Adam Penenberg: Last week, I served on the “Click Fraud: Problem or Paranoia” panel at the Search Engine Strategies conference in New York. At one point, Jessie Stricchiola, one of my fellow panelists, tried to gauge the extent of the problem by asking the 80 people in attendance to raise their hands if they had ever been victims of “click fraud.”

About half of the audience members, most of them small businesses owners, raised their hands.

Then Stricchiola, founder of Alchemist Media, wanted to know how much each had lost. Most reported losses in the $5,000 to $10,000 range. A couple hit $20,000, and the biggest loser of all claimed his company had been fleeced for more than $300,000.

That’s when I realized the panel might have more aptly been called “Click Fraud: Problem and Paranoia.”

Click fraud — the skewing of pay-per-click advertising data with illegitimate hits — can be accomplished in a number of ways, ranging from manually clicking on the same ad link repeatedly to deploying automated bots. Whatever the method, the results are the same: Merchants pay for traffic from someone who has no intention of purchasing anything. Return on investment: bupkis.

It doesn’t just affect online merchants. Google, Yahoo and other search engines may also be vulnerable. In the “How We Generate Revenue” section of its latest quarterly report (.pdf), Google stated, “We derive most of our revenues from fees we receive from our advertisers” and acknowledged it has “regularly refunded revenue” to click-fraud victims. (In fact, a full third of audience members reported that they had received refund letters from Google.)

“If fraudulent clicks are not detected,” Google went on to say, “the affected advertisers may experience a reduced return on their investment (and) could lead the advertisers to become dissatisfied with our advertising programs, which could lead to loss of advertisers and revenue.”

To paraphrase another panelist, Danny Sullivan, editor of, if Google is concerned, that’s good enough for me.

So who commits click fraud? It could be a scurrilous search engine ad affiliate who clicks for dollars. Auction Experts International, a Google AdSense partner located in Houston, allegedly reaped $50,000 in commissions by hammering away on ad links until Google sued in November. Its principles never showed up in court, and Google won by default. (The site dissolved into the ether.)

Or a company might do it to deplete or expand a rival’s pay-per-click budget. Some businesses that pay Google or Yahoo’s Overture $20 a click to appear as the No. 1 or 2 ad for a specific keyword estimate that as much as 35 percent of their traffic is fraudulent. Who do they blame? Competitors seeking to bankrupt them.

More here.