The Emperor's Padded Clothes

In 2003 Google took in $962 million, 95% of which came from PPC ads, according to CNN (and I assume, their S1). Wall Street, supported by tens of thousands of relatively ignorant private investors, are about to value the company near $25 billion as a result. (Lots of IPO coverage from the blog world.) So why isn't there a lot more talk about the clear and present danger of click fraud. An article today in the Times of India shows that click fraud is not isolated. It's a business.

"With her baby on her lap, Maya Sharma (name changed) gets down to work every evening from her eighth-floor flat at Vasant Vihar. Maya's job is to click on online advertisements. She doesn't care about the ads, but diligently keeps count — it's $0.18 to $0.25 per click. A growing number of housewives, college graduates, and even working professionals across metropolitan cities are rushing to click paid Internet ads to make $100 to $200 (up to Rs 9,000) per month. It's boring, but it is extra money for a couple of hours of clicking weblinks every day," says a resident of Delhi's Patparganj, who has kept a $300-target for the summer."

I have a friend that ran a very large PPC program several years ago - and claims that there are cities in eastern europe which should have streets named for him because he paid so much money to webmasters who were using click-fraud techniques. He told me months ago that these guys don't steal $100,000 from you via one site, they set up a 1000 sites and steal $100 a thousand times. It's easy these days to distribute web sites all over the world, and software to make automated clicks look like real ones is prevalent. I don't think he imagined that the market would be so lucrative, and wages so low in other countries, that you could build human click teams.

At the InternetWorld search conference in NYC a few months ago, I asked the folks at Google and Overture about click-fraud, when they neglected to mention it as one of their future risk factors. They gave the standard 'we have ways of detecting fraudulent clicks and don't think it's a large problem' answer. There are some women in India, and some guys in eastern europe, who would disagree if they weren't so busy earning their living scamming you...

I point this out because in as much as I've read the fawning over Google and it's IPO in the last few weeks, I haven't seen one single mention of this issue. Maybe it isn't a big enough problem to significantly impact earnings, but maybe it is. It clearly seems worthy of some serious debate and investigation by journalists and bloggers. Perhaps more importantly, this could be the chance for the advertisers - who are paying these PPC fees and are the ones actually being ripped off - to force the industry to provide more information and if necessary develop better prevention systems.

Clearly, a huge amount of the PPC click traffic is geniune. It wouldn't be producing actual orders and the great ROI that many people enjoy if this wasn't true. But since very few sites convert more than 20% of their visitors (and most a lot less) at least 80% of the clicks most people pay for aren't buying. I think it's easy to imagine that 10-20% of those could be bogus and nobody would even notice. But if that were true, then 10-20% of your PPC expense is wasted, and that 10-20% of Google's earnings are questionable. I'm guessing that 10-20% number, but it seems hard to believe the number is zero. What is it? Shouldn't we know?

Posted by Craig Danuloff at May 4, 2004 11:01 AM