Shan’s Blog

Google CEO Eric Schmidt believes the “perfect economic solution” to click fraud is to “let it happen”.

Schmidt discussed how the pay-per-click advertising model is inherently “self-correcting” in regards to click fraud during a Stanford University event last March. Schmidt extolled the enhanced trackability of the online pay per click advertising model versus pay per impression models, while acknowledging “smart but evil” people try to “go around system.”

According to Schmidt, Google’s auction-based pay-per-click advertising model is inherently self-correcting. Schmidt’s scenario for what would happen if Google did not police click fraud and it was “rampant”:

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.

“Click Fraud Reaches $1.3 Billion, Dictates End Of ‘Don’t Ask, Don’t Tell’ Era,” says a research report offered by Outsell, Inc. ($495 price tag).

The firm states click fraud is “a $1.3 billion problem affecting Google, Yahoo!, and Microsoft (GYM), publishers, and advertisers.”

The click fraud problem is large and real, but not readily quantifiable due to:

Its inherent nature
The unwillingness of search engines to provide full disclosure
Search advertisers’ inclusion of click fraud in their ROI calculations as “a cost of doing business”
The phenomenal success of Google, in particular, has spurred advertisers to reverse long standing principles involving their ad spends:

1) advertisers historically have negotiated down published media rate cards; the Google PPC auction era has led advertisers to willingly bid their own ad rates up,

2) advertisers historically have demanded media accountability via audited circulation numbers and “make goods”; high Google traffic and conversion statistics have led advertisers to accept a new notion of search “shrinkage.”