Stuart Cauff launched a charter-jet service in Miami Beach back in 2002. Being a 21st-century business, JetNetwork advertised on the Internet, especially on search engines. Anyone who Googled, say, "air charter Miami" would be greeted with the familiar list of search results and, in a separate place, a plain box of text with a blue hyperlink to JetNetwork's Web site.
Search ads were perfect for Cauff's business. His potential customers - a diverse group of celebrities, photojournalists, medical evacuees, and people who just needed to get away from or to Miami in a hurry - were scattered across the country. To reach this audience with traditional advertising, he would have had to buy time on scores of television and radio stations and space in just as many newspapers and magazines, something that only wealthy, established companies could afford. Even if Cauff could pay for the ads, the vast majority of people exposed to them wouldn't care about charter jets, so most of his money would be wasted. But with search-based ads, JetNetwork's name would appear, at least in theory, only before people who were actually interested in Miami charter flights.
Still, the ads were expensive. This kind of advertising is known as pay-per-click, because advertisers shell out money to a search engine every time a surfer clicks on their links. The price and placement depend mainly on how much the advertiser wants to bid for the search term - also known as the keyword in ad jargon. As other charter-air companies began PPC advertising, the cost of a click on a top-ranked ad rose to about $10 - in some cases as high as $30 - and there could be hundreds of clicks a month.
Which is why Cauff was infuriated when he discovered that up to "40 percent, maybe more" of the clicks on his keyword ads apparently came not from potential customers around the nation but from a single Internet address, one that belonged to a rival based in New York City. "If we get clicked fraudulently, it uses up our ad budget," he says. Advertisers usually set limits on how much they will spend, and search engines drop ads once they hit that limit. As a result, fraudulent clicking "literally pushes us off the page," Cauff explains. "And then our competition buys in at a lower price when we're not there."
Cauff was a victim of "click fraud," the illicit manipulation of keyword-based advertising. In this case, the scam appeared straightforward - one company clicked on a rival's search engine ads to drive up its costs. More complex is a second type of bogus ad click that exploits a second form of PPC advertising: ads fed to Web sites - anything from personal blogs to the sites of major corporations - by search providers like Google, Yahoo!, LookSmart, and, soon, MSN. The search engine indexes the content of the Web site and matches it with a group of relevant ads. (The most familiar form is Google's AdSense program - the sets of links labeled ads by goooooogle that show up on pages across the Internet. The advertisements that appear on Google itself are part of a separate but related program called AdWords.) Thus, bloggers who write about their air-travel experiences and choose to host such ads may find links on their pages for JetNetworks and its brethren. If a blog visitor clicks on the ad, the search engine splits its fee with the blogger. Although these "affiliate" ads have been hugely successful for advertisers, search engines, and the host Web sites, the system creates an incentive for affiliates to cheat. "All you have to do to make some money is find a way to click the ad sent by Google or Yahoo! to your own Web page," says search marketing consultant Joseph Holcomb. "Click! - there's 10 bucks. Click! - there's 10 bucks. It goes on all the time."
Pay-per-click is the fastest-growing segment of all advertising, reports the Interactive Advertising Bureau. Last year, Yahoo! alone ran more than 250 million individual listings, according to Michael Egan, the company's search-marketing director of content strategy. Yahoo! doesn't break out PPC earnings separately in its financial statements, but Goldman Sachs analyst Anthony Noto believes that keyword advertising accounted for about half of the company's estimated $3.7 billion in revenue for 2005. PPC is even more lucrative for Google. According to Noto, Google will end 2005 with $6.1 billion in revenue. About 99 percent of that revenue comes from keyword ads (over 56 percent from AdWords, according to the company's most recent quarterly financial statement, and 43 percent from AdSense), making Google a bigger recipient of ad dollars than any television network or newspaper chain. All of which is to say that little blue text links, a type of advertising that barely existed five years ago, are poised to become the single most important form of marketing in the US - unless click fraud ruins it.
If that occurs, the consequences will be felt throughout the Net. By splitting revenue with the sites that host the ads, search engines have become, in effect, the Internet's venture capitalists, funding the content that attracts people to the computer screen. Unlike the VCs who backed the boom-era Internet, search engines now provide revenue to thousands of wildly diverse sites at little up-front cost to them - PPC advertising is one of the few income sources available to bloggers, for instance. If rampant click fraud overwhelms the system, it will muffle the Internet's fabulous cacophony of voices.
The amount of click fraud is difficult to quantify; estimates of the proportion of fake clicks run from as low as 1 in 10 to as high as 1 in 2. ................Read more
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