Google's Wonderland: Trouble In Paradise?

 by: Dean Phillips

The fairy tale existance of Google is starting to experience shockwaves.

So, what's the source of these shockwaves? Click fraud. As my readers know, I've written several articles on the subject of click fraud, suggesting that since it's the market leader, Google should take a more proactive approach with the problem of click fraud.

Until now, Google has been mostly quiet about the subject, issuing this single statement to the Securities and Exchange Commission:

"We are exposed to the risk of fraudulent clicks on our ads. We have regularly paid refunds related to fraudulent clicks and expect to do so in the future. If we are unable to stop this fraudulent activity, these refunds may increase. If we find new evidence of past fraudulent clicks, we may have to issue refunds retroactively of amounts previously paid to our Google Network members."

So, why isn't Google doing more about click fraud? In one of my articles, I theorized that with the amount of money involved, it's actually more cost effective for Google to issue an occasional refund to its advertisers, than to develop technology to eliminate click fraud.

That theory was echoed in a recent article, in which the author wrote:

"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 percent or more of their clicks."

However, all of that may be about to change. At an investor conference last 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."

My question is this: What took Google so long to come to that realization? It's not like click fraud just magically appeared yesterday. The media has been reporting on the problem for at least the last 3 years.

Smug in its ivory tower, did Google think the problem was just going to go away by itself? Or was it waiting for Overture or one of the smaller pay-per-click companies to solve the problem, so it wouldn't have to deal with it?

These are troubling questions, to say the least. Even more troubling is Google's passive approach to a serious problem, which in my opinion has been reprehensible.

It should be interesting to see what Google's next move is. Google CFO George Reyes statement notwithstanding, I'll believe Google is serious about eliminating click fraud, when I finally see it!