Google CEO on click fraud: 'let it happen' is perfect economic solution

Google CEO on click fraud: 'let it happen' is perfect economic solution

Summary: Google CEO Eric Schmidt believes there is a “perfect economic solution

SHARE:
TOPICS: Google
23

Google CEO Eric Schmidt believes there is a “perfect economic solution” to click fraud: “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”:

Eventually, the price that the advertiser is willing to pay for the conversion will decline, because the advertiser will realize that these are bad clicks, in other words, the value of the ad declines, so over some amount of time, the system is in-fact, self-correcting. In fact, there is a perfect economic solution which is to let it happen.

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.

I discuss such an advertiser acceptance of click fraud based charges as a cost of doing business, rather than as a potentially deceptive business practice, in “Click Fraud: deceptive business practice, or cost of doing business.”

Schmidt indicates, however, that Google engineers think it is “great fun” to try and get ahead of click fraud:

But because it is a bad thing, because we don’t like it, because it does, at least for the short-term, create some problems before the advertiser sees it, we go ahead and try to detect it and eliminate it.

Part of what we do is we try to decrease the time, and increase the rate, at which the auction automatically detects that this is a bad click, naturally.

SEE ALSO: “Yahoo trumps Google: Yahoo takes the lead in attacking the click fraud problem” and “Click fraud prevention: The next great search engine differentiator?”

UPDATE: "Google 'search shrinkage': click fraud debated in blogosphere"

UPDATES II: "Court expert on CPC model: 'inherently vulnerable to click fraud'" and " Click fraud: are advertisers sufficiently protected?

 DMM62506DF.jpg

MORE ON GOOGLE

Topic: Google

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

23 comments
Log in or register to join the discussion
  • The market does eventually self correct, but not in the short term

    Mr. Schmidt is theoretically correct. In fact, I wrote a blog espousing similar arguments a few months ago. http://dondodge.typepad.com/the_next_big_thing/

    Mark Cuban and I have debated this issue via blog twice in the past 6 months. My views have changed over time. I still believe that the market will self correct for click fraud and that Google and other ad networks will do a better job of fighting it. But, in the short term click fraud is a big problem, and the market is not self correcting due to a lack of competitive alternatives. I think Yahoo Publishing Network and Microsoft AdCenter will provide real competition soon.

    Donna, you are an awesome writer. I read everything you write. I just found you a month or so ago. Are you new to ZDnet? Keep up the great work!

    Don Dodge
    DonDodge
    • RE: Google CEO on click fraud: 'let it happen' is perfect economic solution

      Mindless assertions that continuing abuse will eliminate the market <a href="http://www.realthesiswriting.com/services/thesis_help.php">thesis help</a> advantage that a technology brings (in this case, AdSense and its imitators) ignore the reality that perhaps we are better off with an 'uncorrected' situation -- that, perhaps, there is no 'problem' to solve, no mythical 'balance' to reach. There is only the unstable <a href="http://www.realthesiswriting.com/custom_thesis.php">custom thesis</a> and ever-changing market, and a continuous quest for improvement and advantage.
      adamjones342
  • Source of the quote

    There is no site that mentions this quote:
    "Eventually, the price that the advertiser is willing to pay for the conversion will decline, because the advertiser will realize that these are bad clicks, in other words, the value of the ad declines, so over some amount of time, the system is in-fact, self-correcting. In fact, there is a perfect economic solution which is to let it happen."

    You say it's from March. Why nobody (including you) noticed it then? And how can you prove Eric Schmidt said that?
    utihc
    • Nobody NOTICED it? Give me a break!

      There's a hundred or more sites that mention the quote. One Google search:

      http://www.google.com/search?hl=en&lr=&safe=off&as_qdr=all&q=Eric+Schmidt+pay+per+click+%22not+material%22&btnG=Search

      turned up 354 results, a slightly different one turned up 228 results, etc. The source of the quote is Henry Blodgett in his March, 2006 Internet Outsider Blog:
      http://www.internetoutsider.com/2006/03/google_clickfra.html

      Supposedly Eric Schmidt said it around the beginning of March, 2006. From there the New York Times picked it up:

      http://www.washingtonpost.com/wp-dyn/content/article/2006/03/15/AR2006031502339_pf.html

      Business Week:

      http://64.233.187.104/search?q=cache:vXo8tIRVSVMJ:www.businessweek.com/technology/content/mar2006/tc20060309_009568.htm+analyst+day+march+2006+%22immaterial%22&hl=en&gl=us&ct=clnk&cd=28

      ...and Znet, and hundreds of blogs, online newspapers and e-zines.

      Some report that it was originally quoted from a Google blog--that is incorrect. From what I can tell it was said by him on or around Analyst's Day at Google. There is no URL with a quote that leads right back to Eric Schmidt in an irrefutable way--that much is true so far.

      Maybe readers can help out and do some searching til it turns up--perhaps electronic media would be more helpful than Web searches--old TV broadcasts that might've caught him saying it--hell, let's ask Henry Blodgett for an URL or original reference material--surely he didn't pull this quote out of his ass!

      OK, I'm laughing. Henry Blodgett is, after all, not always the most reliable source of information.
      username778899
      • P.S.

        Copy and paste each URL into your browser for the proof--ZNet's comment section formatted every URL incorrectly.
        username778899
  • What a Crock of ...... Eric

    The price may adjust, but most of the people tracking their PPC have little or no tracking in place to identify things like click fraud. They generally see the whole process at a far more macro level. Not only are advertisers punished by click fraud, but the legitimate publisher is also punished because advertisers are generally looking for specific returns on their marketing and are limited on their bidding by paying for illegitimate clicks.
    instinctm
  • Google is Clueless

    Google is engaging in a practice called rackateering. The founders and principles should be sent to jail. This bravado about how click fraud doesn't hurt, should be used against them in criminal court. Unfortunately, too many ego bidders drive up the bids without regards to ROI. While this ego bidding isn't smart, they shouldn't be subjected to the fraud aided by Google.
    holstein13
  • Specious illusion

    Any economic model is 'self-correcting' as Schmidt claims, by the methods he declares. In such a fashion was Rome 'self-corrected' -- they brought wealth and peace, which drew the attention of the barbarians, who, with fire and sword, eliminated both. Problem solved!

    Mindless assertions that continuing abuse will eliminate the market advantage that a technology brings (in this case, AdSense and its imitators) ignore the reality that perhaps we are better off with an 'uncorrected' situation -- that, perhaps, there is no 'problem' to solve, no mythical 'balance' to reach. There is only the unstable and ever-changing market, and a continuous quest for improvement and advantage.

    Claiming that the quest for advantage alone will somehow produce a better world is the argument of the intellectually bankrupt. You may as well argue that car thieves will eventually 'correct' the parking problem in New York City.

    Schmidt is peddling pure twaddle here, and I frankly suspect he rather prefers a world where people didn't come up with new ideas that make him look bad or cause his financial backers to not pay him as much.

    The argument that click fraud is a normal part of the Internet market is foolish, patently absurd and demonstrably wrong. I find it far more persuasive that entities pursuing click fraud as a lifestyle have put Eric Schmidt forward to give their gangsterism some respectability. I ain't buyin' it.
    progan01@...
  • So much hate for google from zdnet & news.com

    Surprise, the quote was out of context.

    http://googleblog.blogspot.com/2006/07/let-click-fraud-happen-uh-no.html

    ... Eric made clear from the very beginning that he wasn't describing our approach to click fraud and was answering hypothetically. He introduced his answer by saying: "Let?s imagine for purposes of argument that click fraud were not policed by Google and it were rampant ..."

    The "let it happen" excerpt followed, in which he discusses the economic forces that can retard click fraud: "Eventually the price that the advertiser is willing to pay for the conversion will decline because the advertiser will realize that these are bad clicks. In other words, the value of the ad declines. So, over some amount of time, the system is, in fact, self-correcting. In fact, there is a perfect economic solution, which is to let it happen."

    But he made clear that we don't take that approach, by adding that click fraud is "a bad thing and because we don?t like it, and because it does, at least for the short-term, creates some problems before the advertiser sees it, we go ahead and try to detect it and eliminate it." He also said, "In Google's case, we worry about this a lot and we have a number of technical engineers who think that this is great fun to try to go ahead of this and get ahead of it." ...
    Free_Thinker
    • Google is not clueless

      Yes, what that guy said.
      BrendanD
  • Quoting out of context!

    What a hopelessly out-of-context quote. Very poor journalism from the newspapers and individuals involved.

    Dig a little deeper and you'll find Schmidt preceeded his comments by "Let?s imagine for purposes of argument that click fraud were not policed by Google and it were rampant ...".

    He ends his comments with "[click-fraud is] a bad thing and because we don?t like it, and because it does, at least for the short-term, create some problems before the advertiser sees it, we go ahead and try to detect it and eliminate it."

    View the full Q&A here: http://video.google.com/videoplay?docid=-5693708890015254551
    BrendanD
    • Google's response

      http://googleblog.blogspot.com/2006/07/let-click-fraud-happen-uh-no.html
      ikebowen
  • Idiot

    Why would you be so stupid?

    Did you actually listen to what was said or was your brain cell busy that day? ZDNet needs to hire reporters that have an IQ of at least 90, you're obviously not intelligent enough. Go back to the tree monkey boy.
    Liozzi
  • This is almost offensively skewed

    I watched the original source for this (SIEPR Economic Summit http://video.google.com/videoplay?docid=-5693708890015254551 ) and this post is a poor job of conveying what he said, or more importantly meant. I'm not much more of a google fan boy than I am of the next big company which wants to collect infomation about me, but this post is quite unfair and misleading in the way it distorts what he says about what actually Google does.
    FTPdlt
    • This is offensively skewed

      I've written a detailed explanation of both the original talk and this secondary discussion on my blog http://www.googlefact.com

      In summary, this is either poor journalism or an effort to attract attention to the author of this blog
      Steeple Media
  • Shoddy reporting in this blog

    My niece's blog is more accurate than this.

    How embarassing for the publishers and the author! It must be
    hard to save face when anyone on the internet can so easily
    check on what this guy actually said.

    This is one of the strongest arguments I have seen for keeping
    journalism in the hands of professionals. Looking forward to
    your article on UFOs,

    Peter Denek
    pdenek
  • Not surprised!

    Somehow this simply does not surprise me.

    I guess one must take into consideration that this is the Internet and it is the one place where you can honestly slander anyone you please without the fear of immediate repercussion. Only, when it's coming from someone working for a legitimate company, posting on a blod hosted by said company, you would expect that they would have done their homework on the subject. It seems that nobody involved in this blogpost has even begun to do their homework, and I find it appalling that only those who have read this post seem to have any idea what's going on. Worse yet, I would have thought that at some point, someone would have thought about contacting Mr. Schmidt to not only make sure he actually said these things, but confirm the context in which they were said. Isn't that what good reporters do (unless they work for the New York Times)?

    I get the general impression that this is becoming almost a situation of "Look what they do! We don't do that!" which strikes me as stooping a bit low on ZDNet's behalf. Posts like the above one risk a company's credibility, and it's a shame to think that there will be no reprimands handed out for this shoddy reporting job.
    CataclysmicStar
  • This is terrible reporting.

    You compltely missed out the fact that he was talking [i]hypothetically[/i]. Good job, idiot.
    Torrin
  • This is terrible reporting.

    You compltely missed out the fact that he was talking [i]hypothetically[/i]. Good job, idiot.
    Torrin
  • anything for hits

    Geez, how low will you guys go for a few hits?
    I'm quickly loosing faith and trust in what I read here.
    Thanks to the readers who posted to report what acually was said.
    I think you should take this article down if you have any integrity whatsoever.
    corticus