September 1, 2006, 12:00 AM

Good Clicks vs. Bad Clicks

Click fraud is in the news in a big way these days. But what is it and how do retailers fight it?

Anyone who hoped the recent settlements of click fraud lawsuits against Google and Yahoo would put the controversial issue of click fraud to rest will almost certainly be disappointed. While the settlements offer financial relief to some retailers, the underlying questions remain. Just how widespread is click fraud? What responsibility do the search engines bear to prevent it? And just what is click fraud, anyway?

Click fraud has been a bone of contention between retailers and the search engines for years. Retailers say the search engines-which receive the click revenue-have looked the other way as unscrupulous affiliates or competitors run up bogus clicks on their ads. Search engines contend that click fraud estimates are inflated and that their systems weed out most invalid and fraudulent clicks.

Limited responsibility

In the recent settlements with retailers, the search engines acknowledged limited responsibility for click fraud. In the Google settlement, which received final court approval in July, the search engine agreed to provide up to $60 million in credits for future ad purchases to retailers who claim to have been charged, but not reimbursed, for invalid clicks dating back to 2002. The settlement is capped at $90 million, including $30 million for attorney fees.

Some say the Google settlement is inadequate and a class action lawsuit challenging it is pending in California.

Under its settlement with retailers, Yahoo agreed to give refunds or ad credits to search marketers who paid for clicks made by users who had no intentions of visiting the marketers’ web sites. Marketers can submit claims for clicks dating back to January 2004. In addition, Yahoo has agreed to appoint a traffic quality advocate dedicated solely to addressing concerns about click fraud and traffic quality.

Nevertheless, the debate still rages, with retailers and search engines arguing not just about the amount of click fraud losses, but also about whether search engines are doing enough to prevent click fraud. And there’s even little agreement about what constitutes a click and thus exactly what click fraud is.

“It’s the age-old question,” says Stuart Larkins, vice president of search marketing at Performics. “There really is no standard in the industry, which causes a lot of this frustration and confusion.”

One group attempting to set a standard is the Interactive Advertising Bureau, which announced last month that it is forming an industry-wide Click Measurement Working Group. The group is working to provide a detailed definition of what a click is, and a standard against which to measure and count clicks in pay-for-performance advertising programs. “We’re looking to create a consistent and universally agreed to definition,” says Greg Stuart, IAB CEO.

Wide range

The guidelines will outline an industry-driven auditing and certification recommendation for organizations involved in performance-based marketing, such as search engines, ad networks, third-party ad servers and any company that counts clicks as part of the media currency, Stuart says. Participating in the working group are, Google, LookSmart, Microsoft Corp. and Yahoo.

However click fraud is defined, estimates on the amount of click fraud vary, ranging between 5% and 50% of clicks. A recent survey by market researcher Outsell Inc. of 407 online advertisers who spend from thousands to $10 million annually on Internet ads put the number at 14.6% of clicks in 2005, representing about $800 million in spending on fraudulent clicks. Others estimate click fraud losses as high as $1 billion and growing.

75% of advertisers surveyed by Outsell said they have experienced fraudulent clicks. Despite this high rate, only 7% filed for refunds from the major search engines. The average refund totaled $9,507.

The search engines disagree with these estimates of click fraud losses. “Our perspective is that click fraud is a serious but manageable challenge,” says John Slade Sr., Yahoo’s director of global product management. He declines to give numbers.

And Google says most industry estimates of click fraud are inflated. “The losses due to invalid clicks are very small as far as (retailers) are concerned,” says Shuman Ghosemajumder, business product manager, trust and safety, Google Inc. Google also refuses to give numbers.

To support that view, Google last month released a report detailing what it says are fundamental flaws in third-party consultants’ click fraud audits that exaggerate the size of the problem. In “How Fictitious Clicks Occur in Third-Party Click Fraud Audit Reports,” Google’s Click Quality Team said the most significant flaw stemmed from the fact that many click fraud consultants don’t count actual ad clicks.

The erroneous cookies

“Rather, to determine the number of ad clicks, they use a number of other signals, including counting visits to a particular web page,” Ghosemajumder said in a blog posting at the Google site. “As a result, the consultants count page reloads and subsequent visits on an advertiser’s site as multiple clicks on the advertiser’s Google ad.”

In addition, some consultants attach cookies to users’ computers and track their activity across the network of client advertisers, Ghosemajumber says. “One often-used consultant implements the cookie in such a way that clicks on Yahoo ads can be counted as clicks on Google ads and vice versa,” he says. “These kinds of flaws in methodology cause click counts in consultant reports to be artificially inflated.”

In one case, a consultant claimed that 1,278 clicks were fraudulent while only 850 clicks appeared on Google’s log, he says.

Google also found that clicks identified as fraudulent by consultants often converted at rates comparable to other clicks. In one case, so-called fraudulent clicks converted 5.1% of the time, slightly below the advertiser’s overall conversion rate of 5.8%, Ghosemajumber says.

But some question Google’s methodology. “I share Google’s basic sense that click fraud is a tough quantity to estimate and that folks who have estimated it so far haven’t done a great job,” says Benjamin Edelman, an attorney and click fraud expert. “But I don’t know that Google has done a better job. If you ask Google how much click fraud there is actively right now in the network, they’ll say ‘zero. We caught it all and we kicked them out.’ But of course, that leaves out the possibility that they might not have caught them all. No one has a good methodology.”

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