Click Forensics Cuts the Fraud

Austin Business Journal, December 5-11, 2008

It's never easy to be the messenger of bad news. But it's even harder when the bad news is being delivered to industry titans (think Google and Yahoo) who don't want to hear it, and especially not from some ambitious but unknown newcomer.

So how did Click Forensics, a start-up in this very position, avoid being shot? First, by being right, and then by finding a way to solve the problem no one wanted to admit was there.

The problem was click fraud, and that's where the company, launched in 2006, first found opportunity. It began when the founders, Tom Chavret and Tom Cuthbert, both working at a web analytics firm, began to notice anomalous activity on a client's advertising campaign. They dug deeper and found that it was invalid traffic caused by click fraud.

Uncovering the fraud was only the beginning. The next step, as CEO Paul Pellman describes it, was to quantify the problem. "We had to ask, 'How big a problem is it?'" he says. "There was no data out there."

And so the company started the arduous work of identifying the scope of the fraud by offering a free service to online advertisers—the Click Fraud Network—that compiled a broad, rich data set that could then be analyzed.

The result of that analysis was the quarterly Click Fraud Index, which reports on the prevalence of fraudulent traffic. The latest report pegs this activity at around 16 percent, a huge problem for an industry that spends $15 billion on search advertising in the U.S. alone. "There are bad people out there making a lot of money off this," says Pellman, "and they're not going to go away quietly."

As the word 'forensics' implies, it takes a lot of sleuthing to keep up with the fraudsters, many of whom are now using sophisticated, automated botnets to perpetrate the fraud. To evaluate the validity of impressions and clicks, the company relies on intensive data mining and detailed heuristics that create what Pellman calls a machine-learning environment. "Over time," he says, "we get better and better as we get more data and our rules get more sophisticated...and that is what allows us to stay a step ahead of how changes in invalid traffic are being perpetrated." He adds, "It's really, really difficult to do what we do, so we've had a huge technical and operational challenge."

And if keeping up with ever-advancing fraud techniques is hard, imagine what it's like to bring this data to the companies whose bread and butter is selling those lucrative impressions and clicks. "It's been interesting over the last couple of years," says Pellman. "We've gone from having very difficult conversations with the search engines, these big 800-pound gorillas, challenging this small little start-up and saying there's not a problem and we're taking care of it for you, to the point where many of them are now working with us."

So how has Click Forensics been able to convert the skeptics into believers? Transparency. "Transparency is a competitive advantage," says Pellman. "It makes advertisers more comfortable, and so they actually spend more money."

But the company's ambitions go beyond identification of fraud, which is why Pellman says the company is more accurately a traffic quality management service. "It's not just about finding sources of invalid traffic, but also identifying the relative value of the traffic," he says. "That all comes down to the propensity of traffic to convert, and so we leverage the same heuristics and data mining capability to not just identify invalid traffic, but also to score traffic based on its relative value to the advertisers."

According to Pellman, the ability to score traffic based on quality—in a standardized way—gives advertisers information that they just didn't have before. Right now, he says, "there's some level of understanding and standardization of quantity of traffic people are buying, but there isn't around the quality of traffic they're buying."

Looking ahead, this is where Pellman sees Click Forensics' contribution to the Internet. He foresees an online media space where fraud prevention, transparency and traffic quality will be essential to gaining advertisers' trust. "If you think of every other media channel," he says, "there's a third-party service out there that helps advertisers confirm that they're getting what they paid for." By managing quality and adding transparency, he adds, "it'll put more power in the hands of advertisers, but that, frankly, is the way it should be. They're ultimately the client."

With billions in advertising dollars at stake, and fraudsters intent on claiming a piece for themselves, Pellman believes his company is well-positioned to grow from ambitious newcomer to industry titan. As he puts it: "We think there's lots more to do, and we're bullish about the opportunity in front of us."

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Hi. I'm Tiffany Hamburger. I'm a full-time freelance writer and editor based in Austin, Texas. I've written and edited professionally for a decade on a wide variety of subjects.

I have an English degree and Biological Anthropology minor from Duke University, and a master's in creative writing from The University of Arizona.

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