Click Fraud Increases Again, Especially on Affiliate Networks. Bad News for Content Providers

Click auditing firm Click Forensics reports that the percentage of fraudulent clicks industry-wide jumped another point in Q2, to 16%, after remaining largely stable in 2006.  More alarmingly, Click Forensics says that fraud on affiliate networks like Google AdSense and Yahoo Publisher Network jumped 4 points in a single quarter, from 22% in Q1 to 26% in Q2. This trend has big implications for the thousands of new companies and bloggers who generate revenue through such networks.

Much of the fraud increase, Click Forensics says, comes from "botnets," which click ads automatically and are designed to appear to be humans.  Unlike the search engines, which continue to downplay click-fraud, Click Forensics can analyze end-to-end traffic logs (what a "user" does after clicking through to a site), and the firms consistently conclude that fraud is a bigger problem than Google and Yahoo say.  Google estimates that fraudulent clicks account for less than 10% of the total. Yahoo pegs the figure at somewhere between 12% and 15%.  Although these figures aren't too far off Click Forensics' numbers, Google and Yahoo do not release breakdowns on their affiliate networks.

The affiliate networks are not major profit drivers for these companies (they contribute a big percentage of revenue, at Google, especially, but not profit).  But they are critical revenue drivers for the gigantic ecosystem of small content providers that has sprung up around them.

Most advertisers currently regard click fraud as a cost of doing business.  (And they don't currently have much choice: Yahoo and Google do not provide enough click-level detail about which to complain).  As estimates of click fraud on the affiliate networks increase, however, advertisers will (or should) put increasing pressure on Google and Yahoo to control the problem, provide more detail, and/or provide larger refunds for bad clicks.   Any of these measures could reduce the revenue passed through to affiliate content providers.

Andy Greenberg of Forbes.com originally reported the Click Forensics data.

Comments

[you nailed it this time]

Henry, the last paragraph above is probably the most useful you've written in months.

The extent of click fraud on google's network is the most under-reported financial/tech story this half-decade. I don't know anything about click forensics, but I can tell you as an adwords advertiser that even they understate the problem.

You should also know that modern click bot nets click "organic" google results to foil detection. It's very sophisticated by now.

I've also heard rumors (not verified by me) of former employees / current shareholders running botnets on organic results because it's in their interest as shareholders.

If you found out that half your radio ads never ran, but the advertising company took your money anyway, you would not view this as a cost of doing business.

Given the problem of email spam (little profit, illegal), it's not hard to imagine the extent of click fraud networks (much potential profit, not illegal). Google has found a way to monetize spam!

One important point: for non-techies, a "botnet" sounds like science fiction, and is easily dismissed. But it's very easy to set these up. Use email spam as a (slightly imperfect) analogy.

[vic]

GOOG earnings day and no write up? Que pasa?

[bearroid]

lol nobody cares anymore and they finall miss. usually how it works. everyone was bored by goog earnings day since its been a lock for a long time.

of course it really only matters how the stock performs in the next couple weeks. the afterhours selloff might be meaningless if it goes higher. as a bear im hoping its the start of a bigger decline but really ive given up on that happening. probably another sign of a decline coming.

[Victor]

Google's numbers are out. Not sure why the street is so bearish. Top line is looking fantastic. They missed by a bit on bottom line because they spent so much, but that seems like a seasonal thing. The question is when is google going to moderate its spending? When that happens their earnings are going to explode.

[bearroid]

all these new hires and they still are essentially a one product company.

what's going to happen to google when the law of large numbers hits in the search market or they hit a hiccup with click fraud etc.

revenue growth was only 6 percent quarter over quarter.

one product companies dont grow at 50 percent forever.

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