Fraud nags at Google's grand strategy

The search giant has always offered its many services for nothing, but the threat of click fraud may change the way it does business

Charles Miller
Thursday January 19, 2006
The Guardian


John Carreras was once a contented Google advertiser. He used text adverts that appeared alongside searches to bring people to his trade exhibition website. He happily paid Google a few cents for every referral, believing that anyone who clicked through to his site from Google was a likely customer. But then he attended a conference in Las Vegas, and he noticed something strange: the number of Google referrals he was getting dropped dramatically, only to rise again once the conference was over.

Carreras became convinced the "missing clicks" weren't from customers, but from his competitors, who had all been in Vegas along with him. He believed his unscrupulous rivals whiled away their office hours clicking on his Google ads, knowing that every tap cost him money.

If you add in a second kind of scam, where people earn themselves a little money from Google by clicking on ads they're hosting on their own sites, you can see the potential for malice. Click fraud, as it's called, is acknowledged by Google as a problem: last year, Google chief financial officer George Reyes described it as "the biggest threat to the internet economy".

While Google Labs, as the company calls its development division, turns out new products at a cracking pace, Google remains largely dependent on just one source of income: advertising. Google would never admit to being uneasy about that reliance. Why should it? Advertising is doubling the company's revenue every year, and is expected to generate almost $10bn this year. But for all the undoubted strengths of its pay-per-click system, some worrying vulnerabilities have emerged.

Clicking off

At the same time as it tries to combat click fraud, Google is preparing to add a second string to its money-making bow, by charging users for video downloads. It may not sound earth-shattering, but if it works, it could represent the start of chapter two in the Google story.

The problem of click fraud remains - although today Marissa Mayer, the company's vice-president of search products, is more reassuring. She calls it "a serious problem for us, but also a very solvable problem". In principle, the company will not charge its advertisers for clicks that aren't from genuine potential customers. Typically, Google is hoping to use technology to detect suspicious click patterns.

Which brings us back to John Carreras. As a result of his experience, he got out of the trade exhibition business, believing that click-fraud detection would be a more lucrative field. He now sells software under the name Who's Clicking Who? which promises to solve click fraud for Google advertisers, firstly by sending "we know who you are" messages back to fraudulent clickers, and then by compiling click dossiers to help fraud victims reclaim their money from Google.

For the Mountain View company, click fraud has the potential to become the kind of technological arms race that has been a drag on Microsoft in its battle against ever-changing security threats. Nobody knows the exact extent of it. But, says Google-watcher John Battelle, "right now, advertisers are getting such a good return on their investment that it doesn't matter to them whether [click fraud] is 5% or 30%". But he believes that as Google advertising becomes more competitive and the level of fraud grows, "eventually the rubber will meet the road and we'll see how much fraud there is in the system".

New streams

There's no question that Google's ad system is still a runaway success, but with click fraud on the radar, it's a good time to be exploring new revenue streams. Previously, Google Video (video.google.com), unveiled in January last year, only offered a chance to upload and view uncopyrighted videos free - creating a jungle of thousands of weird, searchable amateur videos (try "party", "family" or "vacation" to get the flavour).

But Google is now signing up professional broadcasters, and soon users will be asked to pay for downloads. But how will users take to paying a company that has so far offered them so much for nothing? "It will be a new experience for them," admits Jennifer Feikin, director of Google Video. "If you look at our product today, we refer people off to somewhere where they purchase things; this is something brand new, where it will be happening on Google."

Google's new interest in selling is a worrying trend for the likes of Amazon, but Battelle believes online retail is only the start of Google's commercial ambitions: "They are changing the economic presumptions of a number of industries. You can start to tick the boxes of all the information-driven, intellectual property-driven businesses in the world. And it's a very, very big bundle of businesses - the biggest bundle one can imagine."

So far, Google has remained tight-lipped about whether its video payment system will be the basis for other services. When I suggested to Feikin that it would allow the company to sell almost anything to its customers, she hesitated for a moment, then replied with cheerful mock-surprise, "that's a good idea!"

· Charles Miller is producer of The World According to Google, the first in a new Money Programme series, beginning tomorrow night on BBC2 at 7pm.

· If you'd like to comment on any aspect of Technology Guardian, send your emails to tech@guardian.co.uk



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