ClickForensics, a click fraud auditing company, has released a report that says click fraud rates, the percentage of clicks on CPC ads resulting from fraudulent activity (either from publishers earning money from the ads, or from competitors trying to drain a company’s ad budget), has inched upward: 17.1% in Q4 2008, from 16.6% for the same quarter in 2007.
But wait—doesn’t Google already filter out bad clicks? Google already has a three-pronged approach to identify and weed out clicks from dubious sources (click farms, botnets, competitors), and reflect the corrected traffic quality in the form of Google’s “smart pricing”. However, ClickForensics claims in its FAQ that Google only filters out 2-3% of clicks (substantially lower than what ClickForensics is claiming is fraudulent, but Google disputes their numbers), and Google itself integrated ClickForensics’ FACTr fraud documentation & reporting service in October 2008.
The deal recognizes that even a data giant like Google can’t always stay ahead of the fraudsters, and gathering useful data from auditing services and, likely, its competitors is a good idea. At the same time, the fact that CPC ad networks earn revenue from even fraudulent activity sets up a moral hazard that outside auditing and cooperation with their competitors can head off.
What’s causing the increase? ClickForensics says its the result of more ad dollars flowing into CPC, more competition among CPC advertisers, and the weak economy giving rise to click farms and other money-making scams. The solution? Information sharing among those affected. Most ad networks’ payment cycles are long enough to deter fly-by-night scammers, but since reporting is real-time and advertisers are charged on a much shorter cycle, more aggressive proactive fraud detection is a worthy goal to make.