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The Real Problem With Click Fraud

Reader “Anon” posted a link to today’s Washington Post story on click fraud.  The story tells a familiar tale–a company hired a fraud-detection firm to audit its clickstreams and found that an estimated one-third of the clicks were bogus.  The story also describes the latest bot-clicking technology (“You, too, can deplete your competition’s keyword budget in ten minutes!!!”).  As usual, no hard numbers, just estimates from various fraud-detection firms that 20%-40% of clicks are fake.

The story also highlights, indirectly, the real problem here: The expense and hassle required to monitor and audit your clickstreams and then make a compelling enough case to the search engines to get a refund.  The engines don’t have access to post-click sale data that advertisers do, so there will likely always be disagreements about what is and isn’t a bogus click.  Also, the necessity of having to track, audit, and complain will add a layer of cost and effort to search advertising that is not currently factored into keyword pricing, especially if click fraud is an escalating problem.

Because advertisers can assess their ROIs with all fraud included, click-fraud deniers have a point when they say “It’s just a cost of doing business.”  This said, all else being equal, if click fraud is increasing as a percentage of total clicks, the price companies are willing to pay for keywords is going to have to fall–or ROIs will decrease.  [If someone knows for sure whether click-fraud is increasing, I and about 10 million others would be grateful if you could send some confidential evidence to [email protected].] And if most companies decide that they have to pay to track and audit their click-streams or risk throwing money away, this will add to the cost of search marketing programs and put further pressure on ROIs.

And then, of course, there’s the PR issue.  Google’s recent stock plunge and communication gaffes have already tarnished the once-gleaming reputation of search engine marketing in general and the company in particular.  Imagine if Google deals with an increasing number of refund requests (stimulated by an increasing number of click-fraud audit firms) by saying, effectively, “If our rocket scientists said it was a valid click, it’s a valid click.  So get lost.”  Whether or not advertisers are still generating positive ROIs, frequent anecdotes about such snubs won’t win Google many admirers, especially when it is generating a 50%-plus operating profit margin.  Armed with independent verification of their suspicions, moreover, such advertisers will be even more annoyed next time Google dismisses their concerns as “not material.”

In my mind, regardless of whether one thinks click fraud is a big problem, it is hard to avoid the conclusion that it will add a layer of additional cost to search engine marketing–probably on both the advertiser and search engine side.  This may not be terrible, but it’s hard to dismiss as irrelevant.  It’s also hard to reconcile with a theory of ever-increasing profit margins.

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