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What is this click fraud that is costing Google billions?

Detecting Click Fraud

But Google has methods of detecting click fraud, and it doesn't charge advertisers for clicks it finds to be fraudulent. Google reports that it uses a three-step system to detect and neutralize click fraud: First, a set of automated filters looks at each click as it happens, checking for signs of fraud such as time and date patterns and IP address problems; next, a similar analysis happens offline, with both computers and actual people analyzing clicks to make sure they appear to be legitimate; and finally, if an advertiser reports suspected click fraud, Google investigates. According to Google's ad contract, if it finds the complaint to be legitimate, it reimburses the company for the bad clicks.

So how do you know if you're the victim of click fraud? Sometimes it's obvious -- like a Google advertising bill that suddenly goes from $200 a month to $5,000 a month. But other times, it's more subtle. There are actually companies out there dedicated to detecting click fraud. A company can hire one to track all of its ad clicks and look for fraud. In one case in Oregon in 2004, Scott Hendison, who owned a Web-based insurance-consulting firm, suspected he was the victim of click fraud. He investigated on his own and saw that a huge number of his ad clicks were coming from a single IP address. Hendison hired one of these companies to put an end to the abuse, which was costing him hundreds of dollars a month. The company confirmed the suspect IP address, provided data on who was doing the clicking, and set up Hendison's ad so that the next time the person with the offending IP address clicked on it, a Hendison-composed message popped up. It said, "Stop, you weasel! I know who you are and have reported you to the proper authorities." One click later, the problem was solved.

Hendison reported the issue to Google, and he says he was only reimbursed for 50 percent of the fraudulent clicks. The biggest click-fraud complaints against Google are that the company isn't properly reimbursing advertisers and it's not doing enough to identify bad clicks in the first place. A lawsuit in 2005 also accused Google of hiding its click-fraud numbers from the public -- thus, perhaps, the increasing attempts at transparency. In a February 28 entry in its AdWords blog, the company reported that less than 10 percent of its advertising clicks were fraudulent, and that its detection system had caught almost all of them before advertisers were charged. Google claims that only 0.02 percent of its system-validated ad clicks turn out to be fraudulent. It's the combination of reimbursing advertisers for that 0.02 percent and tossing out the nearly 10 percent of identified bad clicks that costs the company that reported $1 billion a year.

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