The following are notes from an interview with a senior executive of a tech company who believes the company experienced major click fraud on Google. According to the executive, the company maintained detailed traffic logs, which it frequently presented to Google, to no avail. The company has since stopped advertising on Google. The executive believes the click fraud problem will attract the attention of Congress and the Justice Department and will eventually cause the pay-per click industry to implode.

The interview was conducted on background on April 18, 2006. Our comment follows.


Background

We are a high tech company with high tech talent, including network administrators, web developers, etc. We started advertising on Google a couple of years ago, and gradually began seeing a decline in our return on Google keywords. We scanned our traffic logs, and it was very apparent what was happening: We were getting a lot of clicks from questionable sources. For example, about 70% of the clicks were coming from overseas for a U.S.-only campaign. We were seeing them from the Soviet Union, the Middle East, Central America, etc.

We filed several complaints with Google. First verbal, then written. We included detailed information and logs to back up our claims. We were politely ignored. Eventually, we stopped advertising on Google.


Why the problem is so serious (And what other advertisers are missing)

A lot of advertisers just don’t understand what is happening. They are not tracking their click-streams properly. They look at traffic, not conversions. Most of them don’t even look at IP addresses. Of course the traffic increases, but it’s not real traffic.

It is really difficult to correctly analyze click streams. You can’t just look at IP addresses. You have to track the referrals all the way through order forms and fund transfers.

Today, click fraud programs are automated and freely available. They find high-dollar keywords and automate the clicking, making them look human. They vary the click intervals, so they are hard to catch. Some of the programs even begin to fill out forms on the web site, so they really look like people. But of course the transactions aren’t completed.

The more money you spend as an advertiser, the bigger a target you become. If you ignore the problem, your ROI will decrease as you increase your spending.


On how the government will eventually get involved

The click-fraud problem is more serious than just advertisers losing money. It has become a way for groups like Al Qaeda to funnel money overseas. [By creating spam blogs and flooding them with clicks]. This manifestation of the problem is a matter of national security, which will eventually get the government involved.


On the Arkansas settlement

The Arkansas settlement is a joke, but at least it brought the search engines to the bargaining table.


On what the search engines can do better.

First, they can do a much better job of auditing their click streams and cleaning up the problem. They can provide statements showing which clicks advertisers were actually charged for. But this will be tough. The real problem is the business model.


Future of the pay-per-click industry.

The pay-per-click industry is the biggest scam I’ve seen in ten years. Sooner or later, the industry is going to implode. The search engines just aren’t selling anything of value. Eventually, people will figure that out.


Our Comments:
This advertiser's outlook is unusually dire. The key difference of opinion w/r/t click fraud is not whether the problem exists (it does) but whether it can be managed. This advertiser concludes it cannot because search engines cannot analyze what happens after the click. Advertisers can, however, and eventually, they will probably become more rigorous about doing so. Assuming the search engines eventually stop treating their customers like pests, this end-to-end tracking ability should make the problem manageable. The search engines do need to become more responsive, however, or this advertiser's reaction (stop advertising) will likely become more common.



This interview was conducted and published by Cherry Hill Research, a division of Cherry Hill Associates, LLC. Cherry Hill Associates, LLC is not an investment adviser, and this publication does not contain investment advice. Cherry Hill Research does not represent that the facts or opinions in this publication are accurate or complete, and we assume no liability for the use of it. Copyright © 2006 Cherry Hill Associates, LLC.