About $800 Million Wasted on Click-Fraud, Study Says
Google, Yahoo, MSN and others are stonewalling on click fraud to their own and others’ detriment, said research firm Outsell. Online advertisers estimate 14.6% of the clicks they're billed for are fraudulent, representing about $800 million in spending for fraudulent clicks in 2005, according to the study of 407 advertisers responsible for about $1 billion in advertising.
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Nearly 27% of advertisers have reduced or stopped their pay-per-click advertising, and 16% of those have ended spending altogether, said the study. About 75% of advertisers said they have experienced some form of click fraud, while 7% said they have requested refunds and received an average of $9,507.
Pay per click presents 2 crucial problems, the study said. The first is lack of openness: Google, Yahoo and MSN provide no data to document fraud they detect, intercept and refund. Secondly, a click doesn’t guarantee user intent or generate revenue for the advertiser, which jeopardizes pay per click entirely, Outsell said: “The industry must openly acknowledge that there is a major problem, adopt independent audits, and open itself to new approaches created through collaborative solutions with [Google, Yahoo and MSN], publishers, advertisers, and the hacker-geek community.”
Google, which said this year it would pay $90 million in ad credits and attorneys fees to settle a click-fraud class actions suit (WID June 8 p10), said it believes the problem is small and manageable. Google is reluctant to share information about click fraud detection technology because that would make it easier to defeat the system, the company said.
Microsoft developed an ad platform that analyzes search patterns and recognizes different activity types to help identify the differences among malicious clicking, user error and valid clicks, said Jed Nahum, dir.-product management for Microsoft Ad Center: “Microsoft recognizes that invalid clicks, which include clicks sometimes referred to as ‘click fraud,’ are a serious issue for pay-per-click advertising.”
Yahoo said it views click fraud as a “serious, but manageable challenge. We are very confident in our system’s ability to detect fraudulent clicks, but we also recognize that our customers -- and the industry as a whole -- have many questions and concerns about click fraud,” said a company statement. Last week, Yahoo reached a preliminary settlement with Checkmate Strategic Group (WID June 30 p7)ending a legal battle dating to June 2005. Under the deal, Yahoo would pay about $5 million in legal fees and review advertiser click fraud complaints from January 2004.
Industry giants and major advertisers should work with independent auditors to monitor click fraud, the study said. Nearly 14% of advertisers said they use 3rd-party services to combat click fraud. About 28% of those companies pay an average of $138,000 each to Mo.-based monitoring company ValidClick. Other top 3rd-party monitors include HitsLink, Omniture, and HitWise. Fair Isaac, a company that tracks credit card fraud, is joining forces with the Search Engine Marketing Professionals Organization to measure the effects of click fraud on search-engine advertising.