GOOGLE AND THE ‘CLICK FRAUD’ MENACE

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Google, the world’s most popular search engine, had become synonymous with searching the internet for information. The California based company was established in 1998 by two Stanford University students, Larry Page and Sergey Brin. The phenomenal growth in search based advertising in the years 2003, 2004 and 2005 made Google one of the fastest growing internet companies.

A report by PricewaterhouseCoopers estimated that spending on internet advertising was more than US$ 9 billion in 2005 when compared to US$ 7.2 billion in 2003^[5] . After its unusual ‘Dutch Auction’ style IPO in 2004, Google was a favorite on Wall Street right through 2005. In January 2006, Google’s market capitalization even surpassed the market capitalization of technology giants like Intel and IBM^[6] .

But there were concerns among analysts and investors that Google was solely dependent on its search based “pay-per-click” advertising model, which accounted for almost 98% of the company’s revenues. There were also warnings of a slowdown in growth in search advertising revenues by 2010. In addition to this, click fraud had become a problem for both advertisers and internet companies that relied on search based advertising revenues.

It was estimated to be anywhere in the range of 5 percent to 20 percent of clicks on Internet ads^[7]. While some advertisers felt cheated because they perceived that the search engines were not doing enough to detect and stop click fraud, a few others looked at click fraud as a cost of doing business on the internet. Click fraud usually referred to purposeful clicking of online ads without the genuine intention to buy or know more about the product or service.

These invalid clicks, done manually or through software programs called ‘online bots,’ tend to drive up the advertisers costs and eat up the promotional budgets without generating any commensurate return. Sometimes, a firm’s competitors are the main perpetrators who generate these invalid clicks and drive out the firm from the auction process.

Another form of click fraud was when website owners, enrolled with Google’s AdSense Program, purposefully clicked on text ads posted on their website to boost their income. This was because website owners received a part of the revenues from the clicks on the text ads (administered by Google) placed on their website. For instance, in November 2004, Google filed a case against Auctions Expert International LLC, a Houston based online company, for trying to increase its AdSense revenues by clicking fraudulently on Google’s text based ads on the company’s website.
 

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^[5] Brad Stone, “When Mice Attack,” http://www.msnbc.msn.com/id/6830802/site/newsweek/, January 24, 2006.

^[6] “Google market valuation passes Intel’s,” http://australianit.news.com.au/articles/0,7204,17983952%5E15322%5E%5Enbv%5E15306,00.html, January 31, 2006.

^[7] Elinor Mills, “Google says click fraud settlement near,” http://news.com.com/Google+says+click+fraud+settlement+near/2100-1030_3-6047717.html?tag=nl, March 08, 2006.