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Google's 0.02% Spin Solution
By Jim Hedger (c) 2007

Last week, Google made a startling claim, one that begs
explanation even after close examination. Faced with lingering
questions about click fraud, Google released a blog post stating
actual click fraud charges are ridiculously lower than those
projected by third party analysts from the search marketing
community.

According to Google, actual click fraud only accounts for 0.02%
of all click activity found when Google's team is asked to audit
an advertiser's account. If correct, Google's 0.02% assertion
places the perceived dollar value of actual click fraud in their
system somewhere in the range of $2,100,000.

In a post to the Inside AdWords blog, "Invalid Clicks - Google's
Overall Numbers" (http://adwords.blogspot.com/2007/02/
invalid-clicks-googles-overall-numbers.html), Google gave a brief
outline of how it claims AdWords' 100+ data-point click detection
system works to filter out 99.98% of the nearly 10% of overall
clicks Google determines to be invalid.

Other industry analysts have pegged the number between 15% and
20% with the click fraud index (http://www.clickfraudindex.com/)
maintained by Click Forensics suggesting
(http://home.businesswire.com/portal/site/google/
index.jsp?ndmViewId=news_view&newsId=20070130005318), "The
average click fraud rate of Pay Per Click advertisements
appearing on search engine content networks was 19.2 percent
for Q4."

Google has never given specific figures citing how much of the
PPC-traffic they filter is caught and disregarded as invalid
click activity saying it fluctuates from month to month but is
below 10%. Though evidence of these clicks might appear in
server logs or be noted as click fraud by third party analysts,
Google says it does not charge for them. In the absence of a fee
charged to an advertiser, the most such invalid click activity
can be called is attempted fraud.

On one side, a large third party verification system suggests a
very high percentage of click fraud. On the other, Google says
that invalid clicks represent less than 10% of all AdWords
traffic and of those, only 0.02% get past Google's detection
filters.

The true numbers likely sit somewhere in between but when it
comes to understanding click fraud by the numbers, Google tends
to play the numbers down. Though Google is the world's largest
repository of information and a publicly traded company running
the largest advertising system online, it is amazingly secretive
about its data. Google has gone as far as balking at pursuing
any legal action against cyber-criminals if such action might
expose their systems in open court.

Proving or disproving click fraud is next to impossible without
access to the data Google holds closest. Unfortunately, the only
numbers we have to work with are the ones Google gives us.

Google Product Manager for Trust and Safety, Shuman
Ghosemajumder uses Google's current revenue rate when he notes
that, "...every percentage point of invalid clicks we throw out
represents over $100 million/year in potential revenue
foregone."

This is an important point to remember as we slow down the spin
to ask some critical questions about the 0.02% claim. First,
let's cover some things we do know.

While Google can claim to have cut the rate of actual click
fraud to 0.02% of all clicks, it is unwilling or unable to
provide hard evidence to prove the point. Instead, they provide
images. (image location: http://bp1.blogger.com/_xw8yCc6mas4/
ReaEzCyNDOI/AAAAAAAAAAU/g8pzbb8lIPM/s1600/cf-diagram2.gif)

According to Google's year end financial statements, Google saw
revenues of $10.6 billion. Of that, $10.5 billion was generated
through AdWords advertising. Assuming that the rate of known
invalid clicks is about 10%, Google expunges about $1.05 billion
in suspicious click activity each year. 1% of Google's PPC
activity equals approximately $105 million, similar to the
number Shuman Ghosemajumder cites.

Google puts a great deal of effort into detecting and deleting
pay per click charges stemming from invalid clicks. We know that
they recognized the enormity of the problem early on. In
December 2004, chief financial officer George Reyes told a
Credit Suisse First Boston investor conference that click fraud
could critically damage the PPC model.

CNN (http://money.cnn.com/2004/12/02/technology/google_fraud/
index.htm?cnn=yes) quoted Reyes saying, "I think something has
to be done about this really, really quickly, because I think,
potentially, it threatens our business model."

According to the article, 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."

Two years and tens of billions in revenues later, Google says it
has won the better part of the fight. Citing the 0.02% figure,
Google appears to claim it has conquered click fraud. Now that's
pretty amazing considering the awesome scale of revenues that
flow through the AdWords platform.

The statement comes a few weeks after Google's chief Internet
evangelist, Vint Cerf declared that up to 25% of all computers
on the 'net are infected and exploited by bot-nets. In a session
at the World Economic Forum in late January, Cerf suggested
that, "... of the 600 million computers currently on the internet,
between 100 and 150 million were already part of these botnets."
(sitepronews (http://blog.sitepronews.com/index.php?/archives/
89-Vint-Cerf-says-BotNets-infect-14-of-all-computers-online.html),
Jan 25, 2007)

In a prior investigation, Sitepronews learned of and wrote about
botnets used to commit click fraud. One such network, made up of
over 50,000 computers, was thought to make over $250K per week
before it was shut down.

According to security experts, Google and other pay per click
search advertising providers faced click bot activity on a daily
basis. Though details are scant, a source has informed us that
Google has recently adopted new methods of better detecting bot
generated clicks.

We also know of pay per read and pay to click schemes working
around the world. While we recognize the seriousness with which
Google takes the issue of click fraud, we find it very difficult
to believe Google has successfully disempowered a criminal
industry known to be employing the resources of tens of
thousands of people and tens of millions of computers.

If they have, we urge them to release data proving the case. In
the absence of hard evidence, Google is asking the search
marketing community and its advertisers to take it on its word,
offering an absurdly paltry figure of $2,100,000 as the end
effect of criminal click endeavors. That's a stretch of a
proposition to consider.

Here's another thing to consider, completely by the numbers.

After meeting staff payroll, maintaining and expanding
infrastructure, investing in R&D, buying a few cool companies,
bankrolling its philanthropic foundation and paying oodles of
income tax, Google made a net income of $3,077,446,000.

That net income provides a pool from which investors get to
draw returns and is the first balance sheet entry looked at by
financial analysts. When market research firms such as Outcast
Inc suggest that PPC spending might decline by 1% this year due
to advertisers' fears of click fraud, 1/30th of Google's net
income is threatened. Yikes!

Has Google really cut the charges associated with Click Fraud to
0.02%? I have no idea. Neither does the next speculator. Nobody
except Google is able to substantiate the number and given its
historic reluctance to share any proprietary information, that
is not likely to happen without intervention from the courts or
from Congress.

The 0.02% claim is patently ridiculous and awfully fun to
ridicule. In making it, Google is not lying but it is not
telling the whole story either. Google does not provide nearly
enough data to prove their case, asking advertisers to take them
on their word and look at their ROI against other forms of
mass-marketing for further guidance.

To be serious, Google flirts with monopolistic status in every
field they become interested in. They run the world's
information like nobody else's business. Google is bigger and
more important than most levels of government. Everything they
say has to be held to strict account.
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Search marketing expert Jim Hedger is one of the most prolific
writers in the search sector with articles appearing in numerous
search related websites and newsletters, including SiteProNews,
Search Engine Journal, ISEDB.com, and Search Engine Guide.

He is currently Executive Editor for the Jayde Online news
sources SEO-News (http://www.seo-news.com) and SiteProNews
(http://www.sitepronews.com). You can also find additional tips
and news on webmaster and SEO topics by Jim at the SiteProNews
blog (http://blog.sitepronews.com/).
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