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Click-Fraud Fears Giving Boost To Online Services

BY PETE BARLAS

INVESTOR'S BUSINESS DAILY

Posted 4/13/2006

Click fraud is becoming big business for cybersleuths.

A growing number of online detectives are helping advertisers figure out exactly who is clicking on their ads. They want to know if the clicks are coming from real prospective customers — or someone with malicious intent.

As companies advertise more on Internet search engines — and pay fees on a per-click basis — click fraud is a huge concern. It could affect as much as 20% of the multibillion-dollar market for search engine advertising, experts say.

Authenticlick, a click-auditing firm in Los Angeles, says it's been flooded with calls from advertisers.

"We are getting a lot of inquiries because everybody knows that click fraud is a big problem," said Michael Leonard, company CEO.

Click fraud has grown in step with paid search advertising. With paid search, advertisers arrange to have their names listed among Web search results. If someone clicks on an ad, advertisers pay a fee — anything from a few pennies to several dollars, depending on the popularity of the keyword search term.

When there's a high number of clicks — but no resulting impact on sales — advertisers often fear that the clicks aren't coming from genuine customers.

The culprits could be business competitors, who click on rivals' ads in order to exhaust their rivals' ad budgets. Or they could be Web site owners, who make phony clicks to boost their ad revenue.

For Authenticlick, the challenge is meeting big demand for click auditing. It has fewer than 100 clients, but it's scrambling to ramp up its services to handle more, Leonard says.

"We have the technology," he said. "The issue is being able to manage large volumes of clients, and that is something we are working on."

The story's the same for Clicklab, which launched its click-auditing service in 2004. The firm already has several hundred clients, says Chief Executive Dmitri Eroshenko.

"Business is excellent," he said. "We are growing at about 30% a year. Every time a new article on click fraud comes out, we get more phone calls."

The stakes are high. By 2010, U.S. advertisers will spend $7.5 billion on paid search ads, says Jupiter Research, up from $3 billion in 2004.

As spending rises, auditing services will likely multiply, says Danny Sullivan, editor of Search Engine Watch, an industry newsletter.

"We are going to get more and more of them, because there is a lot of money being spent on the Web, and auditing makes sense," he said.

Advertisers seem to like the checks and balances of a third-party reporting service, says Danielle Leitch, an executive vice president at MoreVisibility, an Internet search marketing firm. "For some search advertisers, it's a comfort," she said.

Click fraud is also a problem for Google, (GOOG) which gets most of its sales from paid search. The company last month agreed to pay $90 million to a group of retailers who claimed to be victims of click fraud.

The group had filed a class-action suit against Google. Other click-fraud suits are pending against Google and its rival, Yahoo. (YHOO)

Google has maintained that the amount of click fraud is minuscule.

"It's not material to our business," said Google CEO Eric Schmidt at a conference last month.

That Google was able to settle the recent lawsuit for just $90 million — less than 2% of its $6 billion in annual sales — shows that the problem isn't huge, some analysts say.

But not everyone is buying that argument. Judging by his customers' experiences, the fraud is widespread, Eroshenko says. "The systemwide average is around 20% for all of our clients, and that's awful for the industry," he said.

Click Forensics, another click-auditing service, is building an online index of click fraud. It's culling the data from advertisers that volunteer to sign up. The amount of click fraud has reached 14% among its several hundred members, says Tom Cuthbert, president of Click Forensics, which launched its member network in February.

"Having our members allow us to publish this data will help answer how much click fraud really is occurring," he said.

Click-auditing firms look for fraud by analyzing several aspects of each ad click.

Clicklab, for example, applies over 30 tests to each visitor who clicks on an ad. The company is looking for anything suspicious, such as hundreds of clicks coming from one computer, Eroshenko says.

"Each test comes with a penalty score, and if it exceeds a threshold, then we declare that session a potential click fraud," he said.

In its reports, Click Forensics tracks the amount of click fraud by week and by time of day. A pie chart graph tracks click fraud's country of origin. Another chart shows what types of search engines carry the most click fraud.

Analysts say the smallest search engines — the so-called tier three — have the most click fraud. Tier-one search services, such as Google and Yahoo, have the least.

Click Forensics is close to getting two tier-two search engines to use its fraud-detection service, Cuthbert says.

Having click-fraud detection could help smaller engines better compete with Google and Yahoo, he says. "They want to differentiate themselves in a very crowded field," Cuthbert said.

Authenticlick, meanwhile, says one search engine has been using its fraud-detection service for about a year. It wouldn't name the firm.

Search engines need the help, Leonard says, since they can't tell what happens after a consumer clicks on an ad. That's where fraud auditing steps in.

"What people do at the Web site after they leave the search engine helps to evaluate whether the click is valid or not," he said.

Like most search services, many click-fraud auditing services charge by the click.

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