Pay-per-click web advertisers combat costly fraud

Given the state of the automobile industry and the economy, it is understandably a rough time to run a company called newcars.com , a subsidiary of cars.com. As the company, based in Santa Monica, Calif., tries to ride out the economic downturn, the last thing it needs is to get tricked by people trying to game the online pay-per-click advertising system.

But, according to Cars.com, that is what has been happening. Over the last year, a substantial number of clicks on NewCars.com ads have come from Bulgaria, Indonesia and the Czech Republic, countries where the company does no business.

In pay-per-click, advertisers pay a search engine every time a Web surfer clicks on their links; click fraud refers to clicks made simply to make money for the sites that carry the links or to damage a competitor.

Marketers say the situation is worsening because of the economic downturn.

“Click fraud is a serious problem, and we’re aggressively trying to fight it,” said Isabel Sopoglian, vice president of online marketing for Cars.com. “In this tough time, it’s important for advertisers to not waste dollars.”

But according to the click fraud detection business Click Forensics, marketers are wasting more money than ever. Because of the troubled economy, companies have shifted their advertising dollars to more cost-effective formats like pay-per-click advertising, which was the only form of Internet advertising that grew last year. It accounted for 57 percent of Internet advertising in 2008, up from 52 percent in 2007, according to the Interactive Advertising Bureau, a trade group representing online advertisers.

“The recession caused more companies to shift dollars to pay-per-click advertising because it’s a more effective and measurable form of advertising, and the rise in the ad dollars increased the click fraud rate,” said Tom Cuthbert, president of Click Forensics. “These issues combined meant more customers turning to us for help.”

Click Forensics, based in Austin, Texas, concluded that in the fourth quarter of 2008, 17 percent of all online ad clicks were fraudulent. Google and Yahoo are the two biggest pay-per-click ad networks.

Search engines like Google say that they have the problem under control. Google says that advertisers contend that fraudulent clicks account for just 0.02 percent of all online activity. If Google and an advertiser agree that a click is fraudulent, it offers the advertiser a credit.

(In 2006, Google settled a $90 million lawsuit after advertisers argued that it had not given them adequate compensation for fraudulent online ad clicks.)

“We are working hard as ever” to protect customers from fraud “and to innovate to detect click fraud,” said Shuman Ghosemajumder, Google’s business product manager of trust and safety. “And we’re getting fewer questions from advertisers about click fraud.”

Reggie Davis, vice president of network quality for Yahoo, says he believes that Google’s click fraud rate of less than 1 percent is not accurate. “We’ve disclosed that our rate, before hiring Click Forensics, was between 12 and 15 percent,” a number that includes invalid clicks, or traffic that an advertiser should not pay for, he said. According to Outsell Inc., an information industry research group, 13 percent of the total of online advertising clicks were fraudulent last year.

“Click fraud should be at the top of the priority list with Obama and the FTC,” said Jeff Chester, executive director for the Center for Digital Democracy, an advocacy group. “The FTC has seriously lagged in coming to grips with the problems surrounding the online ad market, specifically click fraud. It’s extremely important to address the problem because it ultimately affects the consumers, meaning what they end up paying.”

One of the challenges of click fraud detection is distinguishing genuine clicks from fraudulent ones. Indicators of click fraud include suspicious activities from an Internet Protocol (IP) address - the address assigned to every computer that uses the Internet - in a region the advertiser does not serve, or a large number of clicks in a short period. For instance, a clicker might view 10 pages on a site but spend exactly 2.1 seconds on each page.

Click fraud continues to be fueled by Web sites that offer to pay people to click on ads to artificially increase revenue. These networks can hide behind servers that mask the click’s origin.

Other networks are much easier to find. Some companies offer to pay consumers to click on ads, often advertising their services as market research or system testing. They solicit people via e-mail messages and banner ads.

Click Forensics contends that, on average, its technology cuts a client’s click fraud by more than 60 percent in a month. The company says it saves its customers, on average, more than 10 percent of their total online ad spending.

Click fraud represented 20 percent of NewCars.com’s overall ad spending on Yahoo in 2007, according to the automotive company. It declined to disclose how much it spent on advertising. The number dropped to just 7 percent after NewCars.com hired Click Forensics last year and Yahoo made vigorous efforts to combat the problem, Sopoglian said.

Click Forensics has more than 120 customers, including Intel, Progressive and Zappos.com.

Click Forensics is one of a number of businesses that try to eliminate, or at least curtail, click fraud. AdWatcher, part of the Internet marketing company MordComm Inc., tracks when an ad has been clicked on five or more times from the same IP address and will show a warning message to the visitor that his or her address has been logged. Anchor Intelligence, a click fraud detection company based in Mountain View, Calif., works with 30 partner ad networks and search engines, including Ask.com, AdBrite and LookSmart. “With this surge of online ad dollars comes scrutiny, accountability and higher expectations,” said Ken Miller, co-founder and chief executive officer of Anchor Intelligence. “It’s a very different landscape than even a couple of quarters ago.”

By Susana Hamner

Then New York Times

B

Chrysler dealers prepare to sue over requested closures

In a court filing, Chrysler Corp. asked U.S. Bankruptcy Judge Arthur Gonzalez to reject dealer agreements for 789 dealers nationwide — roughly 25% of its 3,200 dealers — in a effort “to conserve cash and pursue transactions that maximize value.” The dealerships, which are set to close June 9, have until May 26 to appeal the motion. A hearing is set for June 3. 

The announcement, meanwhile, revved up Squire, Sanders & Dempsey, which is representing a coalition of rejected dealers and has scheduled a meeting with President Barack Obama’s auto task force next week to ask for federal intervention, including financial assistance. The law firm claims that the closures are unlawful and that roughly 100,000 employees stand to lose their jobs. It vows to litigate if franchise rights are ignored. 

“Our hope is to resolve this without the need for extensive litigation to make sure that dealers are not disproportionately injured. However, we are fully prepared, as early as next week, to begin the litigation process because we can’t sit idly by and have these dealers’ lives ruined without the opportunity to raise the issues with the bankruptcy court in New York,” said Stephen D. Lerner, a partner in the Cincinnati and New York offices of Squire Sanders who is representing the dealerships. 

Lerner said, however, that he is confident the White House will “fully understand the devastating impact that these closures will have on dealers.” 

In a statement today, the U.S. Treasury said Chrysler’s cuts are necessary: 

“The sacrifices by the dealer community…are necessary for this company and the industry to succeed. And a stronger Chrysler, supported by an efficient and effective dealer network, will provide more stability for current employees and the prospect for future employment growth.” 

Lerner’s firm, meanwhile, is working on behalf of the Committee of Chrysler Affected Dealers, a coalition of dealers that is fighting for their franchise rights. Chrysler dealerships also have hired Washington’s Arnold & Porter to help preserve their franchise rights under the new Chrysler-Fiat alliance. 

Lerner said Chrysler’s rejection of the dealer agreements and ordered closures violates numerous state franchise laws, which are designed to protect dealers from unfair business practices by the large auto manufacturers. 

“We believe there is a legal basis that will either forestall the rejection of their franchise agreements or provide the dealers with the protections that state law requires,” Lerner said. “Chrysler is attempting to use the bankruptcy to avoid their obligation to these dealers. The other thing that is remarkable is that Chrysler has not provided — at least not in the filings that we’ve seen — any soft landing or opportunities for dealers to have time to address these concerns.” 

He added: “Chrysler is seeking to put 789 dealers and all of their employees out of work on June 9. The shortness of time here is stunning and disappointing.” 

Chrysler, which has taken $4 billion in federal loans and has been in bankruptcy since April 30, justified its decision to shut down the dealerships in court documents. The company said that many dealers’ sales are too low, too many stores are competing with each other, and foreign competition is too tough for many dealers. 

In its motion, the company said that a little more than 50% of dealers account for about 90% of the company’s U.S. sales. 

“Dealerships located in the markets at issue lack the operational, market, facility and [brand] characteristics necessary to best contribute to the ongoing dealer network under current or future ownership,” Chrysler said in court documents. 

Chrysler also stated in court documents that it has many dealerships that sell one or two of its brands, with Chrysler-Jeep dealerships competing against Dodge dealers as well as other automakers’ stores nationwide. In the future, the company plans to have 80% of its dealers carry all three brands. 

“In addition, as suburbs grew and the modern interstate system continued to evolve, longstanding dealerships no longer were in the best or growing locations,” the company said in its motion. “Many rural locations also served a diminishing population of potential consumers. Some dealership facilities became outdated. Other locations faced declining traffic count and declining populations.” 

Chrysler also said that its dealers are facing stiff competition from foreign brands. According to its filing, Chrysler sold an average of 303 vehicles per dealer in 2008. In contrast, Honda Motor Co. sold about 1,200 vehicles per dealer; Toyota Motor Corp. sold nearly 1,300 per dealer. 

Dealerships on the closure list, meanwhile, will continue to sell vehicles until June 9. Chrysler also will continue to pay incentives and warranty charges until that date, and it plans to mail a letter explaining coverage details to customers who purchase their vehicles from a dealer on the closure list.

Tresa Baldas

May 14, 2009

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