Web Ad Buyers Fight Back Against 'Click Fraud'

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Companies that advertise on the Internet have become increasingly worried about "click fraud" — when the number of clicks on a particular Web site is inflated to drive up the cost to advertisers. Now some ad buyers are fighting back in court.

ALEX CHADWICK, host:

This is DAY TO DAY from NPR News. I'm Alex Chadwick.

MADELEINE BRAND, host:

And I'm Madeleine Brand.

Here's a story about Internet advertising and a lot of money, so much money that Google recently agreed to settle just one lawsuit for $90 million.

DAY TO DAY tech contributor Xeni Jardin explains that the suit was over something called click fraud.

XENI JARDIN reporting:

Searches on Google, Yahoo! and many websites often include paid ads. If you click on one of those ads, congratulations, you may have just cost that advertiser a few cents, or a few bucks. That's the way the online ad business works. A click generally means a customer's going to an advertiser's website, that's what they pay for. But some advertisers have noticed something fishy.

Mr. DANNY SULLIVAN (Editor, Search Engine Watch): Gee, why am I getting all these clicks from Romania?

JARDIN: That's probably click fraud, according to Search Engine Watch editor Danny Sullivan. He says a common form of click fraud occurs when one business tries to run up a competitor's ad bill by making a bunch of bogus clicks on an ad. There's even automated software to speed up the click fraud process. But recently, some advertisers have gotten wise.

Mr. SULLIVAN: They have noticed that some of these clicks don't seem like they're legitimate. Then they've gone back to the search engine, much as you and I might do if we something strange on our credit card to say I don't know that I believe this is a valid click, I don't know that this person is actually somebody who's trying to come to my site.

JARDIN: It's just such a problem that caused Google to offer to shell out $90 million in ad credits to settle a class-action lawsuit in Arkansas. The case was brought by advertisers who claimed to have been harmed by click fraud. Google wasn't the only defendant and other search engines in that case, including Yahoo!, haven't said whether or how much they'll pay.

How big is click fraud? No one seems to agree on exactly how to measure it. Google's Trust and Safety Product Manager Shuman Ghosemajumder says the problem isn't as big as critics maintain.

Mr. SHUMAN GHOSEMAJUMDER (Trust and Safety Product Manager, Google): Part of the problem is that there are third party firms that have a clear incentive to exaggerate the scope of these issues.

JARDIN: Those would be companies that earn money from spotting click fraud. Some auditing companies and advertisers estimate as much as 20 percent of all ad traffic is bogus and may produce about a billion dollars a year in invalid sales.

Online ad industry analyst Jessie Stricchiola has been following the problem since 2001, and she's serving as an expert consultant for advertiser plaintiffs in the Arkansas lawsuit. Stricchiola believes Google's settlement offer is significant.

Ms. JESSIE STRICCHIOLA (President, Alchemist Media, Inc): At the very least, it's an acknowledgement of the fact that A, there is an issue, and B, something does need to be done about it moving forward.

JARDIN: She believes search engines aren't doing enough to keep advertisers informed about phony clicks, but says advertisers themselves may shoulder some of the blame. Advertisers tend to keep the number of clickers who become customers top secret. But if they shared that information with the search engines running these programs, she says, both sides could better sort out where fraud is occurring and how to stop it.

Ms. STRICCHIOLA: It's kind of like the search engines are saying, okay, we have a video camera in front of a bank, and we can tell you, based on who we see go in and out, who steals the million dollars every year; whereas, the advertiser actually has the video camera in the bank. They see what happens once they get in the door and inside the bank. And that's exactly what's going on with click fraud.

JARDIN: Search engine Snap.com is tackling the click fraud problem by calculating ad billing based on the cost per transaction method. Tom McGovern, CEO of Snap.com's parent company, Idealab, explains.

Mr. TOM MCGOVERN (CEO, Perfect Market Technologies, The Idealab Company): So under the cost per transaction model, the advertiser only pays a search engine when they achieve their desired business result. So that could be an advertiser wants to sell a book online, when they actually sell a book. Then that's very different than paying on a cost per click basis, where they pay when they get a visitor to the website.

JARDIN: A final version of the Snap search engine is scheduled to go live in May. The extent of click fraud's damage to online advertising is still a matter for the courts. In addition to the Arkansas lawsuit, online advertisers are also suing in a federal court in California. A hearing to review that case for a possible class-action status is scheduled for May 14th.

For DAY TO DAY, I'm Xeni Jardin.

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