One of the popular memes being discussed today in the blogosphere is the seemingly contrarian statement from Eric Schmidt of Google regarding click fraud. And like usual, The Stalwart uses an interesting analogy to better understand Schmidt suggesting that click-fraud is by-in-large a self-correcting process.
My question is, what is an objective definition for click fraud? And can this be tied into time-shifting technologies used by TiVo and MythTV users to by-pass advertisements altogether?
The basics
The way AdWords and Overture are currently setup is through an auction system on keywords. An advertiser will bid for keywords that are then displayed on participating websites. The advertiser is then charged every time their ad is clicked based upon the auctioned off price point.
Individuals like Mark Cuban have suggested that the current PPC model is flawed due to massively underreported click fraud. While automated bots and unscrupulous competitors may be the easiest to identify (e.g. tracing IPs and click patterns), how do you measure the intent of a John Doe web surfer? Is it quantifiable with existing technology?
Measuring intentions
The biggest problem in assessing the size of this problem is measuring it in some objective way. As of right now Google and others have fraud departments and use a series of algorithms to identify and measure questionable click patterns from suspect IP addresses.
But how do you really measure the intent of any web surfer? What is a legitimate click versus an illegitimate one? As of this writing, I am unfamiliar with any technology that can scan the mind of web surfers to discover their preferences and intentions. Assuming none exists and ignoring the identifiable fraudsters mentioned above, how can anyone claim that there is massive fraud being perpetrated?
Rumor or not, one theory proposed by John Battelle for why Google did not purchase MySpace when they had the chance was because of really poor conversion rates. The thought is, while there may be millions of users accessing the site each day, the quality of clicks is deplorable (i.e. they click on everything whether they care about it or not and thus cost advertisers millions, see Dan’s comments).
Caveat emptor
Chris Anderson, editor-in-chief of Wired magazine, popularized the term “The Long-Tail” in an effort to describe how companies such as Google and Overture effectively paired advertisers with potential customers through targeted keywords.
The holy grail of targeted marketing is catering each ad to the preferences of each individual (Vistas Unlimited in Plano has made some great advances in this area). These web firms essentially paired their large databases of keywords with an auction system which allowed advertisers to target their ads more effectively and with a potentially higher RoI.
This was in stark contrast to the shotgun approach used by incumbent search companies like Lycos and Alta Vista whom simply plastered ads comprising the most commonly used keywords (e.g. sex, mp3, britney spears). And when the dust settled, the keyword auction method became the de facto standard.
Interruption Advertising
Seth Godin, among others, has done a good job explaining the need for a change in how advertising is done. He coined the term “permission marketing” which is essentially an opt-in approach, one in which the marketer asks permission to engage potential clients.
Over the past several decades the traditional advertising approach used in media such as radio and television, was typically done by interrupting a program (or pop-ups in the case of the internet). Due to a shift in viewing habits (e.g. DVRs) and demographic groups, advertisers have now been forced to change (e.g. subtle product placement) and have used technology to further fine tune where ads are run in the first place (e.g. geo-location).
I mention this because Google and Yahoo have successfully used a toned down method of displaying advertisements that minimize disruptions while you search and visit websites. Their use of clearly defined advertisements also sets the tone for consumers, letting the customer ultimately initiate the sale-cycle (see also Pay-Per-Call).
Evolution schmevolution
How you target and who you target ads to — these are a yin-yang interconnected process that is continually being refined. And I suspect that much of what is being blamed on “click fraud” can be attributed to an inefficiency in the execution by one of these and not by conspiratorial underpant gnomes trying to destroy the system (1. Click Ads; 2. ???; 3. Profit!!!).
Be sure to also check out the video on Etre to see how the layout of your page can change viewing and click habits.