What is the difference between click fraud and arbitrage?

May 31, 2022 ∙ 5 minute read

Advertisers are losing tens of billions of dollars each year due to click fraud and “arbitrage”. In this article we briefly explain what is click fraud and arbitrage, and show the steps involved in a typical click fraud and arbitrage process. As you’ll see, there’s not much difference between click fraud and arbitrage!

What is click fraud?

Click fraud is a cyber-crime where publishers defraud advertisers by repeatedly clicking on ads placed on their scam websites.

An advertiser creates an ad, agrees to pay an ad network a set amount of money every time a person clicks on the ad, and publishers display the ad, earning a fee from the ad network every time the ad is clicked. For example, if Chanel wanted to advertise a new product, they may use an ad network like Bing Ads to display their advert around the internet. Chanel agree to pay Bing Ads $30 every time a person clicks on their ad. Publisher websites then display this ad, and every time someone clicks on it, Chanel pays Bing Ads $30, and Bing Ads shares this money with the publisher.

Criminals pose as legitimate publishers, and display other people’s ads on their websites. They use technology and trickery to generate a huge amount of fake clicks on the ads, resulting in massive earnings, often hundreds of thousands of dollars each month per scam website. The losses to advertisers are significant, as the fake clicks are worthless and never convert into a sale.

To read more about the click fraud process, please check out our article What is click fraud?.

What is arbitrage?

Arbitrage is a process where publishers use click bait ads to attract large amounts of naive visitors to their websites, and hope some of these visitors will click on the lucrative ads the arbitrager forces in front of the visitors.

The entire arbitrage process is similar to the click fraud process, however arbitrage is legal and is encouraged by many ad networks, even though it offers little to no value to online advertisers.

Let’s walk through the steps of a typical click fraud and arbitrate process to better understand how these scams work.

What are the steps involved in a typical click fraud or arbitrate process?

As you’ll see in the steps below, click fraud and arbitrage are very similar, and both result in worthless (or near worthless) clicks for the advertiser. We use “publisher” to refer to tactics common to both the click fraudster and arbitrager, and clarify where their actions differ.

  1. The publisher creates a website which can display search results. For example, if a visitor searches for “luxury handbags” on the website, he will see search results relating to luxury handbags.
  2. The publisher contacts an ad network like Bing Ads, and opens a publisher ad account. This allows him to display context relevant ads on his website. For example, a search for “luxury handbags” will display ads relating to luxury handbags above the search results. If a visitor clicks on one of the ads, the publisher will receive a fee from the ad network. For example, if a visitor clicks on an ad for “Chanel Handbags”, the advertiser (in this case, Chanel) might pay $20 to Bing Ads, and Bing Ads would share this money with the publisher.
  3. The publisher researches which types of searches will display high paying adverts. For example, if a lawyer in New York was looking for people to join a class action lawsuit, he might be willing to pay $500 per click. If the publisher can generate a search to display this advert (“new york class action lawsuit”), he will get paid a few hundred dollars every time a visitor clicks on the ad.
  4. The publisher creates a click-bait style ad (“One weird trick…”). The click fraudster doesn’t care who clicks on the ad, he just wants visitors, whereas the arbitrager wants gullible people to click on the ad, hence why the ad is purposefully bad. The arbitrager’s logic is as follows: if he’s gullible enough to click on my terrible ad, he’s probably gullible enough to click on the ads on my website.
  5. The ad is uploaded to an ad platform like Google Ads, and presented as a Discovery campaign to maximize clicks at a low cost. Every time someone clicks on the ad, the publisher pays a fee to Google Ads.
  6. Each ad click is redirected to a search result on the publisher’s website. For example, an ad which shows a pretty woman alongside the text “You won’t believe who this woman dates” might redirect to a search for “new york class action lawsuit”. It doesn’t matter that the visitor has no awareness or interest in a class action lawsuit in New York, the publisher only cares about getting visitors to the high value adverts on his website.
  7. A. The click fraudster uses technology and trickery to force the visitor to click on an ad. For example, the ad might appear in an invisible iframe which follows the visitor’s mouse on the page. If the visitor clicks his mouse, it will click the ad in the iframe. Therefore the click fraudster needs to trick the visitor into clicking his mouse anywhere on the page. A common method is to try to scare the visitor into clicking a cancel button. Perhaps an alert message appears on the website, suggesting a virus will download unless the visitor clicks cancel. By forcing a certain percentage of visitors to click on the ads, the click fraudster can guarantee a profit.

    B. The arbitrager doesn’t force the visitor to click on an ad, however since the visitor already clicked on the arbitrager’s click bait ad, it’s hoped he’ll be willing to click on one of the ads within the search results. As long as a certain percentage of visitors click on the high value ads, the arbitrager will be able to cover the cost of the click bait ads and earn a profit.

As you can see, the main difference between click fraud and arbitrage is the click fraudster can force a certain percentage of visitors to click on the ads, guaranteeing a profit, whereas the arbitrager hopes enough visitors will click on the ads, resulting in a profit. What’s important to note here is the visitors offer little to no value to the advertisers, so from the advertiser’s perspective, there’s not much difference between click fraud and arbitrage. However, the ad networks, and the law, treat them differently.

How do click fraudsters and arbitragers make a profit?

Let’s do some simple math to see how much a click fraudster can earn. Assume it costs $4 to get 10 visitors to click on his click bait ad. Therefore if he can force 10% of visitors to click on one of the ads on his website, as long as that ad pays more than $4, he'll make a profit. That's why the publisher redirects the visitor to search results which display high value ads. If he can force 10% of visitors to click on the "new york class action lawsuit" ad ($500 per click…!), his earnings will be huge.

The math for the arbitrager is the same, however he can’t force the visitors to click on the ads, so his profits are not guaranteed. However by using click bait ads to attract naive visitors, he knows some of these visitors will also click on the high value ads on his website.

Conclusion

Click fraud and arbitrage are a problem, and are costing online advertisers billions of dollars each year. Both scams follow a similar process, and only differ in how the ad clicks are generated. Click fraud is illegal and occasionally results in prosecutions, whereas arbitrage is legal and is encouraged by many ad networks.

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