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Estimating the Real Click Fraud Rate
By Nick Guastella (c) 2007

The controversy surrounding click fraud comes up every year, but
it reached a fever pitch during December's Search Engine
Strategies conference in Chicago when participants voiced
concerns over experiencing fraudulent click rates ranging from
20 to 40 percent, threatening the entire paid search industry.

At the time, Google's Business Product Manager for Trust and
Safety Shuman Ghosemajumder tried to calm advertisers' fears
explaining that Google was currently "...examining ways to make
its fraud-fighting efforts more transparent without revealing
crucial information that might help swindlers elude detection."
Ghosemajumder did, however, express concerns over revealing too
much information, fearful it would give away algorithm secrets
to competitors.

Paid Search Revenues Continue to Rise

While the major search providers have always insisted the click
fraud rate is a gross overestimation, a 2005 Outsell survey
found that click fraud was a $1.3 billion problem for
publishers. At the time, many advertiser respondents (27
percent) said they planned to cut back and/or eliminate paid
search campaigns in 2006.

Outsell respondents may have intended to cut down on paid
search, but they certainly didn't follow through. SEMPO's
year-end search marketing report showed that North American
advertisers spent $8 billion on paid placement programs in 2006,
amounting to 86 percent of 2006's total search spend ($9.4
billion). Seventy-one percent of SEMPO respondents said they
used paid search campaigns, illustrating that there were not
many defectors.

Despite advertisers' insistent claims that the search engines
don't do enough to eliminate click fraud, paid search revenues
continue to fill the coffers of Google, Yahoo, Microsoft and
many second and third tier search engines Additionally, there is
a huge gap in the professed prevalence of click fraud between
the search providers and the advertisers and click fraud
advocates.

Google Click Fraud Estimate

The rate of click fraud changes depending on whose numbers you
believe. Click fraud detection agencies put the click fraud rate
hovering around 14 percent, while others believe at least 20
percent of all clicks are fraudulent.

Late last month, Google issued a statement on the Inside AdWords
blog that insisted invalid clicks consistently remain under 10,
typically in the single-digits, and that virtually all malicious
activity is found by Google's filter. Ghosemajumder claimed the
percentage of clicks found by advertiser-initiated
investigations account for just .02 percent of clicks. All other
accounts, he said, are grossly overestimated.

Alchemist Media President Jessie Stricchiola takes issue with
Google's assertion that it refunds advertisers promptly for
fraudulent clicks, stating that "Google has been the most
stubborn and the least willing to cooperate with advertisers".

Google Click Fraud Filters

In February, Google outlined the three-layer filtration process
it uses to combat and eliminate click fraud. They described the
system which uses both proactive and reactive filters as
follows:

  1. Proactive Filters: Automated algorithms analyze and filter
     out invalid clicks in real-time without billing advertisers
     for these false clicks. This accounts for the vast majority
     of invalid click detection.

  2. Proactive Offline Analysis: Post billing, Google uses
     automated and manual analysis to identify fraudulent clicks
     that somehow made it through the first layer of filtration.
     Special attention is paid to clicks occurring on the
     AdSense network. This is done pro-actively and without any
     involvement from advertisers. When false clicks are found,
     advertisers' accounts are immediately credited via Click
     Quality Adjustments.

  3. Reactive Investigations: Investigations take place when an
     advertiser approaches Google concerned about suspicious
     activity on their account. Each complaint is investigated,
     though Google says refunds are relatively rare. Google
     claims that the vast majority of fraudulent clicks, more
     than 99 percent, are found and thrown out within the first
     two stages of filtration. The third stage only includes the
     .02 percent of clicks where advertisers are affected by
     undetected cases of click fraud.

Click Fraud Detection Agency Estimates

In April 2006, The Click Fraud Index reported an industry-wide
average click fraud rate of 13.7 percent. The click fraud rate
was broken down as follows:

  • Tier 1 search providers -- 12.1 percent
  • Tier 2 search providers -- 21.3 percent
  • Tier 3 search providers -- 29.8 percent

Some of the newer click fraud prevention firms like Click
Assurance and ClickLab offer algorithm-based programs to limit
bad clicks. These programs estimate the statistical likelihood
of a click being fraudulent based on behavioral variables and IP
address.

Gap in Prevalence of Click Fraud

As noted above, Google admits to a < 10 percent click fraud
rate, while advertisers and click fraud detection agencies
believe it is more like 14 to 20 percent. Ghosemajumder
explained this gap saying that many advertisers and click fraud
detection agencies are looking at the wrong signals, mistakenly
classifying valid clicks as fraudulent. Additionally, he
believes many advertisers request refunds for clicks already
thrown out during the first two layers of the filtration
system.

For example, misclassification might occur when counting reloads
of an advertiser's landing page. Say the customer clicks through
to the landing page, views a product page, and then hits the
back button, returning to the same landing page. Without proper
tagging, that one click and five page re-loads could be
misclassified as 6 clicks from the same visitor. Google argues
that there are hundreds of different signals that must be
monitored to detect click fraud, signals that are a closely
guarded company secret and known only to the Google click
quality team.

A Solution for Click Fraud

Like other experts, we believe the only solution to click fraud
is for independent auditors to evaluate the system using
accurate data provided by the search engines and advertisers
themselves. It is the only way to get a neutral calculation --
the current click fraud detection agencies may not be entirely
neutral, and certainly the search providers are not neutral. We
need an independent agency that has no incentive to increase or
decrease the click fraud rate. One solution could be to use a
technology firm like Fair Isaac, which is currently conducting
click fraud research for SEMPO.

One thing is certain, until advertisers are willing to provide
campaign info, and the search engines are willing to share click
fraud data, we'll never know the actual prevalence of click
fraud or how much advertisers are losing as a result.

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Nick Guastella, SEM Analyst and PPC expert at Bruce Clay, Inc.
(http://www.bruceclay.com/), has been active in search engine
marketing for the past six years. Nick has worked both sides of
the PPC fence. He has insider knowledge gained from a stint
starting in 2000 at GoTo/Overture, the original Pay Per Click
advertising pioneer. He then crossed over as Account manager for
ValueClick.com.
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