Martin Fleischmann put his faith in online advertising.
He used it to build his Atlanta company, MostChoice.com, which offers consumers
rate quotes and other information on insurance and mortgages. Last year he paid
Yahoo! Inc. and Google Inc. a total of $2 million in advertising fees. The 40-year-old entrepreneur
believed the celebrated promise of Internet marketing: You pay only when
prospective customers click on your ads.
Now, Fleischmann's faith has been shaken. Over the past three years, he
has noticed a growing number of puzzling clicks coming from such places as
Botswana, Mongolia, and Syria. This seemed strange, since MostChoice steers
customers to insurance and mortgage brokers only in the U.S
Fleischmann is a victim of click fraud: a dizzying collection of scams and
deceptions that inflate advertising bills for thousands of companies of all
sizes. The spreading scourge poses the single biggest threat to the Internet's
advertising gold mine and is the most nettlesome question facing Google and
Yahoo, whose digital empires depend on all that gold.
The growing ranks of businesspeople worried about click fraud typically
have no complaint about versions of their ads that appear on actual Google or
Yahoo Web pages, often next to search results. The trouble arises when the
Internet giants boost their profits by recycling ads to millions of other sites,
ranging from the familiar, such as cnn.com, to dummy Web addresses like
insurance1472.com, which display lists of ads and little if anything else. When
somebody clicks on these recycled ads, marketers such as MostChoice get billed,
sometimes even if the clicks appear to come from Mongolia. Google or Yahoo then
share the revenue with a daisy chain of Web site hosts and operators. A penny or
so even trickles down to the lowly clickers. That means Google and Yahoo at
times passively profit from click fraud and, in theory, have an incentive to
tolerate it. So do smaller search engines and marketing networks that similarly
Google and Yahoo say they filter out most questionable clicks and either
don't charge for them or reimburse advertisers that have been wrongly billed.
That confidence may be slipping. A BusinessWeek investigation has revealed a
thriving click-fraud underground populated by swarms of small-time players,
making detection difficult. "Paid to read" rings with hundreds or thousands of
members each, all of them pressing PC mice over and over in living rooms and
dens around the world. In some cases, "clickbot" software generates page hits
automatically and anonymously. Participants from Kentucky to China speak of
making from $25 to several thousand dollars a month apiece, cash they wouldn't
receive if Google and Yahoo were as successful at blocking fraud as they
claim. "It's not that much different from someone coming up and taking money out
of your wallet," says David Struck. He and his wife, Renee, both 35, say they
dabbled in click fraud last year, making more than $5,000 in four months.
Employing a common scheme, the McGregor (Minn.) couple set up dummy Web sites
filled with nothing but recycled Google and Yahoo advertisements. Then they paid
others small amounts to visit the sites, where it was understood they would
click away on the ads, says David Struck. It was "way too easy," he adds.
Gradually, he says, he and his wife began to realize they were cheating
unwitting advertisers, so they stopped. "Whatever Google and Yahoo are doing [to
stop fraud], it's not having much of an effect," he says.
Spending on Internet ads is growing faster than any other sector of the
advertising industry and is expected to surge from $12.5 billion last year to
$29 billion in 2010 in the U.S. alone, according to researcher eMarketer Inc.
About half of these dollars are going into deals requiring advertisers to pay by
the click. Most other Internet ads are priced according to "impressions," or how
many people view them.
Google and Yahoo are grabbing billions of dollars once collected by
traditional print and broadcast outlets, based partly on the assumption that
clicks are a reliable, quantifiable measure of consumer interest that the older
media simply can't match. But the huge influx of cash for online ads has
attracted armies of con artists whose activities are eroding that crucial
assumption and could eat into the optimistic expectations for online
advertising. (Advertisers generally don't grumble about fraudulent clicks coming
from the Web sites of traditional media outlets. But there are growing concerns
about these media sites exaggerating how many visitors they have -- the online
version of inflating circulation.)
Most academics and consultants who study online advertising estimate that
10% to 15% of ad clicks are fake, representing roughly $1 billion in annual
billings. Usually the search engines divide these proceeds with several players:
First, there are intermediaries known as "domain parking" companies, to which
the search engines redistribute their ads. Domain parkers host "parked" Web
sites, many of which are those dummy sites containing only ads. Cheats who own
parked sites obtain search-engine ads from the domain parkers and arrange for
the ads to be clicked on, triggering bills to advertisers. In all, $300 million
to $500 million a year could be flowing to the click-fraud