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March 17, 2006

Since the Washington Post article cites

posted by MR WAVETHEORY at 3/17/2006 03:47:00 AM

Since the Washington Post article cites significant click fraud at Google, I went through the 10K to see what Google says. According to the filing, Google has regularly refunded invalid clicks to advertisers and intends to do so even retrospectively. This implies that Google is exposed to past fraud and also future fraud. In fact, the paragraph on click fraud ends with a warning from Google that it continues to be exposed to litigation risk from click fraud, even after the recently announced $90 million settlement. Past click fraud, which has been undetected, could become an unquantifiable future liability. Henry Blodgett seems to agree.

If we fail to detect click fraud or other invalid clicks, we could lose the confidence of our advertisers, thereby causing our business to suffer.

We are exposed to the risk of fraudulent clicks and other invalid clicks on our ads from a variety of potential sources. We have regularly refunded fees that our advertisers have paid to us that were later attributed to click fraud and other invalid clicks, and we expect to do so in the future. Invalid clicks are clicks that we have determined are not intended by the user to link to the underlying content, such as inadvertent clicks on the same ad twice and clicks resulting from click fraud. Click fraud occurs when a user intentionally clicks on a Google AdWords ad displayed on a web site for a reason other than to view the underlying content. If we are unable to stop these invalid clicks, these refunds may increase. If we find new evidence of past invalid clicks we may issue refunds retroactively of amounts previously paid to our Google Network members. This would negatively affect our profitability, and these invalid clicks could hurt our brand. If invalid clicks are not detected, the affected advertisers may experience a reduced return on their investment in our advertising programs because the invalid clicks will not lead to potential revenue for the advertisers. This could lead the advertisers to become dissatisfied with our advertising programs, which has led to litigation, could lead to further litigation and could lead to a loss of advertisers and revenues.

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