Student: Yahoo! Profits from Fraud

Yahoo!, the most-trafficked site on the internet, is collecting advertising revenue from click fraud and spyware vendors, according to a paper released by a Harvard Law School (HLS) student on Tuesday.

According to Benjamin G. Edelman ’02, who is also a Ph.D. candidate in the economics department, fraudsters have been using Yahoo’s media partnerships to indirectly place ads for spyware vendors, whose programs track users’ actions and generate relevant ads.

“Click fraud” involves falsely increasing the number of hits to an online advertisement, hurting advertisers who are charged every time their ad is clicked.

Edelman, a spyware expert, found evidence of two kinds of click fraud schemes through Yahoo—one in which companies repeatedly click their competitors’ ads in order to rack up the number of views—and charges—and another in which spyware installed on the computer reports false clicks.

“Yahoo does not specifically intend this, but it has set up monetary incentives that make it foreseeable and even inevitable,” Edelman said yesterday.

Martin Fleischmann, president of MostChoice, which offers online insurance and mortgage services and advertises with Yahoo, said that he is working closely with Yahoo and Google to try to curb click fraud, as well as other types of internet fraud, which he describes as “thievery.”

“Yahoo has to tread very carefully,” Fleischmann said. “If they admit they know the extent of the problem, they could get sued.”

According to Fleischmann, his company is aware of many types of ad fraud and can therefore detect and react to suspected foul play. However, he said, many advertisers do not understand the extent of the problem. “That is what the thieves are counting on,” Fleischmann said.

Jonathan Zittrain, faculty co-director of the Berkman Center for Internet and Society at HLS, applauds Edelman’s work.

“Ben’s latest research puts the ball squarely into Yahoo’s court to explain itself,” Zittrain said, adding that the entire pay-per-click online advertising system is accompanied by large incentives for fraudulent practices.

“The general model of click-through advertisement is showing its age,” he said. “Ben’s work is chipping away at that system.”