Microsoft filed a lawsuit Monday to inhibit the practice of click fraud. The software giant alleges that three individuals illegally drove up the price of competitors' advertising so that the other companies would end their campaigns early and drive up the rank of their own clients' websites.
The company is suing three individuals for $750,000, which may seem like a small sum compared to the $13.7 million in revenue that the software giant brought in last year, but Microsoft hopes that putting a price tag on click fraud will change its economics and curb the practice.
Tim Cranton, associate general counsel for Microsoft tells The New York Times:
“We have decided to become more active in the commercial fraud area on the enforcement side. The theory is you can change the economics around crime or fraud by making it more expensive.”
Microsoft has been researching this case for over a year, after it noticed click anomalies in two areas — World of Warcraft and automotive insurance ads. They soon realized that an advertiser named Eric Lam was taking a fee to direct traffic to both areas. By driving up the popularity (and price) of competitors' advertising, he helped bring their campaigns to an end, thereby moving his advertising up in search results.
Microsoft alleges that Lam (and his brother and mother) took contact information from people who clicked to his sites, which he then resold to auto insurance companies, to the tune of $250,000. Microsoft also said it had to credit back $1.5 million to advertisers because of the Lams’ efforts and is asking for $750,000 in damages from the defendants.
Gaming the system of search advertising — where the price of campaigns is dependent on both the popularity and relevance of search terms — is a recurring problem for the search advertising business. But it is also on the decline.
According to ClickForensics, the average click fraud rate for all online ads was down to 13.8 percent during the first quarter of the year from 16.3 percent a year ago.
Yet fraud will continue to exist as long as advertisers think they can profit from the practice. A fact that Microsoft knows all too well.
The company spent a year trying to tamp down on the Lams' practices out of court. According to the Times:
"Microsoft began trying to stop the suspect traffic, but a little game evolved. Microsoft would block a server, or block a certain level of traffic for those advertisements, but whoever was on the other side of the clicks kept finding new ways around the company’s fixes."
Now, Microsoft is hoping that the court fees will drive up the price of click fraud and do that work for them. While the sum of money involved in the suit may not be high stakes for Microsoft, if they win their case, the implications for advertisers looking to profit from gaming the search advertising business are big.
Cranton tells the Times:
“We think there’s a good place for enforcement, basically to say, ‘You think this is a game, cat and mouse, back and forth. At some point, once we figure out who you are, we’re going to hold you accountable for it, it’s going to be expensive, and we’re going to deter you from doing it because you’re ripping off advertisers and people online.’”
Image: Microsoft on the Issues