By Eric Auchard
An independent report filed on Friday in an Arkansas court sided with
Google over disgruntled advertisers who had sued the search engine giant
accusing it of trying to drive up fees through so-called click fraud.
The two sides agreed to commission the report as part of a settlement
deal for the lawsuit, filed by advertising customer Lane's Gifts in a
state court in Miller County, Arkansas.
Pay-per-click advertising, where advertisers only pay when people
click on ads, is seen by critics as the Achilles' heel of Web search
leader Google, which last quarter saw revenues grow 77 percent to
$2.46 billion, virtually all from such ads.
The suit alleged Web advertisers allowed their pay-per-click ad
systems to be abused in order to drive up fees paid by customers. It
argued that companies such as Google have not taken reasonable steps
to regulate the practice.
"Based on my evaluation, I conclude that Google's efforts to combat
click fraud are reasonable," Alexander Tuzhilin, a professor of
information systems at New York University, said in the report. Lane's
Gifts commissioned Tuzhilin's report.
Google, in a statement on its Web site, said in response: "The
bottom-line conclusion of the report is that Google's efforts against
click fraud are in fact reasonable." It added: "It is an independent
report, so not surprisingly there are other aspects of it with which
we don't fully agree."
In a separate court filing, Google urged the Arkansas judge, Joe
Griffin, to give final approval for the settlement, which was unveiled
in March and got preliminary approval in April.
A hearing is scheduled for Monday to hear objections raised to the
proposed agreement, in which Google has agreed to pay up to $90
million to settle charges of overbilling customers.
Tuzhilin, a Web marketing expert, said after talking to Google's fraud
prevention team, he could say "with a moderate degree of certainty"
that click fraud is "under control."
Critics argue that up to 30 percent of pay-per-click advertising
actions may be fraudulent, a figure Google and rival Yahoo
Inc. describe as wildly exaggerated.
Google says it uses a variety of automated filters to protect
advertising customers from "invalid clicks."
Tuzhilin identified a previously undisclosed policy change in March
2005 where Google quit double-billing advertisers when customers,
perhaps inadvertently, clicked twice on the same ad. The report
criticizes Google for taking two years to halt the double-click
billing practice.
"Despite its noticeable negative effects on its financial performance,
Google decided to abandon the old double-click policy and not to
charge advertisers for the second click, which was an appropriate
action to take," the report states.
Tuzhilin does not identify the source of his information and he was
not immediately available to comment.
Barry Schwartz, an analyst with Search Engine Watch, said the report
sheds light on a business shrouded in secrecy, which Google has argued
is vital to protect it from unethical users who seek to game Google's
system and commit massive fraud.
"It is going to be good for advertisers to know more about how their
clicks are getting charged," he said.
Financial research firm Outsell estimates click fraud is a $1.3
billion problem. The Click Fraud Network, which detects such fraud for
advertisers, estimates it affects 14 percent of pay-per-click ads,
though a bit less for Google and Yahoo.
Copyright 2006 Reuters Limited.
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[TELECOM Digest Editor's Note: In our last message of this issue,
Greg Skinner provides us with a detailed copy of the report discussed
in this Reuters newswire story and discusses Professor Tuzhillan's
findings in more detail. PAT]
Eric Auchard (reuters@telecom-digest.org)