent clicks. Many are turning to third parties like ClickFacts to help them recover dollars wasted by fraud.
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Is Google right? Is click fraud self-correcting? Of course not. That's not how the business works. The only way that Google's argument holds water is if their advertisers have perfect information. This would only work if the advertisers could perfectly track each and every click to each and every site visit to each and every paid sale--and only if they could see all of Google's data across all of the sites and advertisers, and if they had extraordinary analytics tools, to be able to learn for themselves the validity of each and every click. They don't and can't, by the hundreds of thousands.
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Is there any harm done? I think so, and not only to the advertisers that were the direct recipients of click fraud. What about all of the advertisers that bid against them? What about all of the advertisers that lost their top ranking to "click-frauded" competitors? It seems to me that this click fraud problem has a network effect just as powerful as the network effect in the auction component of Google's business model. If fraudulent clicks inflate the prices, it artificially inflates the auction and it impacts everyone. It makes more money for Google. It makes more money for the Web sites. But, unfortunately, it hurts the advertisers.
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Is this much different than the newspaper circulation fraud that was so much in the news over the last year or two? In those cases, it was discovered that several newspaper distributors (bulk wholesalers) had fraudulently inflated their circulation numbers so that they would be paid more. And, of course, since these numbers were used in computing the respective newspapers' rate cards, advertisers ended up paying for the fraudulent circulations--fraudulent clicks, as it were. Following Google's logic, shouldn't this have also been a "self-correcting" situation? If advertisers paid the higher rates and it included the fraudulent circulation, they must have thought that the media value they received was worth the price that they paid. If not, they would have stopped buying it. Of course, newspaper ads are not nearly as measurable on an ROI basis as pay-per-click ads, but in the grand scheme of things, it's just a matter of degree.
Is this self-correcting? Whether or not Google is right, it doesn't matter. We cannot afford to wait. Michael Caruso at ClickFacts asserts that 14 percent is a very low estimate for click fraud, and he has clients where 30 or 40 percent is more the norm. The world, particularly the advertisers and financial markets, watch Google and Yahoo and other pay-per-click advertising providers with bated breath. They are our barometers. They are the basis upon which almost all of us are judged. We benefit from their successes. We are hurt with their failures. In this case, the trust of our industry is at stake. We can not wait to see if it self-corrects. We (Google and Yahoo) need to get out in front of this issue and solve it now. We (they) owe it to the advertisers in whose trust and pocketbooks our futures lie.
12 comments on "Click Fraud is Not a 'Self-Correcting' Problem"
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- Dave Morgan is the CEO of Simulmedia. Previously, he founded and ran both TACODA and Real Media.
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One of the roles my company performs is online advertising sales, and as a sales guy and a business owner I can tell you one thing for sure – you get what you pay for.
Let me illustrate for a minute: Imagine a company hired a new sales person and decided to pay this sales person not for each time they made a sale, but rather each time they picked up the telephone. Let’s say there was a little switch installed between the receiver and the base and every time that switch was clicked the sales person racked up another dollar. It wouldn’t take a very smart (though unscrupulous) sales person to start calling their friends and family around the world, calling their significant other, maybe ordering pizza. In fact, Pavlov’s Dog (link if you need it - http://en.wikipedia.org/wiki/Ivan_Pavlov) could figure out how to make money in that situation.
When Google (or anyone else for that matter) pays via the click this is exactly what they are doing. The one major difference is that now a company’s competition can get into their business and “click the little pay button� running up false numbers. When the success metric is clicks, you will get precisely what you pay for – clicks.
You can strive for 100% efficiency of your ad dollar but if that is your expectation you might as well stop now. If any advertising was always a solid ROI transaction the CFO would be the buyer, not marketing. There is going to be waste in any advertising program. It’s not that I hate Google’s Adsense program – I hate the fact that so many businesses have chosen to stake their entire online budget and existence on Google’s Adsense program. Incidentally, 14% waste is a pretty low number for waste for advertising.
So am I suggesting that no one do search or CPC advertising? Not at all. Am I suggesting that CPA is the answer? Not even close. I’m simply suggesting that advertising is advertising, regardless of what type of media you use. Companies should understand what role search plays in their business and use it accordingly, diversify their approach and figure out the big picture for their business.
There is no magic bullet, or "get-customers-quick" scheme that’s going to work over the long-term. Companies may see a short-term benefit by dumping their budget into search alone, but is short-term success good enough? Companies are still going to need people who use their brains and be strategic. If you are in this role be thankful you are required to use your brain to find what advertising works… if it weren’t the case Pavlov’s Dog (or maybe even a CFO*) could do it!
Josh Sanders eMediaInsider.com
*It’s just a joke, sorry if I offended.
Like the folks cited in your article, we found in the Beta phase for our newest site that 30%-40% click fraud rates in Google were typical. We did a thorough audit of logs to learn as much as possible and concluded that for our primary keywords, several major online sellers were very likely using proxies run by off-shore scumbags to quickly consume the SEM budget of new and smaller competitors in our field. It is reasonable to assume that the same level of fraud can be found across a broad range of categories.
Projecting out over the full launch phase of the new business, we saw the likelihood that nearly half or more of our roll-out spending would be wasted. We also were dubious that any SEM firm we retained to execute the plan would be that interested or even that competent in protecting us from click fraud.
Rather than waste time and more money trying to get Google's attention or recover our SEM test budget, we quickly developed an alternative lead-generating strategy for the new site which would not be as vulnerable to unethical competitors and their minions, and would not rely on the search engines to effectively police their click-through services.
I obviously won't detail our revised strategy, now being implemented as we launch version 1.0 of the new business, but I will highlight the main multiple tracks we're executing, in case they are appropriate for your readers facing the question of "What do we do in the face of corrupted SEM performance?"
Here are the main thrusts in our plan:
1 - Concentrate PPC spending in smaller, much-better targeted sites as opposed to big generic search engines -- not only does this strategy promise *much* more targeted click-throughs, higher conversions, and a lower proportion of fraudulent visits; diverting serious dollars away from Google and the others is surely the fastest way to force them to take click fraud more seriously and deal with it more openly 2 - Develop (faster than we had originally planned) a super-targeted affiliate plan where the selected affiliates are effectively partners in our goods, using co-branding, co-promotion, and development of targeted sub-audience communities 3 - Seek at least one very powerful co-distribution partnership out of the gate, to ensure a steady foundation level of early sales, plus to acquire pre-qualified visitors as a natural by-product -- luckily, this goal has been achieved quickly, and we are now adapting our launch and second stage products to leverage this major relationship immediately, to both parties' benefit 4 - Develop an innovative SEO-based acquisition strategy, one that directly benefits our core partner sites as well as us 5 - Develop micro-sites with funny or otherwise engaging content, shaped specifically for our educated female target audience, and hope that at least a few of these sites can "go viral" over the course of 2-3 years 6 - Implement a low key, humorous content, premium-audience-focused blogging program 7 - Implement a vigorous program to build a network of customer-missionaries who can reach local audiences with WOM and other viral programs 8 - Develop several online "channels", based upon significant streaming content, strong help-type content, and our proprietary search technology, where we can deploy a focused visitor acquire-and-retain strategy -- clearly, we'll also be ensuring these managed channels help our core partners reach co-targeted prospects, so that we can emerge with a solid network of like-minded and similarly focused sites.
As we roll out, we still plan to make very selective and measured use of the big three search sites. But we will be concentrating on keyword combinations that are far less likely to be on the radar screens of the 3-4 truly vicious, click-fraud sponsoring sites in our hotly contested category.
Addressing the bigger picture, it's tempting to say "I told you so" as the over-hyped PPC chickens continue come home to roost. After reaching absurd price-levels for many keywords, and after pricing a very large number of local and smaller e-businesses out of paid search, we now see the ugliness of click fraud revealed. Our own search site doesn't use auction-type bidding, or PPC pricing, which I predicted in 2001 would come to its present sorry pass.
Having run a large division of a very large company, I understand (but by no means agree with) the several Google apologists in this thread and our industry who argue that click-fraud isn't really that big a deal, isn't the responsibility of the search platform providers, can be treated simply as an acceptable cost of doing business by big companies, or all three.
But speaking for the millions of smaller and local business operators, such points ignore the fact that these businesses, which are not only vital to our economy's continuing prosperity, but vital too to the continuing rapid evolution of interactive marketing, are being robbed and prevented from using paid search cost-effectively.
Perhaps the same markets that have allowed the "auction model" to reap havoc with the promotional budgets of smaller businesses and huge companies alike will now punish the search engine sites and the parasitic SEM firms who turn a blind eye to click-fraud.
But none of us can be sure, nor can we wait for ethics and regulation to take hold, and bring the Wild West elements of paid search under control. We needed a strategy to survive and thrive, and, hopefully, have found it.
David Yancey http://www.tootoographic.com - "Styles with Smiles"
Let's do a quick survey:
1. Is it okay for Googleites to be mendacious because it is only 14-40% of the pie, but Enron executives should go to prison?
2. Is it okay if you don't get caught, but if your name is Martha Stewart, you should suffer the consequence of your actions?
3. Should we stop worrying about collateral damage because the innocent people in a war zone will eventually learn to move away from the terrorists?
Obviously the answer to all three questions is "no".
Let's get back to basic honesty. It makes planning, measurement and accountability much easier.
When a fraudster makes a false click he only gets a percentage, Google gets the lion's share. Click fraud contributes to Google's bottom line. Sure, it affects their reputation a bit, but peoples' hands are tied to some degree as many simply wouldn't/couldn't eliminate search (especially Google search) from their marketing mix.
No wonder they're not responding full force to stop the problem...
--Sean
If my CEO said fraud/stealing/crime is self correcting, I'd have him replaced. Let's see...if I'm a bank, and I get robbed...does my CEO say, "no worries...you see...it's self correcting! Yes, my overly frenetic, worry wart, you see, eEventually, consumers stop putting their money in banks, so there's less to steal. We don't need safes, guards or police."
Puuuhhhhllllleeeeease...that kind of thinking deserves a Zidane head butt.
Advertising has always been a guessing game. However, the advertisers have decided that even if they don't know exactly how many people saw/heard their print ad, radio spot, billboard, or TV commercial they use judgement in determining how much each medium is worth. Search advertising is no different. If the results don't justify the spending they will cut down what they are willing to bid.
Google Analytics software is integrated with AdWords and seems to be able to track AdSense clicks as well. I feel that in short order, Google will be able to offer Analytics-based "Validated Traffic" (at a premium price of course).