The Google and the 'Click Fraud' Menace

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Case Details:

Case Code : MKTG120
Case Length : 9 Pages
Period : 1998 - 2006
Pub Date : 2006
Teaching Note : Not Available
Organization : Google Inc.
Industry : Online Advertising
Countries : USA

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Introduction Contd...

Jim Friedland, an analyst at SG Cowen,⁷ said, "There are a number of issues that could hurt Google, but we believe click fraud is not one of them. We continue to expect near-term sentiment to be negative and the stock is likely to go down on this news item.

Nevertheless, the fundamentals remain unchanged."⁸Other analysts felt that the US$ 90 million settlement amount was very low seen against Google's revenues of US$ 6.1 billion and net income of around US$ 1.5 billion in 2005.

Many analysts believed that Google was sending out the message that click fraud was a relatively small issue as the settlement amount was low when compared to the company's overall revenues. However, they felt that the problem of click fraud would not go away so easily. Chuck Richard, an analyst with research and consultancy firm Outsell, said, "It's a mistake to equate the relative trivial size of the settlement to any indication of what click fraud actually is.

This is a significantly heated subject, and the advertisers don't feel like it is getting the proper attention from Google, Yahoo!, or Microsoft's MSN."⁹

Background Note

Internet advertising began to emerge as an important medium for advertisement by marketers across the world in 1994. In 1999, PricewaterhouseCoopers (PWC)¹⁰ reported that the Internet was the only electronic ad supported medium to record revenues of US$ 4 billion in the first five years since inception. In March 2006, the Interactive Advertising Bureau (IAB)¹¹ and PWC reported that Internet advertising was expected to fetch revenues of more than US$ 12.5 billion in 2005 when compared to US$ 9.6 billion in 2004 (See Figure I for Growth in Internet Advertising Revenues).

The advent of the Internet opened up the possibility of personalized messages being delivered to targeted individuals. Online advertising enabled marketers to target specific customer segments, gather information, assess sales potential, and ensure product/service exposure across geographic boundaries...

Excerpts >>

7] SG Cowen is a US Investment bank specializing in technology and healthcare.

8] Kate DuBose Tomassi, "Google's click fraud settlement seen as non-event," www.forbes.com, March 09, 2006.

9] Chris Kraeuter, "Why click fraud questions won't stop," www.forbes.com, March 09, 2006.

10] PricewaterhouseCoopers is the world's largest professional services firm and one of the big four auditing firms in the world.

11] The Interactive Advertising Bureau, founded in 1996, represented over 225 companies that were actively involved in interactive advertising. This association is dedicated to helping online companies and interactive media companies increase their revenues and set industry standards.