Click fraud and its perpetrators hit national headlines this
month after Long Island startup Limited Run
decided to discontinue
its Facebook (NASDAQ:
) advertising on suspicions of bot ad clicks.
The underlying difficulty of advertising on the Internet,
John M. Simpson, director of the
's digital Privacy Project, explained to Benzinga the principles of
advertising privacy and click fraud.
"One of the things that concerns us with digital advertising is
essentially it's a business model built around spying on your
customers," Simpson said.
The World Wide Web Consortium is in the process of creating
standards for Internet privacy and bot detection alongside the
online privacy bill of rights
, also known as the "Do Not Track" initiative, Simpson said.
The process is twofold: creating a technical standard, as well
as rules to govern what extent a site can still track the user in
order to receive information essential to the user's browsing
experience, he added.
"When you have something like the Internet, everyone has to
agree to do something the same way," Simpson said. "Otherwise,
networks don't talk to each other."
Facebook told Wired that the company was
unable to find evidence
of Limited Run's claims. A Forbes interview with Mark Rabkin, a
Facebook engineering director,
reiterated that claim
Shares of Facebook dipped lower on the Limited Run news,
following the stock's previous drop after reporting earnings that
failed to impress
investors. Shares of the company continued to fall in the following
trading sessions, hitting new 52-week lows, and at Wednesday's
levels were down around 45 percent year to date (YTD).
In a related lawsuit, Miva Securities shareholders sued the
then-public company in 2007. They asserted that the company not
only filed false revenue statements but did so to
inflate its share price
. The shareholders' complaints against the company included the
alleged use of spyware and click fraud to boost traffic
The company faced additional legislation against then-named
FindWhat.com, alleging both
manual and automated fraud
in an affiliate agreement with
Miva Securities sold its Media division to
in 2009, spinning off its ALOT product portfolio into Vertro
) - which then
merged with Inuvo
) earlier in 2012.
The Pay Per Click Model: Grey Line of Legality
A pay per click (
) advertising model revolves around a user's interaction.
Specifically, the company purchasing a PPC campaign pays the
advertising publisher every time an advertisement, such as a text
link or banner, receives a click.
So, why commit click fraud?
Revenue and competition are the primary motivators. The monetary
incentive, no matter how small, is always present - whether that
entails collecting payment for services rendered, buffering click
analytics to increase company revenue, or simply wasting a
competitor's advertising budget.
If a competitor's campaign runs out from fraudulent clicks, more
Internet advertising real estate may be available for others. At
the least, squandering the competitor's budget removes their
advertising message from the ecosystem.
On a larger revenue scale - that of the advertising network and
publisher relationship - the potential revenue stream is
Eric Goldman, director of Santa Clara University's
High Tech Law
and writer for
& Marketing Law Blog
and Forbes' "
," explained the ecosystem to Benzinga.
A multi-tiered system of players exists in the digital space,
Goldman said, including the advertiser as well as the advertising
network and the publisher of the advertising network. Although both
the network and publisher likely maintain fraud detection
analytics, neither are necessarily motivated to tighten the reins
on potential fraud.
"Ad networks implicitly benefit [from click fraud]," Goldman
said. "More clicks equals more money. It's as simple as that."
Additionally, digital advertising does not have a centralized
and trusted third-party auditor to police the space, Goldman said.
Newspaper and broadcast outlets, for example, maintain audits for
circulation fraud and ratings fraud that rely on neutral companies
such as Arbitron (NYSE: ) to regulate industry data.
"We don't really have a good third-party auditor for click
fraud," Goldman said. "Without third-party validation, [click fraud
is] hard to prove."
Click fraud - a felony in some areas of the U.S., including
California and its Penal Code 502 - can be complex to prove and
prosecute, especially when it includes international
"Finding people engaging in click fraud can be difficult,"
Goldman said. "They obviously don't want to be found."
Blocking the Bots
A heat map, or graphical representation of data, is one way to
notice and prevent future click fraud. In this case, the heat map
applies to the browser's site display, as a bot program may tend to
"click" on or around the same spot in a web page each time.
enabled while browsing the Internet.
As highlighted in the post written by Limited Run:
"Here's what we found: on about 80% of the clicks Facebook was
analytics service to verify the click. What's important here is
that in all of our years of experience, only about 1-2% of people
coming from Facebook."
Subsequent threads on Ycombinator following Limited Run's
discussed bot detection
, among other principles. User "rotten" points out below that, even
with bot indicators, human manipulation - helped along by cheap
labor services such as Amazon (NASDAQ: ) Turk and
- can be another player in the game:
"And then there are the "wet bots" - Amazon Turks and overseas
humans (lowly) paid to use a regular browser and PC and manually
click on stuff for whatever purpose (rig internet voting, drive
fake advertising charges, steal data, skew hit counters -
Facebook's ad network differs from Google's as the social media
leader has deep access to pockets of data that the user manually
enters, on top of that user's interactions with the site as a
whole. Anything in a user's profile is stored and, depending on
privacy rules, may be fair game.
This sort of targeting is valuable to an advertiser because it
allows for an incredibly adhesive and personalized campaign. It is
also important to note that access to websites such as Facebook are
by-and-large free for the user through advertising support. In
other words, the companies exist and thrive because advertisers are
paying to access the user. Facebook, for example, received 85
percent of revenue in 2011
, according to the company's initial public offering SEC filing.
Google receives 96 percent of its revenue from advertising,
Internationally, digital advertising accounted for
of all U.K. marketing in 2011.
When the advertising network is also the advertising publisher
or platform - such as with Facebook, Google, and Yahoo! - the
situation can be difficult to unravel.
In short, an advertiser may need to block against more than just
Or, as pointed out by TechCrunch in 2009's "
Evolution of Click Fraud
" - so long as advertising campaigns pay per click, click fraud
Advertisers Step Up - and Why Users Should Care In the social
media giant's case, Facebook does have a
set of standards
and principles for users - allowing them to see what information is
tracked as well as options for "opting out" of practices.
The network is hardly known for being up front with its privacy
changes, however, and the average user may not grasp the extent of
how he or she is being tracked.
Additionally, the extent of what Facebook reveals on how it
tracks clicks may not be in the company's best interest to
"The other problem is you don't want to talk too much about the
ways you collect fraud, because people will find out how to get
around it," Simpson said. Marc Groman, Executive Director of
self-regulatory online advertising coalition
), tackles the centralized issue of Internet privacy on the online
behavioral advertising (OBA) side.
92 member companies
include Akamai Technologies (NASDAQ: ), AOL (NYSE: ) Advertising,
Yahoo's! (NASDAQ: ) Genome platform, and Google's (NASDAQ: )
DoubleClick network. "In order to join NAI, the companies must
align their business practices with our
code of conduct
and standards," Groman said to Benzinga. "Our standards are
voluntary, and exceed [current digital advertising standards]."
Other organizations, such as the
(DAA) - the spearhead of "Do Not Track" efforts - exist to either
protect the consumer, as well as the advertiser, as the landscape
The online advertising industry is a thriving industry with as
much as $300 billion in economic activity in 2011 according to the
IAB - and the user
is the currency
. Increased transparency and communication between the advertising
network and publisher, advertiser, and the user accessing the ads
may lead to increased click fraud visibility - and less
"I think right now that one of the things happening in the
landscape is much of the advertising methods, systems, and models
were developed without giving any thought to the legitimate privacy
of the legitimate users of the ecosystem," Simpson said. "That
means for many advertisers, the business model is built on spying
on the customer - [it's] not a business model that inspires faith
or trust. We're now at the stage where there is push back on the
This may be a question for the industry as a whole, as well as
the current ecosystem.
Most importantly, this may be a question for the user. "What
needs to happen is the industry needs to step up to the plate and
come up with ways that they transparently explain what they're
doing and how they're doing it [to target customers]," Simpson
said, "[and develop] a system where the Internet user is going to
develop more faith in the Internet. We're in the middle of how this
is all going to play out."
(c) 2012 Benzinga.com. Benzinga does not provide investment advice.
All rights reserved.