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Time for Google to come clean about click fraud

Google needs to come clean about click fraud. And hire some new PR people. Opinion by Henry Blodget
/ Source: Forbes

Okay, this is getting ridiculous. Six days ago, Google chief executive Eric Schmidt dismissed the click-fraud issue as "not material." Now, six days later, Google has agreed to a settlement in a single click-fraud lawsuit that could reach $90 million. I'm sorry, even if the lawsuit was baseless, even when you have $6 billion in revenue, $90 million qualifies as material.

To make matters worse, the company released this news on its blog. A $90 million, precedent-setting payout on a critical issue at the forefront of every Google observer's mind, and the company has an anonymous associate general counsel type up a blog post. Google needs some new PR people, and it needs them now.

"This agreement covers all advertisers who claim to have been charged but not reimbursed for invalid clicks dating from 2002," lawyer Nicole tells us, as though describing a new feature on Google Earth.

Okay, fine, but far more important, what will happen from here? Has the company fixed the problem, if there was one, or will this always be a he said-she said thing? Is the problem getting better or worse? Who knows?

After breezing through her "update," Nicole just assures us once again that "we believe we manage the problem of invalid clicks very well. We have a large team of engineers and analysts devoted to it. By far, most invalid clicks are caught by our automatic filters and discarded *before* [sic] they reach an advertiser's bill. And for the clicks that are not caught in advance, advertisers can notify Google and ask for reimbursement."

Then can we assume that, in the future, the tiny percentage of "invalid clicks" that slip past Google's rocket scientists and aren't reimbursed will be dealt with through the legal system? And, while we're getting updated, what should we assume is the percentage of clicks that the rocket-scientist team "discards" as a percentage of total clicks? Is this percentage increasing or decreasing? What about the percentage of Google-approved clicks that advertisers claim are invalid? Is that percentage increasing or decreasing? By the way, what percentage of revenue is Google "reimbursing" every quarter? (Sorry, now that we know the definition of "material" is somewhere north of $90 million, we have to ask). Is that percentage increasing or decreasing? And what should we assume will happen now that Google is shelling out money?

"For the finance folks out there wondering how we'll account for this," Nicole continues, moving on with her Earth-to-Google demo. The "finance folks" out there? Um, you mean the thousands of shareholders who have been and remain concerned about this issue? For the finance folks out there wondering how we'll account for this we can say that the attorneys' fees (which will be determined by the judge) will be charged as an expense, most likely in the first quarter, once the amount is determined. The credits will be recorded as a reduction to revenue in periods in which they are redeemed.

So should we assume that most of that $90 million will hit revenue next quarter?

To be clear: It is not about the loss of $90 million (although I think this number qualifies as material). It is about the precedent, the future and yet another Three Stooges PR move. Google has always suggested it handles click fraud "very well." As far as we know, it hasn't fixed any problem, improved its detection capabilities, or even acknowledged that there might have been a problem, and it certainly hasn't "withdrawn the product from the market" (a standard way to control future liability). The click fraud concerns have never been about the past, so what happens from here?

On the PR side, it is hard to know which is more worrisome: That Eric, Larry, Sergey, and the man-hereafter-affectionately-known-as Three-Alarm George would make the decision to have a subordinate deal with this in a blog post, or that the subordinates could be so out-of-touch with the world outside the Googleplex that senior management wasn't even informed.

Henry Blodget is a frequent contributor to Slate, Newsweek International and other publications, and edits a blog called Internet Outsider. He cautions that nothing he says is or should be construed as investment advice.