Pay-Per-Click Problem: Who Should Pay to Monitor Click Fraud?

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PPC clicks

Will click fraud end the PPC era? Copyright image by Decoded Science, all rights reserved.

Publishers, marketers, and ad-serving agencies (such as Google) are all concerned with click fraud.

Publishers can lose their ad accounts, resulting in a loss of income. Marketers lose money when clicks don’t result in purchases, and ad-serving agencies lose revenue when marketers get tired of paying for fake clicks as well.

Everyone stands to lose money from the system as it stands – could there be a better way?

Click Fraud: Prevention and Reaction

Currently, all the website owner or blogger can do is to make sure his or her family and friends know not to click ads on their posts. Google has greater resources, and endlessly investigates click fraud. Advertisers also conduct extensive searches for ways to monitor clicks and reduce fraudulent charges.

When the holder of an Adsense account (Google’s ad network for publishers) notices an unusual level of clicks and/or revenue, the account reports this activity to Google and hope they don’t get banned. When Google notices unusual clicks, the network removes the clicks from the publisher’s account. When someone with an Adwords account (The marketing side of Google’s ad network – this is where people purchase ads for their product, service, website, and so on.) notices unusual behavior, they also report it to Google and hope for a refund after Google makes a determination.

As you can see, there’s a significant power imbalance in this process.

Who Benefits From Click Fraud?

There will always be publishers (content providers) who try to increase their earnings via fake clicks – but they’re not the only people benefiting from click fraud, nor is ‘I want to make more money from my ads‘ the only reason click fraud exists.

Advertisers may click a competitor’s ad multiple times to use up that competitor’s ad budget for a particular key word, or even to wipe out that competitor’s marketing budget entirely.

Bloggers may click on ads showing on another blogger’s website multiple times in hopes of getting them banned from Adsense. (Google’s Adsense isn’t the only ad network for bloggers and content providers, but others can’t offer the same revenue potential, so a ‘ban’ from Adsense can mean the end of revenue for small websites entirely.)

In all cases, the bad actors benefit, while the innocent advertiser, ad network, and content provider are harmed.

Investigating Click Fraud: Who Pays?

Dr Ryu

Dr. Ryu explains the potential for a neutral party investigating click fraud. Image courtesy of the University of Texas, Dallas.

Everyone in ‘the system’ – from publisher to ad provider to marketer – knows there is click fraud – and everyone is trying to figure out when it’s happening, and where it’s coming from, but click fraud remains a problem.  Could there be a more efficient way to investigate?

A group of researchers at the University of Texas, Dallas recently looked into this problem, publishing their findings in December’s issue of Information Systems Research.

According to Min Chen, Varghese S. Jacob, Suresh Radhakrishnan, and Young U. Ryu, the answer lies in an unbiased outside agency.

I asked Dr. Young Ryu what he thinks would need to happen, in order for the ad providers, the marketers, and the publishers to agree on a third party evaluation.

He explained, “Well, I am very skeptical about legal regulations of any sort. I don’t think the market mechanism (i.e., an invisible hand) can resolve the double-moral hazard problem in the *short* run.
But, if the PPC mechanism survives in the future, there are two possibilities that I can imagine. First, the value of PPC-based ad will substantially decrease in an equilibrium; that is, the price of an ad slot will reflect the fraudulent-click costs incurred to advertisers. In other words, advertisers will find that less PPC-based ad clicks lead to sales and thus they will be willing to pay less for PPC-ads, which will result in lower bid prices for PPC-based ad slots. Second, a third-party investigation mechanism will be accepted by major publishers so that they can prevent the reduction of the value of PPC-based ads.”

Price Per Click: Unsustainable?

Will marketers stop paying for PPC ads due to click fraud? Will Ad servers become more sophisticated at finding click fraud? If something doesn’t change, according to these researchers, the pay per click “PPC mechanism may not be sustainable.” What could help? “… an independent third-party investigation is needed.”

Will this happen – or will ad-blockers render the entire question a moot point? Only time will tell.

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