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

Google CEO Eric Schmidt believes there is a “perfect economic solution
Written by Donna Bogatin, Contributor

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?




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