Finding Out about Click Fraud - dummies

By Peter Kent

Conversion ratio is a measure of how well you “convert” someone via your pay per click advertising. This number is critical; without knowing your conversion ratios, you can’t figure out whether you’re winning or losing the PPC game.

If 100 people click your ad but only one buys, you have a conversion ratio of 1:100. Why would 99 people click but not buy? Clearly there are many possible reasons:

  • On arriving at your site, they realize that what you’re advertising is not what they really want.
  • Your price is too high.
  • They prefer another brand of product.
  • They’re not yet ready to buy.
  • . . . and on and on.

There’s another category of non-converter (unfortunately, in some cases, the largest category): the clicker who never intended to buy from you in the first place, who only clicked so that you would be charged the click fee, the clicker who clicked in order to defraud you!

Click fraud has been described as a billion-dollar problem by the president of The PPC business is a $5-billion-per-year business, and some estimates of click fraud are as high as 20 percent; 20 percent of $5 billion is $1 billion. Click Assurance, a click fraud-monitoring company, says that it’s found campaigns with click-fraud levels as high as 80 percent, with an average of 18 percent. That’s right, as many as 20 percent of all clicks could be fraudulent.

How does click fraud work? There are two main types:

  • Fraud intended to make money through context ads
  • Fraud intended to hurt you financially or damage your PPC competitive position

PPC is an unusual form of advertising in that it actually encourages click fraud in a number of ways. There’s no way you can fraudulently view a newspaper ad, fraudulently watch a television ad, or fraudulently listen to a radio ad. But with PPC, two important characteristics come into play. First, the people viewing your ad determine how often you will be charged the click fee. Second, thanks to the wonders of content match, or contextual advertising, any Tom, Dick, or Harriet can get into the advertising business and share click fees.

Contextual advertising is the process of placing PPC ads on non-search sites, that is, on “content” sites. A number of PPC systems have contextual-advertising programs, but the most widely used is Google’s AdSense program.

Consider this all-too-common scenario. The scammer finds a group of high-click-price keywords and then builds a Web site (or maybe several Web sites) that contain plenty of related keywords. Our scammer signs up for the AdSense program and begins running ads on his site.

Then, you guessed it, he begins clicking the ads. Each time he clicks an ad, Google earns the click fee and credits a portion of the fee to the scammer’s account. Simple, eh?

The second main form of fraud is clicking on competitors’ ads in order to hurt them. Company A wants to get the bulk of the clicks for a particular keyword, but finds that it’s way too competitive. The price of the clicks for the top positions is more than A wants or can afford to pay.

So Company A begins clicking on the ads placed by Companies B, C, and D. This has several effects:

  • Company A’s competitors waste money, something that may be gratifying to Company A in and of itself (call it the “spite factor”).
  • The competitors’ conversion rates go down, so their ROIs go down, too. They may decide the ads are no longer competitive and drop out, allowing Company A to get high positions at lower costs.
  • In some cases, competitors will drop their ads to lower positions in order to lower click-costs, so that their daily budgets last throughout the day.
  • Competitors may run through their daily budgets earlier in the day, at which point their ads are removed, allowing Company A to get high positions at lower costs the remainder of the day.