Google says it loses $1 billion a year to false ad clicks

Google Inc. loses about $1 billion US a year to "click fraud" or other invalid click-throughs on its ad service, the company says.

Advertisers have been asking Google for a clearer picture of the reach and effectiveness of their ads.

Google's AdWords service brings together advertisers and websites willing to display their ads. Advertisers pay Google a fee based on the number of click-throughs, and site operators receive a commission for each time that a visitor clicks on an ad.

Special software that can click on an ad repeatedly can be used to inflate a rival company's advertising costs or boost a site operator's own revenue gained from displaying the ads.

"Our invalid clicks rate — the activity rate — has remained in the range of less than 10 per cent of all clicks every quarter since we launched AdWords in 2002. At Google's current revenue rate, every percentage point of invalid clicks we throw out represents over $100 million [US per] year in potential revenue foregone," Shuman Ghosemajumder, Google's business product manager for trust and safety, wrote in a post to the company's Inside AdWords blog late Thursday.

Google does not charge its advertisers for clicks it determines to be invalid. For example, if 10 out of 100 clicks were excluded Google would not charge its advertisers for the invalid clicks, cutting into the company's revenue.

The Mountain View, Calif., internet search giant had previously come under fire after earlier reports that as much as a third of click-throughs on ads the company offered were false.

Google settled a click-fraud lawsuit in July 2006 for $90 million US, with $60 million in ad credits going to the claimants and $30 million paid to the plaintiffs' lawyers.

"Click fraud protection is something we take very seriously, and it requires a great deal of research and development to do effectively," Ghosemajumder said in the blog post.

"We are disclosing these network-wide figures in order to provide greater transparency to Google advertisers and the marketplace as a whole," he said, emphasizing that the "figures illustrate the significant level of proactive protection we provide, and how this has resulted in minimizing the actual impact of click fraud on advertisers."

3-stage system
Last year, Google launched a feature called the AdWords Report Center that shows advertisers how many clicks are being excluded.

In the blog post, the company explained that it determines which clicks are invalid through a three-stage system. Most of the illegitimate clicks are automatically detected analyzed and filtered out in the first stage, Ghosemajumder said.

The second part uses automatic and manual analysis of the AdSense network to weed out false clicks before they are logged to an advertiser's account.

The final aspect is investigation of alleged false clicks reported by an advertiser. Just 0.02 per cent of click-throughs that are ultimately excluded fall into this category, Ghosemajumder said.