Click Fraud = clicks on a Pay-Per-Click Network Ad by a user who has no interest in the information advertised toward the end of either profiting from those clicks or harming their competition.

Your bottom line: you seem to have lots of visitors from Pay Per Click networks but no sales or interest. Lots of visitors reach your landing page but never click beyond the page they visit. Your costs go up with no income generated from the visitors.

Category 1: The Unscrupulous Affiliate

The first type of click fraud stems from the profit motives of the fraudulent “clicker” who makes money every time your ad is clicked. The large, medium, and small Pay Per Click networks all have affiliate programs whereby the search engine offers to pay the affiliate a commission or percentage of the income generated from each click on the customers that are enrolled through them. Alternatively, Pay Per Click networks pay websites to place Pay Per Click ads on their pages and they receive a commission on every ad clicked on their page.

I need not connect the dots on why this fraud occurs. If Joe the webmaster knows he can make a profit when somebody clicks on ads on his site, might he figure out a way to see to it that those ads are clicked and he makes income. There have been reports of “click farms” using cheap labor in underdeveloped nations with people visiting sites and clicking on ads. The fraud is distributed to evade detection.

This first category of Click fraud seems to be inversely proportional to the size and reputation of the network (in other words, the smaller and more obscure the Pay Per Click network, the more click fraud occurs). Yahoo! Search Marketing is probably most immune to this because they do not offer any affiliate incentives for ads clicked on their network. Google, on the other hand, has been known to have problems with their Content Network (aka AdSense). Google pays sites to provide sponsored results on their web pages and pays them a portion of the ad revenue generated when users click on those ads. Google tries to detect this and combat it by taking legal action against those who engage in it but it still goes on. Google even noted, in their SEC filing, that this fraud could end up hurting their business model.

In my own experience, I stay away from smaller Pay Per Click networks until I can measure ROI and click fraud (more later on that). I’ve learned this the hard way having spent over $1K on networks that provided thousands of clicks but no real interest in my site. As for Google, I love their regular and search network results when I set up Ad campaigns but I stay away from their content network (AdSense). I simply have not had any success – lots of clicks but no real interest that extends beyond the landing page. My experience is not unique.

Category 2: The Dishonest Competitor

If you are bidding on a competitive keyword then so are a lot of other people. Sorry to make a purely analagous statement that seems to go without saying but because you have a lot of competition, you also have plenty of opportunity to be competing against competitors that don’t play fair.

Because competition can get very tight, the bid amounts for keywords rises which causes profits to shrink for those keywords. If you make $60 per sale and it costs you $3 for every visitor to your site, you must make a sale for every 20 visitors (on average) in order to break even. You have a competitor with the same product and same profit margin but he wants you off the Pay Per Click network so he begins clicking on your ads hoping to drive your Pay Per Click costs up to where you decide it’s not worth the investment and leave. He makes no money, per se, off the direct profit from those clicks. His only interest is harming his competition.

Google and Yahoo! Search Marketing are probably the most susceptible to this type of click fraud because they are popular and where most of the real competition occurs. They both make extensive efforts to detect and eliminate click fraud (and will even refund money to you if they figure it out) but it still occurs.

Click Fraud Reduction

There are two basic strategies to reduce the impact of click fraud on your business model:

1. Use conversion tracking – Use the free conversion tracking tools provided by Google and Yahoo! Search Marketing or pay for conversion tracking and ad management with a company like Atlas OnePoint. Conversion tracking allows you to measure how many people are clicking on your ads but, more importantly, how many of those clicks from each Pay Per Click engine, or for a particular keyword, are converting into sales. Click fraud is not the only reason to use conversion tracking but it is a tool to help measure it. If you are getting no or very few conversions from tons of visitors from an ad network then it may be an indicator of click fraud. Of course, even with click fraud in the mix, you may measure that you still make a profit on average and keep the ad up but you won’t know anything if you don’t at least measure conversions and see which ads make money and which are just costing you money.

2. Use a Pay Per Click Auditing Service– I use a pay-per-click auditing service called WhosClickingWho. The system allows the customer to detect multiple visitors from the same or different networks using any keyword to visit your site. The system has multiple benefits. First, it’s actually a great tool to see where your visitors are coming from (even your legit ones). Second, it is useful to see multiple visits from one user and note patterns of fraud. The third party results from the service are very useful when you submit a click fraud claim to the Pay Per Click networks to get a refund. Lastly, it deters the unscrupulous because they know you’re monitoring the fraud. You have the option of triggering a popup asking them to bookmark your site because you’ve noticed them visiting your site repeatedly through Pay Per Click ads. It’s like having a sign for a security alarm in your front yard – it doesn’t frighten away all burglars but it does deter most. If you are going to be spending more than a few hundred dollars a month on PPC advertising then you really should make the investment.