Eric Schmidt: Click Fraud ... Let it Happen

46 comments

Not sure what Eric Schmidt is up to or what he was thinking when he said "click fraud ... let it happen" but I imagine it will take some spin to undo, here's another piece from the same ZDNet Article

Schmidt’s “perfect economic solution” analysis for click fraud suggests that any Google charges to advertisers for fraudulent clicks would naturally be viewed by Google advertisers as a “cost of doing business” with Google, to be factored into advertiser ROI calculations.

Comments

arrogance ads (beta)

With the level of tracking Google provides advertisers for their contextual ad targeting program (ie: next to none) that is a quite ignorant, selfish, and shortsighted position for Google to take. And how will that top down philosophy stand up in court?

Assuming that his efficient market theory works well for advertisers then at the very least with that philosophy they are letting the clickfraud publishers undermine the value of legitimate ads on content sites in the same marketplace. If you believe the advertisers will filter out the fraud then at least bake the ability to detect value on a per publisher level.

Pretty hard to make an efficient marketplace when the role of the central market maker is as an unconcerned being.

Yet another reason AdSense is on the decline.

BS to the highest levels

I spent weeks coding this click fraud tracking site... it checked to see if it was a click fraud bot by looking to see if the visitor had features that most browsers have... such as flash installed.. javascript installed.. etc etc.. then weighed them all together and gave it a score and if it failed it would be labeled as a click fraud bot.

Well low and behold, Google banned the product when we saw a 30% click fraud rate.. (IE: click bots coming into the clients site with no javascript, no flash, no aspect of a browser at all, nothing, even a useragent of 'eat this' ...)

Well instead of issuing a refund.. (eventually they did) they then banned the click fraud detection product in the adwords system.

With 4-5 billion a revenue a year... you are looking at 30% of it from fraud.. no wonder they banned the detection tool.

I KNEW IT!!!

GOOG's official response to clickfraud: Pass the buck to the end-user!!

They purposefully made it *easier* to commit clickfraud in late 4Q 2005 when they knew they would miss their earnings estimates. now that people are raking in 6 figures by scamming competitors, GOOG's revenue is increasing drammatically more than their user share and even beyond the rates people become immune to ads. Their also secret profit from AdSense (ads on other people's websites) has undoubtedly been a huge portion of this.

So, when earnings take a hit because your entire business model is based upon transitory consumer ignorance (what is an advert?) and lack of a market for fraud, a) make fraud significantly easier to do, b) drop some hints at a few well-connected spammers -- via new spam-me services like AdSense for parked domains (4Q 2005) -- and c) make your algorithm so crappy (BigDaddy, 4Q 2005) that AdSense arbitrage spam pages rank very very high on the net, so high that single sites can have BILLIONS of pages and knock out uncountable other good sites.

For final laffs + profits, raise the cost of initial AdWords from 0.05 to $1 - $5, blame it on webmaster incompetence, and say it is a necessary evil to prevent Spam AdSense. Which greatly increases Spammers incentives to spam low-quality keywords; instead of making $0.02 / click, they get $0.75. (And those keywords are so much easier to rank in than the typical $5 of 2005).

Fool me twice, shame on me.

What fun to bash Google some more!

We all know how fun Google bashing is, and that it's certainly a favorite past time of TW-ers, but it would help if people read the whole article before making their comments.

What Mr. Schmidt said seems to make a lot of sense to me at least:

Quote:
Eventually, the price that the advertiser is willing to pay for the conversion will decline, because the advertiser will realize that these are bad clicks, in other words, the value of the ad declines, so over some amount of time, the system is in-fact, self-correcting. In fact, there is a perfect economic solution which is to let it happen.

Not to mention that although he believes that, he also said that this doesn't mean they're not working on click fraud detection methods:

Quote:
But because it is a bad thing, because we don’t like it, because it does, at least for the short-term, create some problems before the advertiser sees it, we go ahead and try to detect it and eliminate it.

Eventually, the price that

Eventually, the price that the advertiser is willing to pay for the conversion will decline, because the advertiser will realize that these are bad clicks, in other words, the value of the ad declines, so over some amount of time, the system is in-fact, self-correcting. In fact, there is a perfect economic solution which is to let it happen.

Still does nothing to protect good publishers from letting bad publishers erode the value of their content (unless they in-fact realize Google's business philosophy is to let that be part of a ¿self-correcting? system).

I just think it is naive to pretend that good publishers are not getting screwed in that process or to only consider that as an off hand after thought.

He didnt really

think that one through. This doesnt work whichever way you look at it. Im sure its a lovely strategy to push the google commission up but they only undermine the whole model.If the number of click fraudsters stay fixed and continue to pass the same bs traffic through then you could argue that this has happened already, but clearly the problem would just get worse and worse when they realise its ok to push click fraud and get away with it. In the end the problem would be so bad that most would switch off in frustration, Google making a short term rise in commision but the whole network busted. I think they should keep Schmidt out of the ideas department

do the numbers work?

Putting aside the brazen justification for self enrichment via fraudulent means do the numbers really work? Assuming fraud is criminal in nature/intent what "self correcting" virtue does it hold that would make it inert? This sounds more like a google labs experiment than a legitimate business response.

I do find it suprising that Eric rubber stamped the argument publically as I thought this was strictly the workings of the google viral team, they've floated that theory web-wide since the first murmurings on the issue.

Any freakonomic types out there want to take a shot at it?

Who Benefits

I find unsettling that Mr. Schmidt's company financially benefits from those "self correcting" factors.

self correcting = all your

self correcting = all your money are belong to us (and our best business partners, clickfraud scammers)

Financial Incentive

I have said it forever and very few agreed with me that the search engine's true response to click fraud is to "let it happen". Is it self correcting? Yes AND No. Yes, the cost per click will decrease over time as bad traffic filters to advertisers. No, that does not get rid of the revenue being generated or the fraud. So, again, I'll say it....

ALL of the engines are lying about the fact that they can't determine fraud clicks! Frankly, you're all getting scammed. PERIOD.

Stuff like this just shows me how foolish companies like Google truly are. Their blind ignorance is going to cost them more than they realize.

all your money

Quote:
self correcting = all your money are belong to us :)

Googleland needs a tax base.

I think it's about time for

I think it's about time for SEC intervention (some type of security fraud) or IRS (raking in billions on fraud) and for some agency (private, not gov't) to audit the clicks.

This is utter BS and arrogance to the extreme.

@The Founder

Not having javascript detectable is a clear sign of click fraud as AdSense requires javascript so you don't need any other clues in that instance.

Click Fraud Bullocks

Jill honestly what you just said and what Eric Schmidt said in essance is 'the market will realize how much fraud is there and just bid lower to reflect a lower ROI.

How many firms traded on Nasdaq and NYSE do you out there that have a large percentage of their revenue derived from fraud, and insist on telling the planet that the only way to correct it is to not to do business (ie: lower their bid) with them?

IncrediBILL you are 100000% correct

100000000% correct with the javascript issue and click fraud.. but Google didn't like that report that was presented.. and disabled the tool in Adwords.

I guess 30% was just too much to swallow if the tool was too popular (had 1000 users prior to them shutting it down).

30% seems steep

Was this just counting actual clicks and browser stats per click from your site or other sites?

I'd be interested in the breakdown of WHERE the clicks originate from too as I have some theories about that topic, care to share a few IPs privately?

The incident I was talking about

The incident I was talking about was a more extreme case... most of the time the figure was somewhat lower.. in the high teens or low 20's.

It was reported via that tool... don't bother using it in Google.. they freak out over it.

I agree, that's the tricky part

Quote:
Jill honestly what you just said and what Eric Schmidt said in essance is 'the market will realize how much fraud is there and just bid lower to reflect a lower ROI.

Yes, I agree that's the tricky part. But other businesses have to deal with theft as well, such as shoplifting in retail, etc. Of course, the stores don't actually profit from that shoplifting, which is what makes this different.

Can anyone think of any comparable situations where there's theft involved that actually helps a company's bottom line, lessening their desire to want to fight it whole-heartedly? I imagine there's probably some case law precedents somewhere...

I'm not saying that Google shouldn't do anything about Clickfraud. My post was simply to point out that Mr. Schmidt wasn't saying that either, despite what others had posted about it.

The cost of doing business

The cost of doing business yes.

Carnival Games

Quote:
Can anyone think of any comparable situations where there's theft involved that actually helps a company's bottom line, lessening their desire to want to fight it whole-heartedly? I imagine there's probably some case law precedents somewhere...

Probably fits in somewhere with carnival games, a little skill a little luck and maybe you walk away with the Elvis painting.

once I found a carnival that

once I found a carnival that allowed you to put nickels in the machine that pushes out quarters. but they didn't profit from that :)

for the people who are just saying "cost of doing business" how many of you spend many thousands a month on adwords? for terms that are over $1 a click? and have any of you ever seen >$10 AdSense clicks?

Geeks...

Its the geek point of view coming through, I fear - "The money doesn't matter, does it?"
Particularly now the boys are rolling in it, they lose the perspective of what its like to be hungry.

While in theory I have to agree with the principle - a store has to count its shoplifting rate into its profits, and the consumer ends up paying - ethically they are compromised as they are making a profit from the 'correction'. It seems they don't realise that.

IMO schmidt's rationale has

IMHO schmidt's rationale has a lot of credibility to it and is not the smoking gun that many are hoping can be used to indict google for being evil.

the click fraud problem boils down to an economic inefficiency problem -- advertisers are getting screwed and paying more than they have to. but why is it automatically google's responsibility to solve this inefficiency? i would argue google is far from the only party responsible for click fraud, and so the cost should be shared across the entire adsense value chain. why should they bear the sole cost of being the click fraud police? if the problem is so out of control as some would suggest than it should be profitable to sell a click fraud solution, no? why not allow the market to solve this problem? perhaps it is a choice of what kind of risk google wants: do they want to run the risk of allowing an innovator, especially one that is already an ad network, to come up with a click fraud solution and in doing so build potentially threatening relationships with advertisers? or do they want to invest resources in the alleged click fraud problem and thus divert resources from other initatives?

more directly, i dont think the idea that "the market will solve the problem" (which is essentially what schmidt is saying) translates to "we're not going to do anything about it and we're just going to let it happen and we're going to be evil and make lots of money." maybe what they're looking for is a way to profitably solve this problem. for instance they could try to leverage google analytics to give advertisers more information and help to create a sort of tiered classification system of publishers based on site stats. you could then buy "funds" of advertising (i.e. give me ads on keyword X on web pages where average length of visit is 2 minutes or more). of course that introduces other problems but the idea is that it is not only about finding a solution, but finding the most efficient solution so that growth is not hindered (and, in ideal cases, is actually enhanced).

google often has an emergent strategy -- allow the strategy to emerge by testing and failing and seeing what works rather than making a fast decision and than forcing that through. why not wait for the click fraud problem to develop more so that it can be understood more and so the best solution can be created? at the end of the day, google's ad network is still a lot more efficient than most forms of advertising.

and of course, you can always not participate, use site targeting, etc. maybe advertisers should be a bit more alert instead of blindly throwing their money at google and then blaming google when this advertising strategy fails.

It's Google's Responsibility

Anyway you put it, selling a fraudulent product is fraud. If Dell sold 30% of their computers DOA and came out to say "the market will even things out", they'd be torched.

Every fraudulent click that is sent to you is fraud. It doesn't matter if it's 1% or 30%. As a consumer, you have a right to that money. There is no scenario in law that states that the market evens out fraud. You can't compare it to shoplifting as that effects the seller, which click fraud doesn't. You have to compare it to selling a fraudulent product or service, which click fraud is.

As for their excuses and spin on click fraud, it's horseshit. When one of us is building more sophisticated anti-fraud systems than a billion dollar company full of PHDs with years of lead time, there is a problem. The problem is that cutting click fraud even 2% is cutting profits 2%. They don't care about advertisers one bit.

Unfortunately it won't stop. They are masters of spin and will have their own experts come out with "1%" stats. A major lawsuit is the only thing that would stop it, and even then, Google has more financial backing for legal help than almost anyone out there.

What happens when you let it happen...

What happens when you let it happen is a few advertisers can hire a firm to click on ads until their competitors drop out of the bidding, thereby allowing the people who cheat to remain, and getting rid of the honest people.

Great post, KidMercury.

Great post, KidMercury.

Quote:
Anyway you put it, selling a fraudulent product is fraud. If Dell sold 30% of their computers DOA and came out to say "the market will even things out", they'd be torched.

Then don't play? Right?

It's not the point though

It's not the point... the point is that people sign up every single day not fully understanding that a percentage of their paid clicks are total fraud. We are sitting here debating this as SEO / SEM professionals, the majority of us on threadwatch live and breath SEM and SEO. We do not reflect the population as a whole.. In fact I am willing to bet that we are not reflective of most of the adwords clients.

A huge part of these people signing up for Adwords are people new to it, learning SEM ... and of course after paying out the nose learning about click fraud.

I know it's in their Agreement... but it should be it's own page.. in RED and in 300 font not mice type.

"Using this system CAN be hazardous to your bank account"
"Adwords is in BETA, Expect click fraud bugs"

I am not saying that you are wrong... don't play .. correct... the problem is that most Adwords clients are not reading this thread right now. People that will sign up next week for Adwords have not read this thread.

Can anyone think of any

Can anyone think of any comparable situations where there's theft involved that actually helps a company's bottom line, lessening their desire to want to fight it whole-heartedly?

Yes, its called the Credit Card Industry.

and...?

So has the credit card industry gotten in trouble for it?

[blockquote]So has the

So has the credit card industry gotten in trouble for it?

They sure as sh*t would if their fraud approached 30%.

The way I see it, this mainly screw mom and pops. The type who play with CPC but don't track (or track well) conversion and ROI. Those poor sods, don't know that 30% of the clicks they pay for are fraudalent, well I guess they can go to hell!

on average?

Quote:
The way I see it, this mainly screw mom and pops. The type who play with CPC but don't track (or track well) conversion and ROI. Those poor sods, don't know that 30% of the clicks they pay for are fraudalent, well I guess they can go to hell!

Is that an average? If so, the folks not tracking are paying for more than the average false clicks, right?

PPC is a fools game right now, just like most casinos and lotteries. The numbers / odds are published; full disclosure. People still dream, and pay to play. And I do mean fool's game. Justify it all you like (I may have paid $2/click, but it was worth $4, I needed traffic fast, I needed to appear next to my competitors, etc) there are cheaper and better ways to achieve those objectives. For many it's stupid money, and there's always someone around willing to take stupid money.

Clickfraud rates in the Ticket Industry

Concert tickets is a $15 adword at certain times of the year; ticketmaster can eat your wallet at $30 when a huge Madona onsale goes out...

I developed a tool similar to TheFounder although probably more scientific. I started with a simple thesis: The majority of "click fraud" in the ticket industry was really "click sabotage", e.g. competitors clicking on each other's ads. Hey, I've worked for many brokers and ALL of them have this gleeful time of day when they just click on each other's ads with abaddon; generally targetting just the "small" local guys; never the behemoth 100 million/year brokers; just the ones who can't afford it. Hell, a few had these stories of driving brokers out of business doing it.

Well, there are only ~3000 very small to very large brokers and all their websites + addresses are readily available. Using this data w/ GeoIP and ARIN, I successfully mapped to a relative certainty what percentage of adsense clicks were done by brokers around the area of my clients.

Now, needless to say this is a unique situation, but the odds were roughly 2:1 that for the most expensive clicks ($5+) were fraudulent. Between the fraudsters and brokers, most brokers are losing *thousands* in adsense; but they do nothing. Why? Three reasons... a) THey have no clue it's happening (very very very few analyze logs), b) they can't differentiate between what works and what doesn't because their main POS do not support order tracking, c) they have no choice between AdWords or going out of business.

That is why GOOG is so insiduous. This is like IE vs Firefox; YHOO for whatever it is worth is "only" plauged by about 10% clickfraud and they're all pretty much "human"; goog is the only one with automated fraud, chiefly because of the double-demon called Free-For-All AdSense.

I for one choose invitation-only YPN ;_)

BTW

AdSense *automated* fraud rises directly in proportion to the number of adsense spam sites in the main SERPs. You can actually trace "degredations" in the organic listings coupled iwth increases in clickfraud with google quarterly earnings (e.g. there's always way more fraud w/n 3 weeks of earning reports).

Check it! Export your AdSense *and* AdWords summaries to Excel and graph...You'll see near every quarter month AdSense earnings dry up and AdWords costs go up. Reasons: Increased fraud and decreased commission rates.

This fraud is huge nad it's going to take an economy bigger than the country of Germany with it, and many tens of thousands of employees, business partners, stock owners, and a massive derivatives web that is measured in the trillions (as in T). Think DoTcom bust in a single company.

Hope you aren't still speculating in realestate, and if you are, I hope you're in Orange County.

the market correcting itself...

Reading Nielsen's blog this morning, I was reminded of some sociological lemmas I haven't thought about in a long time - people follow curves that defy explanation. People just do act in mathematically predictable ways, if you can sample a large enough group. (We're lemmings :( )
Neilsen - http://www.useit.com/alertbox/traffic_logs.html - says "Google is five times as popular as the theory predicts" (2 sentences above the heading "Search Engine Queries"). What this made me realise is that Google is disproportionately represented in the market, with no monopoly power beyond marketing to hold them there.
Yes, the market will correct itself, and not only in the way Google lists (click prices reducing to account for losses due to fraud), but by Google's market share decresing.
I don't have a timetable for it happening, because it is reliant on people's faith in other engines improving so they change their default search location, but I am confident it will happen.

equilibrium pricing ...

is predicated on two important factors:

1. perfect knowledge in the market place
2. perfect price elasticity

with respect to:

1. the inner workings of the pricing mechanism, aka "quality score" and "smart pricing", is a black box. zero knowledge here.

2. the lowest price paid is bounded by, again a black box, aka "quality score". therefore, the price cannot move lower than this artificial lower boundary.

Seems like Schmidt chose the wrong way to put it, but...

...basically, he's not wrong. You can't tell what the intent of every single click is, and therefore you must be prepared to live with a certain number of bad clicks and adjust your ROI accordingly.

But since advertisers can tell through tracking whether a source of traffic is providing a lot of bad clicks, they have the power to direct spending elsewhere, on better converting traffic; this minimizes the problem.

And the idea that Google is encouraging or willfully neglecting click fraud...come on. Their entire business is built on running well-oiled ad network. If they encourage behavior that makes the machine run worse, advertisers are going to stop putting their dollars in it. The Outsell study from last week goes a ways toward proving this, as it indicated that advertisers suffering a lot of fraud are pulling back or halting campaigns. If Google *really* was in the business just to profit from click fraud, they'd quickly kill the goose that lays the golden eggs.

Some of the quotes from the ZDnet blog make it seem like Google just fights click fraud for fun, but keep in mind that it's difficult to translate tone from speech fragments to text. I'm guessing Schmidt had his tongue in cheek.

Baloney

Now you know I like the gang over at SearchViews and Reprise. Pull Paul Chapman into your office and he'll tell you himself what he knows about how click fraud is managed inside a search engine. I know what I have seen take place inside PPC networks and I have worked and structured deals with a ton of them. What I have never talked about is how the ad provider/publisher deals are structured to deal with minimum traffic quotas, minimum CPC's delivered, and "mutual auditing" so there is no more than a 10% variance in the revenue reports from ad provider to publisher. I've never discussed what happens when click fraud is found across a network - the way it is dealt with between the ad provider/publisher.

For you to believe that Google and others are not banking on the financial incentive of "let it happen" is the same as saying that bad traffic is "a cost of doing business". Neither of which is acceptable in my book. You've bought into the philosophy of fraud being 'a cost' and accepted the PPC network mantra. That's not good.

Now granted, from an agency perspective fraud is a bit manageable. You can simply pull budget away from non-performing networks and do some minimal tracking to look for the more than obvious bad traffic. However, you don't have access to the data that the ad network does. There is a whole subset of information that is not passed into your traffic analysis which you would need to determine the validity of traffic. That data cannot be passed in the click stream. No matter how you slice it or dice it, you're advertiser's ROI is still being driven down by fraud clicks as long as your exposed to any network based traffic sources.

Reprise is a good company in my book but trust me when I tell you that Schmidt's statement that the market is self adjusting is just plain BS.

Point taken

Obviously Google's in the business of making money, not handing it out. And one way they make money is, unfortuantely, through click fraud. But even if Google wanted to shut it all off (and I think it's fair to disagree about whether and/or how much they want to), they couldn't just throw a switch and be done with it.

That's why it's important for the advertiser to assume some responsibilty, to test and track and optimize and keep the engines honest about it.

All in due time

The market will be forced to flip a switch on it entirely at some point. There's stuff happening behind the scenes that will force their hand in the long run.

Either way advertisers should have a zero liability. They should only have to assume responsibility for their own ROI through optimizing non-performing traffic. If it's not converting then at least they will have TRUE ROI figures at that point to do something about it. Fraud drives down ROI numbers especially if you are in heavily competitive verticals. A company could actually have much greater ROI than they think. However, because of the amount of fraud in their vertical they could be doing damage to their conversion efforts, especially with paid traffic sources.

competitive tactics

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However, because of the amount of fraud in their vertical they could be doing damage to their conversion efforts, especially with paid traffic sources.

And isn't that oft-cited as a potential competitive tactic in seo world? Third-party damage via Google.

Official G response.

Google Blog, from Shuman Ghosemajumder, 'Business Product Manager for Trust & Safety'

"Let click fraud happen"? Uh, no.

The fact is that Google strives to detect every invalid click that passes through its system, and to prevent those clicks from ever reaching an advertiser's account.

So was the whole thing a

So was the whole thing a scammy set up just to get them more ink?

Those guys are REALLY good at getting quoted out of context so they can debunk their own verbatim words as somehow being untrue. Quite annoying that, but kudos to them for being able to trick the mainstream media with it so often.

Bah Humbug

I watched the video. It was a little out of context BUT it does not negate the fact that Schmidt does have some stinkin' thinkin' when it comes to click fraud. Letting it happen is in no way an ideal solution and he still diminishes the prevalence of click fraud on Google as irrelevant which we all know is no the case.

Either way this makes for a nice debate and I’m not so sure Google caused it to happen. Seems the blogger was mighty pissed and went on a rant after Google didn’t link up to her blog at ZDNet.

Nothing

to exonerate Eric Schmidt in the video, he clearly states that the economic solution is perfect, technical stabs at the problem are just interim strategies until the economic solution (let it happen) comes full circle.

Its economic fraud no matter how you look at it, without the data that google has (and won't reveal) advertisers are defrauded, the only issue is by how much and google isn't telling.

How much of a non-issue is click fraud internally when the CEOs perspective is that crooked, you gonna get a few more GSUs if you solve it?

sidebar:

Adwords Advisor playing dumb at WMW.

Talk is Cheap

They can call it being quoted out of context all they want, I don't care. I'm just tired of tough talk from guys like this about how they care about click fraud. They still can't detect it very well and have shown no signs of even coming close to fighting it.

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