In the wake of July's click-fraud settlement, experts are speculating on its effects on web advertising and on how the industry can prevent click fraud in the first place.
The case, Lane's Gifts v. Google, originated in February 2005, when Google and other search engines were sued for fraudulent clicks on online advertisements; in March 2006, Google reached a $90-million settlement. Two months later, the affected advertisers' lawyers attempted to block the class-action click-fraud settlement, culminating in the judge's final approval of the settlement at the end of July rejecting claims that the compensation for the advertisers was not enough.
An Arkansas judge has given final approval to a $90 million click-fraud settlement, in which Google will pay one-third of the settlement in cash, all for the advertisers' attorneys' fees. The remainder of the settlement will be paid out in advertising credits worth the equivalent of a $3.80 refund on every $1,000 spent in its advertising network over the past four and one-half years.
At issue is Google's pay-per-click advertising system, in which advertisers pay Google every time a user clicks on its link in the search results page. "Click fraud," says Andrew Klungness, an attorney with Bryan Cave LLP specializing in litigation for the internet and ecommerce, "occurs when the advertiser is charged for clicks when clicks didn't actually occur—whether they are accounting glitches or other unintentional glitches.
"I think that 90 million bucks is a heck of a lot of money to a normal person," Klungness adds, "but if you look at it in more detail, at the number suing, it's actually not that much money per advertiser."
In its official statement, Google expressed satisfaction at the case being finalized. "We're pleased Judge Griffin has affirmed the settlement as appropriate and fair to advertisers," according to Nicole Wong, Google associate general counsel. She was quoted as saying, "We look forward to continuing to manage invalid clicks effectively and provide our advertisers with an outstanding return on their investment."
This is not the first time Google has been in court over click-fraud issues, though in the past it has been on the other side of the complaint. In November 2004, Google filed a lawsuit against one of its advertisers, Auction Experts, which reportedly had its founders, and 50 unidentified people they hired, click on their own Google AdSense banner on their website. Google AdSense is a virtual sales tool that allows web publishers to track and monetize ads clicked through from their sites. As a result of its actions, Auction Experts fraudulently increased its share of pay-per-click revenue and, in July 2005, Google won $75,000 from the suit.
Despite some calling the recent $90-million settlement "a favorable outcome" for Google, statistics show that online advertisers increasingly view pay-per-click (PPC) advertising unfavorably. According to a recent report from Outsell, a research and advisory firm for the information industry, 27% of advertisers have already slowed or stopped their PPC advertising, while another 10% of advertisers plan to cut their PPC spending budgets.
However, Klungness believes that the settlement was a good one for Google. "If you look at the terms of the settlement, it's paying in credits, which allow it to maintain relationships with its advertisers," he says. "The thing that people should understand is that in a class-action lawsuit, you're talking about many, many plaintiffs, so each individual plaintiff has to opt into the settlement and take the credits offered by Google." Other plaintiffs may opt out of the settlement, so Google will have a few "clean-up" lawsuits, but Klungness thinks these "will be handled in a quieter manner."
Regardless of how high- or low-profile the litigants in a click-fraud lawsuit are, some say the way to prevent trouble over click fraud in the first place is to create a clear, universal standard of what constitutes a click. "There's no measurement that's perfect," says Greg Stuart, CEO of the Interactive Advertising Bureau (IAB). "Marketers really want to know intent. What we want to do is create a consistent, audited, and transparent definition of what a click is. We will come up with definitions of what a click is and what an invalid click is. The goal here is for marketers to know what they're buying."
In any event, according to Klungness, "PPC advertising is in trouble at the very least. I think the markets will determine how they want to pay for advertising, but there seems to be a good reason for search engines to offer other alternatives."