The Search Marketing Advisor Newsletter Article: October 2004, Volume 3, Issue 6
Click Fraud: Combating It Through Intelligent Bidding
by Ryan Meech, Paid Search Specialist, iProspect
Most search marketers are familiar with the phenomenon known as “click fraud” in pay per click (PPC) advertising. The term refers to the segment of paid clicks that are illegitimately generated, often with the aid of computer programs, in order to hinder the performance of advertisers. Some perpetrators of this type of fraud aim to improve their own advertising efforts by forcing their competitors into less favorable page positions, or push them out of the auction altogether.
Indeed, as a PPC advertiser, not all the clicks that you pay for come from the eager potential consumers who make participation in PPC advertising so attractive. The estimates that industry watchers quote for fraudulent pay-per-click traffic can be eye-popping and frightening: 20% of all PPC traffic may be illegitimate? 30%? 50%? Arguing the numbers is impossible, as the only ones who could possibly know with any accuracy – the PPC providers themselves – stay mostly silent on the matter.
In all likelihood, the actual number is smaller than most people guess. It’s tempting to think that the engines turn a blind eye to click fraud and collect the profits, but this makes very little long-term business sense. In any industry, if your customers stop trusting your product or service, they’ll stop buying. So the engines’ claims to identify and stop click fraud can, in most likelihood, be accepted at face value.
But that argument aside, a sound bidding strategy can make click fraud largely irrelevant. Here’s how:
If your bidding strategy is profit-driven, you’re taking conversion rate into account on some level. Let’s look at a simple example. Say a conversion is worth $100 to you, and you convert an average of one in ten clicks you receive. You can bid up to $10 per click and still stay under your marketing cost constraint, paying for ten clicks, one of which converted. It doesn’t make any difference why the other nine clicks didn’t convert. Maybe they were window shoppers, maybe they were students researching term papers, or maybe they were spiteful competitors. In any case, they work themselves into your bid calculation, and you still profit.
Now let’s assume that all the illegitimate clicks could be identified and eliminated and let’s say – just to keep the math simple – that click fraud comprises 10% of all your PPC traffic. With it removed, you’d now be seeing a conversion rate of one-in-nine, a seemingly positive development. But you wouldn’t ever enjoy the benefit. Instead, you’d recalculate your bidding in order to capture newly-available volume. With the higher conversion rate, you’d now be able to bid $1.11. So you’d bid that, hoping to raise your page position to increase volume. Which is what would happen, except that your competitors, all making the same recalculation, would also raise their bids. As a result, the competitive situation would remain unchanged, but the cost of each click would rise.
Simply put, it’s just supply-and-demand at work. Clicks would be more valuable if they were more certain to be legitimate, and the free-market auction of pay per click advertising would quickly revalue them, raising their price.
Admittedly, this argument relies on certain assumptions, one of which is that all marketers are as savvy about bidding as you are. And certainly, they all aren’t. But at least some are, and the only thing that affects your cost is the competitor directly below you. And if your bidding is based on hard-fought calculations based on conversion rate and profit margin, what are the chances that a competitor who’s bidding five cents less than you arrived at that figure by accident? I certainly wouldn’t bet my profit margin on that one.
So while it’s wise to keep an eye on your log files, and report any suspicious activity to the engines for investigation, the best thing you can do to guard against click fraud is to make sure that you’re bidding carefully enough to account for it. And since careful bidding is vital to pay per click advertising success in any case, by practicing it, you’re already half-way there.
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