Click Fraud, Let It Happen?
This week, Eric Schmidt exposed something that I'm a bit chaffed about, perhaps more than just "a bit". Specifically, his thoughts on click fraud are that it's just going to happen, there's not really a lot that they can do about it, and as such, they (Google) will assume that advertisers will simply fold the cost of click fraud into their ROI calculations. Obviously, I'm paraphrasing, but you can read more about it here, where Eric Schmidt speaks about Click Fraud.This is the exact view (and solution) of the problem that I would expect from an academic professor, and reminds me of studies I've seen describing problems that could have innovative solutions, but that then go "Well, that's just how it is..." in the conclusion. Eric is right, to an extent. Click Fraud is factored into the ROI that we show for our clients. As such, the CPA cost includes an extra 20% factored in, as 20% of our clicks are fraudulent. More, on some days. Less, on others. But usually, right around 20%.
The issue I have with his statement is not the statement he makes about ROI's. Because, he's right. Advertisers already calculate the click fraud into their ROI. What he's wrong about is that advertisers will ignore the fact that their advertising costs are through the roof, and obey the almighty Google as Google drives traffic. Because traffic (volume) and ROI are not the same.
Here's an example:
On MSN, right now, we are seeing (for a sample campaign) a CPC cost of around $3.00, and a CPA cost of around $12.50. Factored into that is that we have found very few, if any, fraudulent clicks on MSN (for this campaign), so MSN is either doing a really good job, or the various click-bots, etc... haven't found these keywords on MSN. This delivers around 33 clicks / day, and about 8 conversions.
On Google, for the same set of keywords, we are seeing a CPC cost of around $3.50, and a CPA cost of around $15.00. Factored into that is that we see around 20% of the clicks as fraudulent on Google, although Google will not reveal anything about what it does, or doesn't, charge for. This delivers around 400 clicks / day, and about 93 conversions.
In this case, Google is doing a decent job delivering volumes of traffic. However, if the budget allowed for (and it does in this clients' case) MSN to be able to generate more traffic, we would allocate the money to MSN rather than to Google. Why? The ROI is much greater.
The other issue, which he completely side-steps, is that from a financial point of view, Google has no need or desire to solve the click fraud problem. The theory goes, that as long as Google provides volume, and a "reasonable" ROI, then they will be able to drive traffic, and the average advertiser will have to advertise on Google to ensure that they get the volume of traffic that they (or their clients) need.
As such, if the advertiser pays for 20% of clicks that really are junk, Google has no incentive to credit them 20% of their spend. By giving back 20% of the clicks, Google doesn't get any new advertisers. They do not get a credit from the government, or any new traffic to claim. In fact, if they did pay back for click fraud, they would lose 20% of their income (almost all of their $18 billion annual gross income is from AdWords). So, what reasoning do they (or any search engine) have to solve the click fraud problem? None.
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