Google CFO: Click Fraud Threatens Our Business Model

    December 2, 2004

At an investor conference Wednesday, Google CFO George Reyes stated — I think something has to be done about this really, really quickly, because I think, potentially, it threatens our business model.

According to a CNN report Reyes “was referring to an illegal practice known as “click fraud” that occurs when individuals click on ad links that appear next to search results in order to force advertisers to pay for the clicks”.

Investment analysts have increasingly expressed concerns about click fraud. Those of us who have followed the search engine industry closely have realized this from the begining when popularized the pay for click search engine revenue model. If Google, Yahoo and others can’t stop click fraud (and there is no guarantee they can) then the model is doomed. No advertiser can sustain paying for empty clicks.

As the CNN article states it is a problem created by the nature of the business model, “The main perpetrators appear to be competitors of advertisers and also scam sites set up for the sole purpose of hosting ad links provided by Google, through its AdSense unit, or Yahoo!’s, through its Overture service. Humans or specially designed software then click on those ad links in order to “steal” revenue from advertisers.”

Google’s primary defense against click fraud has been to refund advertisers their money if they complain and Google sees evidence that fraudulent clicks have occured. The problem with this is that the burden of proof is on the advertiser … and Google knows that most advertisers will not take the time to argue. Therefore, Google has a financial incentive not to deal with click fraud on their own. It not only costs them to deal with the problem but if they do find a solution to stopping click fraud … it will cost Google much more when they don’t get paid for 20% or more of their clicks.

In the article, Jessie Stricchiola, the president of Alchemist Media, “estimated that as much as 20 percent of all clicks on paid search ads are shams”. Personally, I believe that number to be way too low. It is just too easy to screw a competitor!

Per CNN, Reyes went on to say, “There’s a lot of bad guys out there that are trying to take advantage of this and it costs, I’m sure not just us, but eBay and Yahoo! and Amazon and the whole crowd, you know, tons of money.”

Rich Ord is the CEO of iEntry, Inc. which publishes over 200 websites and email newsletters.

Rich also publishes his blog WebProBlog which focuses on internet business and marketing trends.