So Many Clicks, So Few Sales

Adam L. Penenberg
Inc., 8/2005

It didn’t make any sense. Kevin Steele, co-owner of Karaoke Star, a Phoenix retailer of karaoke equipment, noticed that the number of people clicking on his paid search-engine ads had shot from 200 to 800 a day. But despite the apparent jump in traffic, sales hadn’t budged. Steele and his partner, Diana Frerick, had built their business on Internet advertising, and more clicks almost always meant more revenue — which the pair had invested in a new office, more inventory, and a call center to field technical questions.

Steele thought he had pay-per-click advertising down to a science. Karaoke Star spent about $2,000 a day on search-engine ads at Google and Overture, a subsidiary of Yahoo — focusing on keywords like “karaoke,??? “karaoke player,??? “karaoke song??? — to generate about $6,000 a day in sales. Suddenly, it had to budget the same amount just to get $3,000. With each keyword costing anywhere between 40 cents and $3 a click, Karaoke Star found itself being nickel-and-dimed to death. “One day we were doing great,??? says Steele, “and the next it was as if someone had turned off the lights.???

The problem was click fraud, which occurs when people click on paid search ads with no intention of buying anything. In some cases, the clicker is a competitor that wants to force a rival to burn through cash. Other times it’s someone from an affiliate site that hosts search-engine ads and receives a small commission for every click. It could be a team of users clicking repeatedly on an ad. Or, most commonly, the fraudulent clicks are automated by “hitbot??? software.

Experts estimate that 20% to 35% of all ad clicks may be bogus. Whatever the number, it’s as if thousands of people are charging you for window-shopping. Steele says the fraudulent clicking has cost Karaoke Star nearly $400,000 over the past two and a half years.

The paid search ad market is essentially a grand auction. Advertisers bid on specific keywords; the terms with the highest demand fetch the highest prices, and the advertisers that pay the most get the highest placement on the search engine’s webpage. Because affiliate sites earn commissions based on how many clicks the ads receive, there’s a lot of incentive to claim as many clicks as possible. Paid online search is a nearly $3 billion business and it’s easy to see why. Popular keywords can get very expensive very fast. (See “War of the Words,??? right.)

The major search engines all acknowledge that click fraud is a problem. In a recent SEC filing, for example, Google warned investors that “if fraudulent clicks are not detected, the affected advertisers may experience a reduced return on their investment???which could lead to loss of advertisers and revenue.???

What’s an advertiser to do? If you think you’ve been charged for bogus clicks, you might be able to convince a search engine to credit your account. The problem is, getting a search engine to hand over a record of your advertising activity is no easy feat. Search engines treat such data as proprietary and are loath to share it. Karaoke Star’s Steele and Frerick, for example, expressed their suspicions to Overture and were given some “token??? refunds, Steele says. But Overture steadfastly refused to tell them who was behind the bogus clicks. Nor would it give Karaoke Star the data it needed to figure it out itself.

Fortunately, Karaoke Star — as well as a number of other online karaoke stores — received an anonymous e-mail tip from someone claiming to be a former employee of Ace Karaoke, a competitor in City of Industry, Calif. Attached to the e-mail, according to Steele, was a video that showed an automated click fraud program employed by Ace Karaoke to target the stores. Frerick and Steele retained a lawyer who has contacted Ace Karaoke, as well as Google and Overture, and informed them of his intention to sue. Why target the search engines? “Because Google and Overture make the most money from click fraud and have the least amount of incentive for taking simple precautions to prevent the fraud,??? says C. Tab Turner, a plaintiffs’ attorney in North Little Rock, Ark., who represents Karaoke Star. Overture and Google declined to comment on the matter. Ace Karaoke’s owner, David Su, denies the charges.

Unlike Karaoke Star, many advertisers are reluctant to complain out of fear that the search engines, which provide most of their traffic, could blacklist them. “At this stage, there is no way for advertisers to prevent fraudulent clicks from being billed to their accounts,??? says Jessie Stricchiola, president of Alchemist Media, a click fraud auditing firm in Hollywood.

Fortunately, there are alternatives to taking legal action. There are a number of click fraud auditing tools available — including Click Lab, Click Defense, and Click Detective — that are designed to alert you to suspicious clicks. The cost can range from $29.95 to several thousand dollars a month, depending on the amount of traffic your site receives. Or you could hire a consultant like Stricchiola to analyze your traffic and broker a deal with the search engines. But Stricchiola, who charges between $250 and $450 an hour, warns that it often costs more in time and money to identify the problem than is actually lost to click fraud. There are also alternative search engines, such as Brooklyn-based BlowSearch, which guarantees that its advertisers will not receive any automated clicks on their ads — or they’ll get their money back. Of course, BlowSearch gets only a tiny fraction of the traffic of the big search engines and offers less bang for the advertising buck.

In the end, you may have little option but to accept fraudulent clicks as a cost of doing business and recalculate your expected advertising ROI accordingly. That’s what Karaoke Star is doing. Of course, it’s also reserving the right to sue.

Copyright 2005 Adam L. Penenberg (