John Thys still has not figured out how much his company has paid Google for bogus sales referrals caused by "click fraud" — a sham aimed at a perceived weakness in the Internet search leader’s lucrative advertising network.
The settlement would not adequately compensate harmed advertisers or penalize Google, says an attorney who has a related case pending against the company.
But Thys says he has uncovered enough of it to conclude that Google is trying to shortchange his company and thousands of other advertisers by offering refunds totaling $60 million to settle a lawsuit.
The most that aggrieved advertisers can expect from settling with Google is about a half a cent for every dollar lost to click fraud, according to Brian S. Kabateck, a partner in Los Angeles law firm Kabateck Brown Kellner LLP.
Google’s offer works out to a $4.50 refund on every $1,000 spent in its vast advertising network over the past 4 1/4 years.
Kabateck is representing disaffected Google Adwords customers in the California click-fraud case, Advanced Internet Technologies (AIT) v. Google.
"It is almost like an insult that they expect us to take this token money," said Thys, director of Internet marketing for Radiators.com.
The refunds, which will be provided in the form of advertising credits, are meant to compensate Google’s customers for undetected click fraud, which contributed to the $13.3 billion in ad revenue that has poured into the company since 2001.
Google also expects to pay $30 million to the lawyers who settled the case on behalf of advertisers, raising the settlement’s total value to as high as $90 million. Still, that is a fraction of the more than $10 billion in cash held by the Mountain View, Calif.-based search company.
A hearing to determine whether Kabateck’s California case would have qualified for nationwide class action had been scheduled for May in the U.S. District Court for the Northern District of California, but in early April Google won a stay in the AIT lawsuit. The stay delays Kabateck’s case until the Arkansas case is resolved and possibly renders it moot.
Google apparently does not see cheating its customers out of billions of dollars as doing evil, Kabateck said in a statement. Google’s detractors frequently accuse the company of being evil to highlight alleged failures to live up to its informal corporate motto, "Don’t be evil."
An Arkansas judge is expected to consider the proposed class-action settlement in late July.
Meanwhile, independent studies assert that anywhere from $100 to $400 of every $1,000 stems from click fraud. If those estimates prove correct, Google might be on the hook for $1 billion to $5 billion in advertising refunds.
Click fraud takes different shapes, but the end result is usually the same: Merchants are billed for fruitless traffic generated by scam artists and mischief makers who repeatedly click on an advertiser’s Web link with no intention of buying anything.
Based on a month long analysis of the traffic that Google ads referred to Radiators.com, Thys suspects click fraud may have accounted for 35% of the website’s $20,000 ad bill.
After reviewing Thys’ evidence, Google said its internal safeguards had spotted the suspicious activity as it occurred and never billed Radiators.com for fraudulent clicks. But Thys said the search engine did not provide him with any data to back up its findings in an e-mail signed simply by "Ray" from Google’s click quality team.
The class-action settlements of the Arkansas lawsuit will likely test advertisers’ faith in Google. The company is supposed to send out notices of the settlement later this month, giving advertisers until late June to reject or protest the refund offer. Radiators.com already has decided to reject the offer. If the entire deal is rejected, lawyers then go back to the negotiating table; individual advertisers can also declare they would not participate, freeing them to file their own lawsuits seeking better deals or join a separate one pending in California.
Google maintains its class-action settlement represents a fair offer that underscores how well it has shielded advertisers from the costs of click fraud.
Miller County Circuit Court Judge Joe Griffin is scheduled to decide whether to approve the settlement in a two-day hearing beginning July 24.
At a panel discussion on click fraud at the Ad:Tech Conference in San Francisco recently, Jessie Stricchiola, president of search engine marketing firm Alchemist Media, declined to comment on the fairness of the settlement Google reached in the Arkansas litigation, citing her involvement in the case.
But she did have a lot to say about click fraud in general.
Stricchiola began the discussion by pointing out the mixed signals the industry has been sending about click fraud. She cited conflicting statements by Google executives to prove her point. Google CFO George Reyes has called click fraud "the biggest threat" to the Internet economy. Google CEO Eric Schmidt has called click fraud "immaterial." The truth, she and others on the panel suggested lies somewhere in between.
Click fraud occurs when someone, directly or using click-automation software, clicks on an online ad for a purpose other than receiving information about advertised product or service. That is an inherently difficult thing to define given that human intentions are not machine readable.
Google refers to click fraud using the decidedly less pejorative term "invalid clicks." "Invalid clicks are clicks generated by prohibited methods," the company explains on its Web site. Examples of invalid clicks may include repeated manual clicking or the use of robots, automated clicking tools, or other deceptive software. Invalid clicks are sometimes intended to artificially and/or maliciously drive up an advertiser’s clicks and or a publisher’s earnings.
The Google settlement, announced in early March, already has focused more attention on click fraud.
Meanwhile, Yahoo — owner of the Internet’s second-largest advertising network — continues to fight similar click fraud allegations in the same Arkansas court as well as a federal court in California. A click-fraud lawsuit filed against Google in that same federal court has been suspended while its Arkansas settlement is reviewed.
The matter is further complicated by differing contractual terms of payment between advertisers and search engines and between search engines and publishers that display search engine ads. As the panelists at the Ad:Tech discussion noted, advertisers agree to pay Google for "actual" clicks, whereas Google agrees to pay publishers for "valid clicks."
It is a discrepancy that appears to benefit search engines. "Are search engines collecting from advertisers and not paying out to affiliates?" asked panelist Lori Weiman, director of KeywordMax, a search marketing company. "We don’t know."
In search advertising, website owners sign contracts obligating them to pay for all valid clicks — and the search engine has discretion over what is valid.
This shady activity produces revenue for Google, Yahoo and a long list of websites that display the ads because the clicks trigger sales commissions even if a referral does not produce a sale.
Complicating the click fraud issue even further, search engine advertising is not subjected to independent auditing like the advertising done in newspapers, magazines and broadcast media.
Suspected motives vary. Sometimes Web merchants try to deplete a rival’s advertising budget. In other instances, the owners of small websites participating in the marketing networks run by Google and Yahoo are believed to click on ads to generate more commissions themselves.
Google is examining ways to make its fraud-fighting efforts more transparent without revealing crucial information that might help swindlers elude detection, said Shuman Ghosemajumder, the company’s product manager for trust and safety.
Simply put, the click fraud problem cannot be dealt with effectively because there is not enough transparency on the part of search engines. Google exhibits the same degree of openness about its internal data as the CIA, albeit with fewer leaks.
The Click Fraud Network, an industry group set up to monitor the problem, puts the click fraud rate at about 14%, but panelist Vincent Granville, CTO of click auditing company Authenticlick, said his clients are seeing click fraud rates around 30%.
But there is no single number that tells the story because click fraud has a lot of variables, not all of which apply to all advertisers. For example, high-value keywords tend to see more fraudulent clicks than low-value ones. That means the percentage of fraudulent clicks does not necessarily equal the percentage of a marketing budget lost. A small percentage of invalid clicks on expensive keywords can add up quickly.
Until search advertising sees more regulation, advertisers have to fight to recover marketing dollars diverted by fraud. As the panelists noted in a bit of self-promotion, there are a growing number of click auditing firms available to help.
Google spokesman Barry Schnitt said Kabateck and his colleagues are trying to rally opposition to the Arkansas settlement so they can revive the California lawsuit in an attempt to drum up more fees for themselves.
Stephen Malouf, a Dallas lawyer who negotiated the Arkansas settlement, doubts advertisers can get a better deal than what Google has offered. "It is easy to take cheap shots now, but what is the alternative and what are the chances of success?"
If enough advertisers balk, it might derail the deal. Google has the right to nullify the settlement if advertisers that supplied more than 5% of its revenue since 2001 reject the agreement.