Adam Penenberg: The Federal Trade Commission believes that no place is more fraud-friendly than the web. The agency estimates that more than one in 10 Americans (perhaps as many as 30 million people in this country) have fallen victim to fraud. Last year, internet-related fraud complaints surpassed all others, comprising 55 percent of all digital malfeasance, and for the first time the net supplanted the telephone as the most popular initial point of contact for dupers to meet dupees.
An almost endless array of clever schemes exists to separate consumers from their money. There are cross-border scams that consist of fake foreign lotteries, phony prize promotions, advance-fee loan cons and the infamous Nigerian scam. Charity scams take advantage of consumers’ generosity while so-called home-opportunity scams zero in on people looking for an easy way to make a few extra bucks. Identity thieves “phish” for personal information, like account numbers and PINs, which they use to sink your good credit (while sucking every penny out of your bank account). Pop-up spammers rely on nefarious methods to secretly wrest control of your PC desktop so they can pummel you with ads. Auction fraud accounts for half of the complaints the agency receives.
It’s no wonder the FTC believes it’s crucial to take action. According to Howard Beales, director of the agency’s consumer-protection bureau, who last spring testified (.pdf) before a Senate subcommittee, these types of fraud cause “significant injury to consumers and harms public confidence in the internet as an emerging marketplace.”
There is one type of fraud, however, that could potentially be more damaging to the internet than any of these, yet the FTC hasn’t done a thing about it.
I’m talking about click fraud — the practice of skewing pay-per-click advertising data by generating illegitimate hits. Click fraud takes advantage of the increasing popularity of performance-based ad arrangements on the net, and the dramatic rise in the cost of online advertising. Those that stand to benefit most are search networks’ content partners, which receive commissions on these fraudulent clicks, and competitors intent on playing dirty by inflating a rival’s pay-per-click spending to stretch their advertising budget.
But in the end, it’s the Googles of the world that are particularly vulnerable, something the company is well aware of. In its pre-public offering documents, Google flagged “fraudulent clicks” as a risk worth noting: “We have regularly paid refunds related to fraudulent clicks and expect to do so in the future,” it said. “If we are unable to stop this fraudulent activity, these refunds may increase.” At stake is nothing less than the integrity of the company’s entire ad revenue model. “If we are unable to remain competitive and provide value to our advertisers, they may stop placing ads with us, which would negatively affect our net revenues and business.”
More here.
