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Last Update: May 8, 2006
Click Fraud
Most estimates suggest that between 10% and 30% of total paid-search clicks are “invalid” or “fraudulent” (depending on who’s talking). The search engines perform click-stream audits and discard clicks they identify as invalid. Assuming the percentage of invalid clicks is greater than the percentage of clicks for which Google and Yahoo! already provide refunds, however--as most think--search revenue and growth rates may be artificially high.
Click fraud is still largely seen as a “cost of doing business” that is already factored into advertisers’ ROIs. The best outcome for the industry will be that it stays this way. Awareness of the problem is growing, however, and this is creating tension between search engines and advertisers.
The click-fraud problem creates two risks, either of which could temporarily hobble the industry.
- Economic Risk. A cottage industry has now sprung up to help advertisers monitor and analyze click-streams. Such services go beyond search-engine auditing efforts and give advertisers ammunition with which to request refunds. As more advertisers adopt such services, the cost of audits will impact ROIs.. Even if click-fraud is not rampant, therefore, the necessity of auditing click-streams will weigh on keyword prices. If click fraud proves a bigger problem than the search engines understand, increased advertiser scrutiny could result in demands for bigger refunds and improved screening efforts. Either or both would reduce search engine revenue and profitability.
- Psychological Risk. Thus far, the click fraud problem has confounded efforts to quantify it. What’s more, click-stream analysis is subjective enough that advertisers and search engines may forever disagree about what is and isn’t a valid click. Third, researchers continue to discover ever-more-insidious strains of the plague, so just when the search engines have eradicated one, another breaks out. All this is leading to increasing FUD (fear, uncertainty, and doubt).
Industry Response
The search engines and most advertisers are responding to the problem by modestly increasing spending on click-stream auditing. The search engines will probably also have to increase spending on customer service: Right now, advertisers often feel ignored even when they can furnish compelling evidence of fraud.
One potential advertiser response is to stop spending money until the uncertainty is resolved. The lead plaintiff in a California click-fraud lawsuit, AIT, has done this. If the noise gets loud enough—and if Google, Yahoo!, et al, don’t do a better job of addressing advertiser concerns—this response could become typical. This, too, would hurt search engine revenue and profitability, regardless of how big a problem click fraud actually is.
The key difference of opinion
The debate about whether click fraud is merely a temporary hurdle or a doomsday bomb hinges on whether or not the problem is manageable. Doomsday proponents argue that search engines cannot police the problem because they can't tell what happens after the click. As bots and other click-fraud tools get better at mimicking human click-behavior, this argument goes, search engines will no longer be able to tell good clicks from bad. Fraud rates will increase, ROIs will drop, and, ultimately, frustrated adverters will flee the medium.
The counter-argument is that, because advertisers can track what happens after the click, the problem is manageable. If end-to-end click-stream audits reveal high percentages of bad clicks, advertisers can simply boycott further spending until the search engines listen and adequately respond. Although this could create a temporary crisis--and could put downward pressure on search engine profit margins as they increase bad-click refunds and build better customer-service organizations--it should keep the problem from overwhelming the industry.
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