Click Fraud Concerns Hound Google
John Thys still hasn't figured out how much his company has paid Google Inc.
for bogus sales referrals caused by "click fraud" -- a sham aimed
at a perceived weakness in the Internet search leader's lucrative advertising
But Thys says he has uncovered enough of it to conclude that Google is trying
to shortchange his company and thousands of other advertisers by offering refunds
totaling $60 million to settle a lawsuit.
"It's almost like an insult that they expect us to take this token money,"
said Thys, director of Internet marketing for Radiators.com.
Google also expects to pay $30 million to the lawyers who settled the case
on behalf of advertisers, raising the settlement's total value to as high as
$90 million. Still, that's a fraction of the more than $10 billion in cash held
by the Mountain View, Calif.-based search company.
An Arkansas judge is expected to consider the proposed class-action settlement
in late July.
The refunds, which will be provided in the form of advertising credits, are
meant to compensate Google's customers for undetected click fraud, which contributed
to the $13.3 billion in ad revenue that has poured into the company since 2001.
Google's offer works out to a $4.50 refund on every $1,000 spent in its vast
advertising network over the past 4 1/4 years.
Meanwhile, independent studies assert that anywhere from $100 to $400 of every
$1,000 stems from click fraud. If those estimates prove correct, Google might
be on the hook for $1 billion to $5 billion in advertising refunds.
Click fraud takes different shapes, but the end result is usually the same:
Merchants are billed for fruitless traffic generated by scam artists and mischief
makers who repeatedly click on an advertiser's Web link with no intention of
Based on a monthlong analysis of the traffic that Google ads referred to Radiators.com,
Thys suspects click fraud may have accounted for 35 percent of the Web site's
$20,000 ad bill.
After reviewing Thys' evidence, Google said its internal safeguards had spotted
the suspicious activity as it occurred and never billed Radiators.com for fraudulent
clicks. But Thys said the search engine didn't provide him with any data to
back up its findings in an e-mail signed simply by "Ray" from Google's
click quality team.
Google maintains its class-action settlement represents a fair offer that underscores
how well it has shielded advertisers from the costs of click fraud.
The class-action settlement of the Arkansas lawsuit will likely test advertisers'
faith in Google. The company is supposed to send out notices of the settlement
later this month, giving advertisers until late June to reject or protest the
refund offer. Radiators.com already has decided to reject the offer.
If the entire deal is rejected, lawyers then go back to the negotiating table;
individual advertisers can also declare they won't participate, freeing them
to file their own lawsuits seeking better deals or join a separate one pending
Miller County Circuit Court Judge Joe Griffin is scheduled to decide whether
to approve the settlement in a two-day hearing beginning July 24.
Meanwhile, Yahoo Inc. -- owner of the Internet's second-largest advertising
network -- continues to fight similar click fraud allegations in the same Arkansas
court as well as a federal court in California. A click-fraud lawsuit filed
against Google in that same federal court has been suspended while its Arkansas
settlement is reviewed.
The Google settlement, announced in early March, already has focused more attention
on click fraud.
The shady activity produces revenue for Google, Yahoo and a long list of Web
sites that display the ads because the clicks trigger sales commissions even
if a referral doesn't produce a sale.
Suspected motives vary. Sometimes Web merchants try to deplete a rival's advertising
budget. In other instances, the owners of small Web sites participating in the
marketing networks run by Google and Yahoo are believed to click on ads to generate
more commissions for themselves.
Complicating the click fraud issue even further, search engine advertising
isn't subjected to independent auditing like the advertising done in newspapers,
magazines and broadcast media.
In search advertising, Web site owners sign contracts obligating them to pay
for all valid clicks -- and the search engine has discretion over what is valid.
Google is examining ways to make its fraud-fighting efforts more transparent
without revealing crucial information that might help swindlers elude detection,
said Shuman Ghosemajumder, the company's product manager for trust and safety.
Outside help also may be on the way.
The class-action settlement requires a report from a yet-undisclosed independent
expert to verify that Google has made reasonable efforts to weed out click fraud.
Separately, Minneapolis-based Fair Isaac Co. is studying the issue, drawing
on its years of helping lenders fight fraud.
San Antonio-based Click Forensics Inc. recently set up a free service that
intends to issue quarterly reports on the frequency of click fraud, compiling
information from more than 1,000 advertisers.
The index's initial findings, released in late April, estimated Google and
Yahoo suffered a click fraud rate of 12 percent, translating to more than $1.5
billion of Google's ad revenue.
Given those findings, the settlement amount in the Arkansas class action "was
very surprising to us," said Tom Cuthbert, Click Forensics' chief executive.
"If I were an advertiser, I would take great care in studying that settlement."
Attorneys suing Google in the California case say they will do everything possible
to persuade advertisers to reject the Arkansas settlement.
"Google's motto is 'do no evil,' but it's not following its own advice
by entering into this kind of settlement," lawyer Brian Kabateck said.
If enough advertisers balk, it might derail the deal. Google has the right
to nullify the settlement if advertisers that supplied more than 5 percent of
its revenue since 2001 reject the agreement.
Google spokesman Barry Schnitt said Kabateck and his colleagues are trying
to rally opposition to the Arkansas settlement so they can revive the California
lawsuit in an attempt to drum up more fees for themselves.
Stephen Malouf, a Dallas lawyer who negotiated the Arkansas settlement, doubts
advertisers can get a better deal than what Google has offered. "It's easy
to take cheap shots now, but what is the alternative and what are the chances