Newsweek on click fraud

When Mice Attack
Internet scammers steal money with ‘click fraud.’

By Brad Stone
NewsweekJan. 24 issue – Assaf Nehoray’s online ad campaign bogged down in Germany. The European businessman runs a Web marketplace for cargo firms; for the last two years he has attracted customers to his site by putting ad links on the major search engines. The model worked perfectly—until last summer. When he tried to expand into Germany, Nehoray found that his site was getting lots of new visitors but unusually few paying customers. Nehoray (who prefers we don’t name his company) analyzed his Internet logs and made an unsettling discovery. Someone—perhaps a competitor—had written a simple software program that relentlessly clicked on his ads, burning up his ad budget and pushing his links off the search sites by lunchtime each day. After spending weeks complaining to Google about the problem and getting a partial refund, he finally yanked the ads. “It was really bad,” he says, estimating that he lost $50,000 in potential business. “Nobody knows how to solve this problem.”

Internet advertising is booming. The industry raked in more than $9 billion last year, estimates PricewaterhouseCoopers, up from $7.2 billion in 2003. The fastest-growing segment, search-engine advertising, grew 55 percent alone, buoyed by Google’s blockbuster IPO. But Assaf Nehoray and others like him are now wondering if those bright clouds have a dark lining: click fraud. Google, Overture and a raft of smaller search sites get paid by advertisers each time a visitor clicks on an ad link. Perhaps it’s no surprise that the Internet—long a magnet for the unscrupulous—has minted a new breed of swindler that clicks on those links not to buy the advertised product, but to accelerate a rival’s ad spending or even to collect part of the fee themselves (Using Google’s AdSense program, Web-site publishers can run the ads posted by Google and share the revenue). Last month Google CFO George Reyes conceded that click fraud was a significant threat to his firm’s burgeoning bottom line. “I think something has to be done about this really, really quickly, because I think, potentially, it threatens our business model,” he told an investors’ conference.

Online advertising firms are urgently trying to address the problem. Greg Stuart, CEO of the Interactive Advertising Bureau, a trade group, says that “ad buyers’ lack of confidence in the industry’s numbers is very serious.” His group is running a “measurement task force” (Microsoft, Yahoo and Google are involved) that is working on developing a single standard to measure real clicks—and weed out fake ones. Spokespeople for Google and Yahoo’s Overture ad division say they are tackling click fraud by developing software that looks for warning signs and filters out fake traffic, and by reimbursing advertisers who are able to document that they’ve been subject to fraud (neither will disclose their total reimbursements). Last November, Google also sued a Texas firm for allegedly signing up for AdSense, creating a Web site with Google ads and then clicking on them to earn money.

Despite new efforts to stop click fraud, the temptation for scammers is growing. Advertisers once bid pennies to place their links prominently alongside searches for words like “refinance.” With traffic to the search sites skyrocketing, last week’s bid for that word was $12 a click. Fraudsters have to generate only a few fake clicks to make a day’s pay. Jorge Zuniga of Dallas-based ClickAssurance, one of a growing number of auditing firms that want to help advertisers identify fake clicks (and share the reimbursement), says he thinks 10 to 20 percent of all clicks on search ads are bogus. Scammers, many of them based overseas, use new automated software tools that mask identifying IP addresses and click only during slow periods of the month so that a sudden increase in clicks doesn’t set off alarms. “The more in-depth we get into it, the more we think that these guys are really sophisticated,” Zuniga says.

Advertisers worry that if fraud continues to escalate along with ad prices, they’ll be forced to retreat to media like television. “In some ways, we’re at the mercy of how seriously the search companies take this,” says Chris Larsen, CEO of online mortgage site eLoan. In other words, search engines like Google need to do what they do best: search for the right answer.

© 2005 Newsweek, Inc.

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