Report Agrees Google Attempting to Combat Fraud

By Eric Auchard

An independent report filed on Friday in an Arkansas court sided with Google over disgruntled advertisers who had sued the search engine giant accusing it of trying to drive up fees through so-called click fraud.

The two sides agreed to commission the report as part of a settlement deal for the lawsuit, filed by advertising customer Lane's Gifts in a state court in Miller County, Arkansas.

Pay-per-click advertising, where advertisers only pay when people click on ads, is seen by critics as the Achilles' heel of Web search leader Google, which last quarter saw revenues grow 77 percent to $2.46 billion, virtually all from such ads.

The suit alleged Web advertisers allowed their pay-per-click ad systems to be abused in order to drive up fees paid by customers. It argued that companies such as Google have not taken reasonable steps to regulate the practice.

"Based on my evaluation, I conclude that Google's efforts to combat click fraud are reasonable," Alexander Tuzhilin, a professor of information systems at New York University, said in the report. Lane's Gifts commissioned Tuzhilin's report.

Google, in a statement on its Web site, said in response: "The bottom-line conclusion of the report is that Google's efforts against click fraud are in fact reasonable." It added: "It is an independent report, so not surprisingly there are other aspects of it with which we don't fully agree."

In a separate court filing, Google urged the Arkansas judge, Joe Griffin, to give final approval for the settlement, which was unveiled in March and got preliminary approval in April.

A hearing is scheduled for Monday to hear objections raised to the proposed agreement, in which Google has agreed to pay up to $90 million to settle charges of overbilling customers.

Tuzhilin, a Web marketing expert, said after talking to Google's fraud prevention team, he could say "with a moderate degree of certainty" that click fraud is "under control."

Critics argue that up to 30 percent of pay-per-click advertising actions may be fraudulent, a figure Google and rival Yahoo Inc. describe as wildly exaggerated.

Google says it uses a variety of automated filters to protect advertising customers from "invalid clicks."

Tuzhilin identified a previously undisclosed policy change in March

2005 where Google quit double-billing advertisers when customers, perhaps inadvertently, clicked twice on the same ad. The report criticizes Google for taking two years to halt the double-click billing practice.

"Despite its noticeable negative effects on its financial performance, Google decided to abandon the old double-click policy and not to charge advertisers for the second click, which was an appropriate action to take," the report states.

Tuzhilin does not identify the source of his information and he was not immediately available to comment.

Barry Schwartz, an analyst with Search Engine Watch, said the report sheds light on a business shrouded in secrecy, which Google has argued is vital to protect it from unethical users who seek to game Google's system and commit massive fraud.

"It is going to be good for advertisers to know more about how their clicks are getting charged," he said.

Financial research firm Outsell estimates click fraud is a $1.3 billion problem. The Click Fraud Network, which detects such fraud for advertisers, estimates it affects 14 percent of pay-per-click ads, though a bit less for Google and Yahoo.

Copyright 2006 Reuters Limited.

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[TELECOM Digest Editor's Note: In our last message of this issue, Greg Skinner provides us with a detailed copy of the report discussed in this Reuters newswire story and discusses Professor Tuzhillan's findings in more detail. PAT]

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