Click Fraud - Threatening the Internet Economy

One of the most popular forms of Internet advertising is pay-per-click (PPC). Merchants place ads with search engines like Google or MSN and the ad appears whenever someone enters a relevant search.

If the ad is clicked the merchant pays a fee - anywhere from 5 cents to $100. It's a fabulous idea - ad campaigns targeted at your most likely customers.

It's such a fabulous idea that Google, the king of PPC, grossed $1.24 billion in the first 3 months of this year - most of it from advertising revenue.

Watch out, though. There's trouble in PPC land. The flip side to PPC is a phenomenon called "click fraud" or "click spam."

There are two types of click fraud. The first type occurs when someone maliciously clicks on your PPC ad to drive up your advertising costs. It could be a competitor or a disgruntled former employee.

The second type of fraud involves clicking on affiliate ads to generate income. Affiliate ads are placed on third party web sites and each time someone clicks on an affiliate ad the web site owner receives a commission.

Industry observers believe that affiliate click fraud is the biggest problem of the two. Either way, the result is the same - advertising budget depletion with little gain for the merchant.

Either type of click fraud can be accomplished with the use of automated "robots" or by hiring an army of workers. The India Times reported in 2004 that a "growing number of housewives, college graduates, and even working professionals across metropolitan cities are rushing to click paid Internet ads to make $100 to $200 per month."

How serious is the problem? It's hard to judge exactly, but click fraud is commonly estimated at 20% to 35% of all PPC ad campaigns.

A recently launched lawsuit alleges that Google is aware of the magnitude of click fraud and does not do enough to alert advertisers of the problem.

The class action suit launched by Click Defence says that "Google has an inherent conflict of interest in preventing click fraud since it derives the same amount of income from each fraudulent click as it does from each legitimate click." The $10 million lawsuit quotes Google Chief Financial Officer George Reyes as saying that click fraud is "the biggest threat to the Internet economy."

Click Defense is a Colorado company specializing in click fraud detection. They claim that they themselves became a victim of click fraud when they advertised with Google's Adwords program this year.

They are seeking damages for breach of contract, negligence, unjust enrichment, and unfair business practices.

A Google spokesman said that the case is unmerited and that Google will defend itself "vigorously.