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On Monday Microsoft corp. launched it’s first ever lawsuit involving click fraud against three individuals believed to be based in Vancouver, Canada. These individuals (a mother and her two sons) and the companies they are believed to control have been accused of a form of click fraud by ‘improperly using Microsoft’s online advertising service for profit’, according to court documents, with Microsoft claiming to have suffered to the tune of $750,000 as a result of the click fraud scheme.

Microsoft has reportedly been investigating the matter for over a year, after complaints from advertisers, and traced the source of allegedly fraudulent traffic back to the defendants, Eric Lam, Gordon Lam and Melanie Suen, who appear to have carried out the scam using IP-masking proxy servers to hide fraudulent clicks relating to vehicle insurance and online gaming related keywords.

So what exactly is click fraud and why is this important news?

For those of you not so familiar with click fraud. It is defined as ‘…when a person, automated script or computer program imitates a legitimate user of a web browser clicking on an ad, for the purpose of generating a charge per click without having actual interest in the target of the ad’s link’- Wikipedia. It can be a big problem for some advertisers, driving up costs and thus reducing the profitability of PPC campaign activity.

Many cynics are suspicious of the search engines motives with regards to click fraud and argue that the advertising networks generate cost from each click regardless of its authenticity. Whilst it’s easy to see why some people say this, the large search engines have been burnt by past legal cases and they certainly won’t want repeats of lost legal battles fought by those claiming the search engines were not doing enough to combat click fraud. Yahoo settled a case in 2005, paying $4.5 million in legal bills and agreeing to settle advertiser claims dating back to 2004. Only a year later, Google settled a similar case for $90 million-Ouch!

The online advertising industry in the US alone was worth $23.4 billion in 2008 (PwC & Iab 2009) and this is only set to rise in the long-term. The search engines need to keep advertisers on side and certainly can’t afford any repeat of the 2005/6 lawsuits which not only cost them financially but also dented their reputations. Hopefully, the search engines will continue to combat click fraud, taking legal action against those trying to cheat the system at cost to legitimate advertisers but what can we as advertisers do to monitor for click fraud?

Keeping an eye out for click fraud

Click fraud can be a relatively complex area but there are some red flags to keep an eye open for including:

1. Click through rate (CTR)- Looking at historical ad click-through rates and monitoring your campaigns for sudden, non-seasonal, increases can (in some instances) indicate click fraud.

2. Conversion rates- Sudden falls in your conversion rates can also be an indicator of click fraud if you are used to steady monthly conversion rates.

3. Bounce rate- a sudden increase in the bounce rate of a landing page, coupled with increased traffic could be an indicator of inauthentic clicks as many clicks from fraudulent activity rarely go any further than the destination URL of the advert.

4. Daily budget/spend- Seeing fluctuations in how quickly your daily budget is being exhausted and how often your ads stop showing can be suspicious.

5. Keyword statistics- Looking at very similar keywords that usually attract similar CTR’s. A sharp rise in one keyword and not another could be an indicator of click fraud.

6. IP addresses- Your server logs or analytics package should record IP addresses of all visitors. A higher than average number of impressions for a specific IP address can indicate click fraud and is something that the search engines may ask you for when they undertake a click fraud investigation on your behalf.

 7. Traffic by location- Noticing traffic from unusual Geographic locations or countries you don’t normally serve. This also applies at a regional level i.e. looking for high click density from particular locations.

Some people seem to be overly concerned about click fraud but we think it needs to be put in perspective; It is a problem and people will continue to at least try to beat the system as the potential windfalls from doing so can be very large but, if we as marketers remain diligent and the advertisers continue to take the legal action necessary, then there is certainly no reason for panic.

Remember- If you suspect it; report it to the relevant advertiser! We have had a good deal of success in obtaining refunds from the search engines on behalf of our clients after presenting cases based on the above data.

Happy hunting!