Google Click-Fraud Settlement VERY Material

Okay, this is getting ridiculous.  Six days ago, Google CEO Eric Schmidt dismissed the click-fraud issue as "not material."  Now, six days later, Google has agreed to a settlement in ONE click-fraud lawsuit that could reach $90 million.  I'm sorry, even if the lawsuit was baseless, even when you have $6 billion in revenue, $90 million qualifies as material.

To make matters worse, the company released this news on its blog.  A $90 million, precedent-setting payout on a critical issue at the forefront of every Google observer's mind, and the company has an anonymous associate general counsel type up a blog post.  Google needs some new PR people, and it needs them now.

This agreement covers all advertisers who claim to have been charged but not reimbursed for invalid clicks dating from 2002, lawyer Nicole tells us, as though describing a new feature on Google Earth. 

Okay, fine, but far more important, what will happen from here?  Has the the company fixed the problem, if there was one, or will this always be a he said / she said thing?  Is the problem getting better or worse?  Who knows? After breezing through her "update", Nicole just assures us once again that "we believe we manage the problem of invalid clicks very well.  We have a large team of engineers and analysts devoted to it. By far, most invalid clicks are caught by our automatic filters and discarded *before* [sic] they reach an advertiser’s bill.  And for the clicks that are not caught in advance, advertisers can notify Google and ask for reimbursement" 

Then can we assume that, in the future, the tiny percentage of "invalid clicks" that slip past Google's rocket scientists and aren't reimbursed will be dealt with through the legal system?  And, while we're getting updated, what should we assume is the percentage of clicks that the rocket-scientist team "discards" as a percentage of total clicks?  Is this percentage increasing or decreasing?  What about the percentage of Google-approved clicks that advertisers claim are invalid?  Is that percentage increasing or decreasing?  By the way, what percentage of revenue is Google "reimbursing" every quarter?  (Sorry, now that we know the definition of "material" is somewhere north of $90 million, we have to ask).  Is that percentage increasing or decreasing?  And what should we assume will happen now that Google is shelling out money?

For the finance folks out there wondering how we’ll account for this, Nicole continues, moving on with her Earth-to-Google demo.  The "finance folks" out there?  Um, you mean the thousands of shareholders who have been and remain concerned about this issue?  For the finance folks out there wondering how we’ll account for this we can say that the attorneys’ fees (which will be determined by the judge) will be charged as an expense, most likely in the first quarter, once the amount is determined. The credits will be recorded as a reduction to revenue in periods in which they are redeemed.

So should we assume that most of that $90 million will hit revenue next quarter? 

To be clear: It is not about the loss of $90 million (although I think this number qualifies as material). It is about the precedent, the future, and yet another three-stooges PR move.  Google has always suggested it handles click fraud "very well."  As far as we know, it hasn't fixed any problem, improved its detection capabilities, or even acknowledged that there might have been a problem, and it certainly hasn't "withdrawn the product from the market" (a standard way to control future liability).  The click fraud concerns have never been about the past, so what happens from here?

On the PR side, it is hard to know which is more worrisome: That Eric, Larry, Sergey, and the man-hereafter-affectionately-known-as Three-Alarm George would make the decision to have a subordinate deal with this in a blog post, or that the subordinates could be so out-of-touch with the world outside the Googleplex that senior management wasn't even informed.

UPDATE: After several thoughtful comments, I thought some more about the blog vs. press release question.  Please see next post below.

Comments

[Kevin T.]

I'm a lawyer at a small firm. I also do our SEO. We spend between 100k and 200k per year at Google. That's a lot of money for us. That's a lot of money, period!

We think the settlement is unfair.

Since our firm actually does this type of litigation, we will most likely opt-out and will sue Google individually in state court.

We may also take on clients who wish to do the same.

I suspect what will happen is that Google will end up paying more total money to those who have opted out. For example, if we recover 10 percent of what we spent, and there are another 1000 Google advertisers our size or larger, that apready puts Google's obligations at 100 million USD for the opt outs alone.

Kevin

access1776@alexanderlaw.com

[Thor Schrock]

90 Million is not important? Heck, I scrounge for pennies an hour in AdSense. What I wouldn't give for 90M!

[Increase spem count]

It is a normal result if we thing that Google is putting to much price over ad words.Maybe we will have some other programs more targeted.

[CPCcurmudgeon]

IMO, the problem with click fraud is the payment model. The same problem exists with CPM, CPA, and any other "per-action" model which is easy to do, and difficult to trace, on the Internet of today. If advertisers paid fixed fees, it would eliminate a lot of the current ad fraud issues because there would be no easy way to arbitrarily influence the advertiser's spend through the artificial generation of traffic.

In addition, the problem with click fraud (really, auto-generation and faking of Internet traffic) was well understood long before Google was incorporated. It has always mystified me that Google deployed AdWords/AdSense despite the clear threat of click fraud.

[increase sperm count]

In the same time don't you think that some of advertisers are paying to much per click for example?

[CPCcurmudgeon]

Yes, some advertisers are paying too much per click. It isn't always clear what prices are paid given how bids are made. This is another area where Google should be more transparent, IMO.

[Diana Bozarth]

In RE to:
Posted by: Neal Lachman | March 09, 2006 at 07:16 PM

Sometimes I think people who don't understand tech, or have never taken a computer programming course, invest in technology.

Does anyone understand how easy it is to write simple programs against click fraud.
INPUT: take the ip address
INPUT: take the time.

IF STATEMENT: If the same IP address makes the same click within @(variable _one) amount of time, throw out all the clicks from this IP address.

Click fraud solved!!

My competitor changes his IP address. He use's his own server or something that will allow this. The first 6 digits stay the same he clicks on my site a few times a day some days up to 12 times in a row 5 to 8 sec apart never visits the other pages. enough to cost me approx.. 1000.00 more a month than I would have to if he did not click on my site. He has approx.. 6 different IP address that he is able to change the last digits on. I have asked Google and Overture for help and they claim they see no problem. To simply outcast a single IP address from this guy is not so easy. His numbers start with 200.111 or 64.24 etc... I know this is my competitor because I confronted him told him I had the FBI involved (I did until Huricane Katrina)and the clicks stopped for approx. 5 months. I can't prove its him because I have no idea how to get the name of who owns the IP'S. I only know from my tracker that it is happening.

[Neal S. Lachman]

Diana,

I never made that comment - Tom did (the guy who commented after mine).

Concerning your problem, I would humbly want to add my two cents.

Cent 1) Involve the police (I guess the FBI is way too high up there and not interested in small crimes). Most likely there's an cyber force, if not, call the local Better Business Bureau and ask them what you can do.

Cent 2) Ask uncle Joe and cousin vinny to go have a nice and decent chat with Mr. Competitor.

[WW]

I am an advertiser with Google Adwords. Recently one or two of my competitors created a lot of fraud clicks to my ads so that my daily budget of $240 was used even before noon time, in the whole afternoon, my ads disappears from Google, and only their ads can moved up to the top. I narrowed down their IPs, where these fraud clicks are from, to 3 or 4 IPS. Could you please tell me how could I find out who the IP is, or anybody can recommend any attorney who can help me with this issue? Thanks.