How Many Clicks Does a Click Fraud Make?

In early March 2006 Google agreed to pay advertisers $90 million in response to an Arkansas lawsuit alleging that the search engine giant was charging them for Web clicks not generated by legitimate users. This high-profile settlement, along with a number of other suits directed at Google and Yahoo! in the past year, has spawned a debate of click fraud within the pay-per-click industry. Some advertisers are crying out that click fraud is wreaking havoc on their search engine marketing initiatives. Search engine companies, however, are vouching that fraud accounts for only minuscule losses. In 2004 Google CFO George Reyes asserted that click fraud was "the biggest threat to the Internet economy." Since then, the search engine has markedly deemphasized the issue. Today, Schuman Ghosemajumder, the business product manager at Google, says, "The losses associated with it are very small"--approximately 1 percent of clicks according to the amount awarded in the settlement. Sapna Satagopan, research associate at Jupiter Research, estimates this number is a bit higher, "probably anywhere between 2 and 5 percent." Other parties, however, claim that click fraud is a much larger problem. "We've seen averages much higher," says Michael Caruso, cofounder of ClickFacts, an Internet auditing firm. "They're saying one in 100 and we're seeing one in four." Several months ago ClickFacts approached online retailer Radiator.com, offering to test the quality of the Web site's clicks. The firm found that 35 percent of Radiator.com's clicks in Google could be attributed to fraud. The site is now compiling more data in preparation for a case to be brought against the search engine. Jon Thys, director of Internet marketing, says that click fraud is a big problem for Radiator.com. "It affects our results. We're a data company: If 35 percent of our clicks are fraudulent, that affects how much we can market with them." Although Satagopan cites numbers much lower than ClickFacts', she is wary of disregarding its estimate. "I would definitely be interested in seeing their numbers," she says. Satagopan also says SMBs like Radiator.com would be more damaged by click fraud, "because they run on a smaller budget so they're expecting their dollars to be more justifiable." While the numbers on the subject fluctuate--in part because it is almost impossible to discern whether a click is valid or not--all parties agree it is an issue that needs addressing. Google now attempts to counter fraud through a series of algorithms that identify patterns of suspicious behavior. Depending on the stage at which it is caught, the search engine either filters out the clicks before they reach the advertisers' accounts or provides monthly refunds. Additionally, Ghosemajumder says, "Every time an advertiser writes in to us, we always conduct a personal investigation and determine what should be done for that particular advertiser. It's something that we take very seriously." Satagopan says that advertisers need to be responsible as well. "The responsibility of identification is as much on the marketer as it is on the search engine. It's analogous to somebody trying to make sure that no one breaks into your shop."