September 5, 2006

Click Fraud: Who's To Blame?


Click fraud has become the greatest threat to the rapid growth of the paid search marketing sector. Many search engines are seeking a solution to this problem. But who's to blame for all this shenanigans?


Do You Pay Per Click Fraud?

The world of pay-per-click marketing started in 1997 with GoTo.com. Today they are known as Yahoo Search Marketing. What started in 1997 as a way to quickly get listed in the top of the search engines has turned into a 5.6 billion dollar industry in 2005. In fact, about 99% of Google's revenue comes from advertising.

However, this multi-billion dollar search industry is under attack and has been for quite a while. Click fraud has become the greatest threat to the rapid growth of the paid search marketing sector. The Interactive Advertising Bureau estimates that 20 to 35 percent of ad clicks are fraudulent.

Who's to blame? Click fraud can come from a variety of sources, including competitors, bots that simulate the human behavior of clicking on ads in web pages, or even friends of the publisher who want to "help" the publisher gain some additional click revenue.

However, the major search engines have received the majority of the blame, even though they are not necessarily responsible.

Yahoo has recently settled a class-action click fraud settlement. Under the settlement, Yahoo advertisers will be allowed to submit click fraud claims dating back to January 2004. Yahoo will reimburse any confirmed fraudulent clicks in cash, with no set limit on the amount of claims it will cover.

This year, Google has been burdened with its own click fraud case to the tune of 90 million dollars. Currently, the court is deciding whether to accept the search giant's proposed $90 million settlement while roughly 50 plaintiffs are voicing their dissatisfaction with it.

Click fraud is certainly no small matter. It has become larger than the total magnitude of credit card fraud in the U.S.

So far, these law suits have spawned more questions than answers for the ultimate solution to click fraud. Click fraud threatens an entire business model; one that is generating billions of dollars every year.

At this point, it's hard to tell whether pay-per-click advertising will stand the test of time, or line up for the chopping block.

Many of the search engines are already looking for solutions.

Pay-Per Percentage

Microsoft is currently engaging in research to develop new, click fraud resistant advertising models. Joshua Goodman, a Principal Researcher at Microsoft has published a white paper on pay-per-percentage as a solution to click-fraud.

Pay-per-percentage is an advanced form of pay-per-impression. Within this system, someone can bid for a percentage of all impressions for certain keywords or keyword phrases over a specified period of time. In the pay-per-percentage model, click fraud is avoided because the advertiser is not charged any additional amount for clicks. The business model is based upon a percentage of ad impressions.

Microsoft research describes it as:

"A simple method for selling advertising, pay-per-percentage of impressions, that is immune to both click fraud and impression fraud... ads must be shown in a truly random way, across the percentage of impressions purchased..Pre-fix match: a system that is similar to broad-match, but more compatible with pay-per-percentage... auction pay-per-percentage matches, including prefix matches in a revenue maximizing way...make it easier to sell to advertisers."

The Google Adwords system itself was initially based on a cost-per-view model. Unfortunately, there was a lack of enthusiasm for the cost-per-impression services and they switched over to the pay-per-click model.

For the pay-per-percentage model to succeed, Microsoft will certainly have to do some things different. Their solution is outlined in the paper, "Pay-Per Percentage of Impressions: An Advertising Method that is Highly Robust to Fraud" (http://research.microsoft.com/~joshuago/percentageworkshop- final.pdf)

Another possible solution being explored is Pay Per Action.

Under this model, advertisers do not pay every time a user clicks on an ad. Instead, payment is only made when a click through leads to a desired action. This could be a purchase, filling out a form, downloading trial software, or even making a call.

This model takes much of the risk out of advertising.

In fact, Google Adsense is currently beta testing a compensation system based on CPA. If you are an adsense pubisher, this would mean that instead of getting paid for clicks or impressions, you would get paid a commission for a sale or other desired action. These ads won't compete with the regular pay-per-click ads and will be on a separate network. However, they may be beneficial for advertisers looking to avoid click fraud.

Paid Inclusion

Another possible solution to pay-per-click is known as paid-inclusion. Although many of the paid inclusion companies have come and gone over the years, there is a new organization that is offering a very optimistic solution to the many pay-per-click problems we are facing today.

This organization is giving smaller search engines and directories the ability to compete with the big guns (Google, Yahoo, and MSN.) The smaller search players can attain this status by becoming part of a mass community that delivers quality advertising at a fraction of PPC costs.

The paid inclusion program offered by this community of search providers, known as the ISEDN (http://www.isedn.com), is a cross between the older paid inclusion models and the reigning PPC model. Purchased ads are displayed in a similar manner to the PPC ads shown by Google, but advertisers are charged on a flat fee basis, not on a per click basis.

The ISEDN program makes click fraud irrelevant because ads are displayed for a certain period of time, regardless of the number of clicks or impressions received.

Through the power of the collective community (the ISEDN currently has more than 230+ members), ISEDN paid inclusion ads are displayed over 150 million times per month. This equates to 150 million potential advertising opportunities.

Within this model, you can buy top 10 exposure across a rapidly growing network of search providers for $3 to $4 per month. If you choose to buy in volume, you can expect some significant discounts.
The ISEDN advertising model limits the sale of the same keywords or phrases to 30 advertisers. If a keyword term is sold more than 10 times, then those paid listings begin to rotate between the SERPs. So, for the worst case scenario, a listing would appear on the first page of results approximately once out of every 3 searches on most engines in the network.

This program gives advertisers the benefit of advertising with smaller search engines on a massive scale without the fear of click fraud. For more information on this advertising model visit ISEDN founding member ExactSeek.com (
http://new.exactseek.com/featured_listings.html).

As for Google, Yahoo, and MSN, you can definitely expect to see some changes being made with their paid search programs in the near future. The pay-per-click model is inherently flawed and must be altered to survive. Google and the other major search engines know that their business will be crippled if they do not adapt. In the meantime, there are a number of alternatives for advertisers looking for a safer solution to advertising.

About the author: Kim Roach is a staff writer and editor for the SiteProNews (http://www.sitepronews.com) & SEO-News (http://www.seo-news.com
) newsletters. You can contact Kim at: kim@seo-news.com

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