Click fraud, or deceptive ad clicking by people or programs to inflate traffic data and generate revenue, is a weakness in the system that hurts both publishers and advertisers. Although there have been many lawsuits and efforts made by advertisers and the government to reduce click fraud, it continues to haunt the system.
In mid 2006, Google settled a class-action lawsuit filed by Lane's Gifts and Collectibles for $90 million, deciding to bow out of the situation. Co-defendant Yahoo has continued to contest the matter. As part of its settlement, Google committed to allow all interested U.S. advertisers to apply for reimbursements for invalid clicks made since February 2002, when Google started offering pay-per-click ads.
Attempts at deliberate deception are difficult to prove in many cases. Therefore, when determining how much advertisers should be paid, Google uses the term "invalid clicks" rather than "click fraud."
But invalid clicks are only part of the problem. Invalid clicks may occur due to accidental double clicking on ads rather than outright click fraud. Furthermore, search engine owners fail to address click fraud that is detected neither by their systems nor by advertisers.
This portion of undetected click fraud that regularly sneaks past filters is one of the major factors that pushed Google toward agreeing to the $90 million settlement in the class-action suit. The settlement terms offer payments in the form of credits that will allow aggrieved advertisers to purchase new advertising from Google, on the condition that the total amount of credits paid out, combined with the amount paid for attorney fees, does not exceed $90 million.
It is clear that invalid clicks, both detected and undetected, affect a search engine's profitability and cause damage to both the search engine and its advertisers. The problem earlier compelled Google to adopt a policy stating that advertisers had a 60-day period within which to report invalid clicks.
That was the old policy. Under the new settlement, the opportunity to collect reimbursement has been made available to all advertisers regardless of when the questionable clicks affecting them occurred.
On January 30, 2007, Click Forensics, LLC, reported that the average rate of click fraud for the pay-per-click advertising industry in 2006 was 14.2%, while the last quarter showed a click-fraud rate of 19.2%.
The next day, IncreMental Advantage announced it had released a report on combating click fraud. The report claimed that click fraud had cost Internet advertisers a whopping $666 million in 2006, demonstrating that it remained a major headache for Internet advertisers and search engine owners alike.
Google had been testing different tools in an attempt to grapple with this problem for some time, as pay-per-click fraud continued to evade realistic solutions. But the scenario has changed, and the death of pay-per-click advertising seems imminent considering the latest developments.
Earlier this month, Google launched Pay-Per-Action and Website Optimizer; both tools are geared toward increasing the ROI of the advertiser in a transparent and effective manner.
According to Google, with the AdWords Beta Pay-Per-Action tool, you pay only for actions as you define them. The tool allows an advertiser to create an ad and define the action that the advertiser wants a user to perform. Actions may include generating a lead, filling out a form, signing up for a membership, purchasing a product, or any number of things defined by the advertiser.
A simple click on an ad is no longer enough to make an advertiser part with hard-earned money. With this tool, the advertiser doesn't pay unless the desired action is completed. The AdWords Beta Pay-Per-Action tool is now available only in the U.S. on a limited basis.
Website Optimizer, currently a free application, allows advertisers to test multiple webpage-content combinations, rearranging text and images while measuring response rates in order to decide which combination works best. The tool will accept nearly 10,000 versions of a webpage.
Tools like these are set to revolutionize advertising on the Internet and change the advertiser's calculation of ROI from guesswork to concrete arithmetic. As more and more clients opt for pay-per-action advertising, click fraud may become a distant memory.
