'Click Fraud' Threatens Foundation of Web Ads

Google and Yahoo say they are working to fight each new fraud method that appears.

"It's like that kids' game, Whac-A-Mole, where you whack the mole one place and then we can be finding that mole somewhere else," said John Slade, director of Yahoo's click-fraud protection efforts.

Slade said advertisers must help search engines thwart fraud by sharing more information about what visitors do on their sites after clicking on ads. "We believe click fraud is a serious but manageable challenge," he said.

Not all Internet ads are targets for click fraud, only those using the pay-per-click method of charging advertisers. Pioneered four years ago by search engines that placed tiny text ads next to their search results, the pay-per-click model is popular with advertisers because they pay only when people click on their ads. About 40 percent of all Internet ads fall into the category; others are display ads for which fees are based on how many times they are viewed.

Many advertisers try to correlate clicks they receive on their ads with sales and other activity on their Web sites. And some report seeing bizarre patterns: sudden floods of activity followed by sharp drops.

Miriam L. Kauterman, owner of Premier Homes Real Estate LLC, a vacation rental home and sales firm in Avalon, N.J., said she spent more than $27,000 advertising with Google for two years, but stopped in August after she saw a suspiciously high number of clicks. When she asked Google to investigate, the search engine refunded her only $56 -- much less than what she thought she was owed. She has joined the lawsuit filed against Google last month in Pennsylvania. "I feel like I've been robbed and there's nothing I can do about it," she said. "It's infuriating."

Google said it works with local law enforcement to shut down click-fraud rings. Shuman Ghosemajumder, Google's product manager for trust and safety, said the firm employs about three dozen people to monitor click fraud, 20 of whom respond to advertisers who report anomalies on their sites. Google keeps lists of hundreds of sites associated with pay-to-click networks, most of which he said target less-known search engines with weaker security controls. Google said it issues refund credits to advertisers when its technology detects irregular click activity, but it would not disclose how much is refunded.

Experts think click fraud is especially prevalent on sites affiliated with search engines. Those sites display ads on behalf of large search engines and include many popular Web logs and mom-and-pop businesses.

Here's how affiliate programs work: Google and Yahoo place millions of small text ads on the bottom, top or side margins of pages at other sites, labeled "Ads by Google" or "Sponsored links by Yahoo!" Every time a visitor clicks on those ads, the advertiser pays the search engine, which shares the revenue with the site owner. Depending on the ad, each click generates a few pennies to several dollars.

It is a rapidly growing business for the search giants: 39 percent or $1.04 billion of Google's revenue in the third quarter came from its affiliate network. Yahoo does not break out affiliate revenue in its financial results. Some advertisers are hurt more than others: Mortgage, insurance, real estate, legal and travel businesses tend to get hit more by click fraud because they pay more for each click, according to analysts.

In New Delhi, small companies place ads in the top English-language newspapers every week looking to hire people who will use their home computers to click on text ads on certain Web sites. One ad offers the equivalent of several hundred dollars a day for spending two hours on the Internet.

A visit to the company that placed the ad, Shipranet, leads to a small windowless apartment converted to an office. What was the kitchen is piled high with files and papers. "What we do . . . well, is a sort of e-marketing," said Rupesh Kumar, an employee of the firm. "Certain companies provide us incentives for visiting certain sites. What we have to do is basically account for a certain number of minimum hits and based on that, payment is directly made to the person clicking."