March 9, 2006 6:27 AM PST
Putting a price on click fraud

Google is prepared to pay $90 million to settle a lawsuit over click fraud, the company said Wednesday.

Advertisers pay Google each time someone clicks on one of their ads. Click fraud refers to spurious clicks made manually or by computer programs, running up fees for the advertisers.

The search giant and other companies, including Yahoo and Time Warner, were sued in Texas over the practice. Google said in a blog posting that it would offer ad credits to marketers who claim they were charged for invalid clicks and not reimbursed.

Reactions to the settlement were mixed. Some investors were glad to see the matter go away, but slammed the company for the way it published the news in the first place.

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My clients are becoming more and more spooked about click fraud. This sort of reminds me of how the media blew the whole privacy issues with cookies way out of proportion and essentially distributed mis-information causing a lot of people to block cookies and install privacy protection software, etc. People eventually came to their senses realizing a cookie in itself wasn't secretly sending a website their personal information and turned them back on as it made it so many websites (shopping carts especially) didn't work. But Norton or someone sure made a lot of money on their Internet Security software or whatever they released to help people feel 'safer' back in those days.

My take on the click fraud issue is that if it is significant, it is primarily going to be associated with Content Match PPC advertising where your Google or Yahoo ads can be carried on many low-quality, obscure websites. These websites have incentive to increase clicks since it increases the revenue they get from Google for the clicks. However, the regular PPC ads, not the Content Match ads, are distributed on a smaller network of higher quality/larger sites, like AOL Search, etc. It would seem to me, if you aren't running Content Match on Google (or Yahoo) the chances you are being effected significantly by click fraud are probably very low.

To me, this whole issue wreaks of paranoia. There obviously is click fraud out there but as the other article in Business Week points out, no one has any idea how much there actually is. Google has SO much money, it is better for them to just pay people to stop whining as opposed to really be transparent about how widespread it really is. You've got a log of advertisers (especially the ones newer to the game) out there that think PPC is their silver bullet to rapidly growing their online businesses. It has taken a while, but with PPC bids going up and up, people are seeing their ROI (once they finally actually start to measure their PPC ROI) is pretty poor or has been consistently sliding. Gee, they think, maybe their ROI is poor due to Click Fraud! Right. Well heck, doesn't hurt to at least see if we can get some money out of Google so we don't feel so dumb about spending all that money on PPC without measuring ROI until later and realizing we didn't spend wisely.

Since no one really knows how much click fraud is going on, one could argue there is significant risk even on non-Content Match ads even though I highly doubt it is significant. Doesn't matter though, my clients have been using Google PPC almost since the first month it was available so we have quite a history of ROI reports. If someone decided to do click fraud on one of my clients we would see a significant jump in click-thrus without changing anything else (bid amount, ad wording) coupled with a significant decrease in ROI - it's easy to spot, you don't need fancy software or a 3rd party service. It is too bad that just like the whole 'Cookies Scare' now you have companies trying to cash in on the Click-Fraud paranoia by offering 3-rd party click fraud detection services. As John Stossel would say, 'Give me a break.'

Bottom line is if Yahoo and Google aren't doing a good enough job detecting and preventing click-fraud it will eventually hurt their business and they have a heck of a lot more resources and data than the 3rd parties do. Any conspiracy theory that Yahoo or Google is letting things slide because it generates more revenue for them is again, paranoid, as these companies plan to be in business for the long term and click fraud as part of a revenue model would not lead to a sustainable long-term business model.

Click fraud exists and is rife: one example.

Obviously Google wouldn't agree to pay 90 million if CF didn't exist, but I think characterizing it as 'rife' with just a link to a discussion on this board by a handful of people as opposed to *comprehensive* evidence is a highly subjective and opinionated statement.

Something more along the lines of, "see this comprehensive, independent study by a highly respected company confirmed that based on a sampling of x thousand websites, on average, X% of all clicks billed by Google can be attributed to click fraud."

But the fact of the matter as Business Week at least pointed out (http://www.businessweek.com/technology/content/feb2006/tc20060227_930506.htm?campaign_id=search):

"No one has any idea how much of this is actually going on," says Boser.

"Some search consultants say click fraud accounts for upwards of 20% of all traffic, and may generate more than $1 billion in dubious sales a year. Others say those stats vastly overstate the problem."

"The other common (ad) type is known as a contextual ad, where ads are placed on third-party Web sites. Ad revenue is split between the Web site publisher and the company, such as Google or Miva, that works as a middleman, matching advertisers to relevant sites. Yahoo's comparable contextual-ad program is still in testing. It's with these types of ads that serious damage can be done by site owners who fraudulently click ads appearing on their own Web pages, security experts say.

Like I said. If you are spending a lot on Contextual Ads, you *may* have something to worry about - just keep an eye on your logs. Your risk is also highly dependent on what subject matter you are advertising on.

In my opinion, click fraud cannot become 'rife' without the majority of advertisers' ROI's dropping so low that they will cease to spend money on PPC and therefore any gain Google or Yahoo has made from click-fraud revenue is lost, and then some, by the decrease in business because they didn't stay on top of the problem.

I predict Yahoo and Google will stay on top of the problem and no one will be able to provide comprehensive data that indicates click-fraud is a significant issue for keyword-based PPC advertising other than a few individuals on a discussion board somewhere making claims regarding their own website which is not representative of the whole.

Regarding Contextual Ads though, all bets are off due to the revenue model and distribution of those ads - there is a high incentive for an individual to engage in click fraud to make money. But people will not continue to buy Contextual Ads either if the ROI is p**s-poor.

I suggest anyone who wishes to make any claims to back up the contention that CF is a big problem give some details on exactly how they determined the problem, what the subject or product area they were advertising on, and *most importantly* distinguish whether they are referring to contextual ads or regular keyword search PPC ads that they are suspecting a CF problem with. But again, an individual case is not necessarily a good indicator of how widespread the problem really is.

I think what g1smd was pointing out, was the attitude of the fraudsters demonstrated on this forum.

Sorry if you have covered this in your post. I couldn't be bothered to read it all.

I just had lunch today with one of the 'participants' in this click fraud case. Turns out that Google settled for 90 million US dollars because the evidence was presented that click fraud is real and is a big problem.

I suggest anyone who wishes to make any claims to back up the contention that CF is a big problem give some details on exactly how they determined the problem

I'm sure as we're going forward the evidence will present itself in a public manner. But after having lunch today with someone who is involved, I'm convinced that they presented a case with specific evidence that click fraud is a big problem.

Obviously Google isn't going to just give away 90 million dollars if claims click fraud is significant hold no water - that's a no brainer.

But again, highly subjective words are being throw out here like 'big' problem. The REAL question in my mind is a) HOW 'big' is the problem really, and b) WHERE is the problem (90% contextual PPC, 10% keyword-search PPC?)

Specific answers to these questions have yet to published by anyone I know of, whether they are contending it is or isn't a big problem (although I admit I haven't dug around that much.)

Numbers presented in the evidence for the court case and information about how they were arrived at would be helpful.

On the surface you hear 90 million, wow, must be a BIG problem. Obviouisly they had to use some sort of pseudo-objective method of coming up with the 90-million figure. If that method estimates there was click-fraud *to date*. Google forecasted 2006 revenues will be around 9 billion. So if Google ends up making a 1-time payment equal to 1% of there annual revenue then that doesn't sound like a very big problem to me. Say they underestimated it, and there really was 180-million in click fraud. So 2% their 2006 forecasted revenue. Obviously all of Google's revenue
isn't PPC so let's say PPC makes up only half Google's revenue, so now we have 180-million in CF = 4% of Google's annual PPC revenue. This is all theoretical but I can see how people would dispute claims of 20%.

If there were more lawsuits over the next couple of years, Googles ad revenues took a dive due to the continuing bad publicity regarding a CF problem, and their stock price dove, then I'd say CF was a 'big' problem.

I bet the evidence presented shows CF primarily attributed to Contextual Advertising. That's just an educated guess. And I bet the whole CF issue fades over the next year just as the privacy issue regarding cookies did - but who knows, maybe the lawsuit will just add fuel to the fire for years to come and it will become a monkey on Google's back?




[ Message was edited by: consultant2 03/09/2006 12:49 pm ]

I do not have any specifics about this case; however, one obvious thought comes to mind. Settlement amounts may be about other concerns more than the actual damages involved. They could reflect a desire to avoid bad publicity or to avoid potential image damage.

I'll believe it when I see it...sounds a lot like damage control to me. Oh poor Google, life at the top ain't always so wonderful