Analysis of Lane’s Gifts Pay Per Click Lawsuit Google AdWords and Overture

By Scott

On April 5, the Associated Press reported a new

law suit filed on behalf of
Lane’s Gifts and
(an Internet gift store), claiming that pay per click networks
like Google AdWords, Yahoo’s Overture, and others knowingly overcharged them and
other companies for their advertising.

We’ve managed many pay per click marketing campaigns since the late 1990’s,
and the issue of “click fraud” is very close to our heart. We’re the value-add
for the pay per click networks and businesses looking to market themselves, and
so it’s our job to ensure these pay per click campaigns remain profitable at all

Living with Click Fraud

Click fraud has been one of the factors we’ve had to “live with” that detract
from the overall profitability of campaigns. In essence, it has become a cost of
doing business for our clients. However, a properly managed campaign should
never cost a company more than the results it’s bringing in. To this point, pay
per click advertising, and search engine marketing in general, has been the
least expensive way of acquiring leads compared to all forms of marketing
(according to Piper Jaffray), regardless of click fraud. It’s real-time, highly
measurable, and your costs will always be in line with your expectations.

The companies which are most vulnerable to click fraud don’t have tracking
software, or a highly knowledgeable and proactive company managing their
expensive, abstruse campaigns, and they’ll lack the instant knowledge of whether
their pay per click campaign is profitable. The courts have not yet exposed
whether Lane’s Gifts invested in these tools, but if they did, and used them
appropriately, there really would be no reason for them to endure a sustained
period of losses from click fraud.

A Lot Less Risky Than You Think

My point here is not to comment on the specific issues at hand in the Lane’s
Gifts case, but more to assuage potential concerns among business owners that
pay per click is inherently risky because of click fraud. Again, if you have the
ability to measure everything in real-time (like knowledgeable, well-run
companies do), you should never be a victim.

Upside versus Downside

  • The upside to starting a properly managed pay per click program is that
    you’ll have a phenomenal way to increase leads and sales that is very
    scaleable and profitable. Pay per click marketing is profitable and effective,
    because your customers are actually trying to find the
    products/services you sell in huge numbers. No other market like this exists
    on such a scale.

  • The downside to starting a pay per click program is that it won’t drive
    the results you expected, and you’ll simply move on to a different form of
    marketing. As long as you set your campaign up properly, click fraud will
    never cause you to receive a bill you never could have expected. Instead,
    you’ll be in control of exactly what you spend, in real-time. Most campaigns
    are not unsuccessful because of inherent problems with pay per click. They’re
    unsuccessful because companies without industry knowledge and experience will
    be a drift in a dangerous sea of well managed campaigns (i.e. more efficient
    competitors). In order to combat this, companies need to invest internal
    resources into developing pay per click marketing expertise, or contract with
    an outside online marketing firm.
  • What exactly is click fraud, and how does it manifest?

    With all of the Enron scandals, we’re trained to hear the word “fraud” and
    run. There is a lot of confusion as to what constitutes click fraud, and the
    issue is a lot simpler than it may seem. Here are the common ways “pay per
    click” fraud is perpetrated (or believed to be perpetrated):

    • Affiliates (greatest potential for fraud). Google AdWords and
      Yahoo’s Overture have affiliate programs of sorts, where independent website
      owners and small search engines syndicate pay per click ads on their
      respective websites. Example: (a hypothetical website
      about sports) may be part of Google’s “AdSense” program, and he gets paid
      every time someone visits his website and clicks on a sports-related Google
      Ad. His incentive is to drive as many clicks as possible to these ads, and
      many small website owners are under the illusion that they can click on their
      own ads many times to generate a lot of revenue. Google and Overture have
      software that makes it easy for them to identify when this website owner
      clicks on the ads appearing on his own site multiple times (as to not over
      charge advertisers), and my sense is that this kind of fraud is not very
      costly to advertisers at this point in time.

      The real problem is that some unethical site owners are very sophisticated at
      driving supposed clicks that generate revenue, and companies like Google and
      Yahoo wage an ongoing battle against these folks. This is probably the largest
      cause of click fraud in my opinion.

    • Competitors. I hear this all the time, “my competition is clicking
      on my ad to drive costs up.” Again, this is in many ways similar to the affiliates issue above. Google and
      Yahoo are likely adept at identifying this form of fraud quickly, and offer
      clients credit for this. The potential problem here would be sophisticated
      competitors that invest time and resources to invent new ways of costing their
      competitors money.

      I believe this is very rare, and limited to some very high profile market
      segments (like online gaming for example). Interestingly enough, Google and
      Yahoo have recently banned online gaming sites from advertising on their

    Again, I’ll stipulate that in spite of these “risks,” the actual results (in
    terms of sales and leads) are highly measurable. Once it gets going, your pay
    per click campaign should always be run in such a way that it meets your
    strategic objectives. As long as everything is measured, and action is taken
    immediately based on these measurements, companies should never get hurt.
    Profits may be decreased proportionally, but as my grandfather says, you never
    get hurt making a profit.

    I’m not making light of the seriousness of click fraud (we take it very
    seriously), but in many ways it can be likened to shop lifting. Shop lifting is
    wrong, it costs businesses a lot of money, but stores can (and do) protect
    themselves by investing in better security systems. Similar systems are
    available to mitigate the risk of click fraud on the Internet, and thus the risk
    can be managed. That said, since pay per click marketing is a relatively new
    form of marketing, the expectation cannot be that it is perfectly free from
    defect. Just as shop lifting will always remain a problem, click fraud will to.

    How can you avoid being victimized by fraud?

    • Use good tracking software. Many software packages have anti-fraud
      software that helps you identify fraud when it occurs.
    • Set concrete goals and objectives for your pay per click marketing
      campaign, and constantly measure results against your goals. You can track the
      results of your pay per click marketing campaign to see how well it is
      working. If it is not working, improve it (change the ads, keywords, bids, and
      improve your website). If you can’t improve it, try a new form of marketing.
    • Constantly manage your campaign, and make changes to improve upon the
      results you’re seeing. This will make pay per click marketing one of your most
      lucrative sources of sales and leads
    • Diversify Diversify Diversify your online marketing. Pay per click is
      great, but there are many ways you can use the Internet to drive business
      results. Be creative, and don’t put all your eggs in one basket.
    • Work with a professional online marketing company who looks out for your
      best interest.

    The good that will come from this law suit

    It was only a matter of time before a highly publicized law suit would be
    launched against the major pay per click marketing networks. The biggest problem
    I see is not whether click fraud exists, but the transparency Google, Yahoo, and
    the other pay per click marketing providers offer.

    For example, if we suspect click fraud and report it to Google AdWords (as we
    have done in the past for our clients), we don’t see evidence of a thorough
    investigation. Google does show credits on our clients invoices (presumably both
    for click fraud and for minor over charges), but we have no way of comparing our
    click fraud data to their data, to make sure they are giving us credit for the
    right fraud.

    We may have reason to believe that we received 50 fraudulent clicks in the
    past month, but we have no way of knowing whether Google has issued credit for
    these fraudulent clicks, or for some other reason. If there can be more
    transparency and accountability here, pay per click marketing will become even
    more measurable, and more profitable.

    Bottom line: Pay per click is good, it is not going anywhere, but it will
    only work if you take it seriously

    Lane’s Gift law suit or not, it’s time for companies to get serious about pay
    per click marketing, and online marketing in general. The Internet is such a
    powerful tool for companies to grow their businesses, if only they would
    approach it in a serious way. The promise of the Internet was that you could
    measure everything. That promise has largely been fulfilled, but very few
    companies take advantage of it. If you want to grow your company, get serious
    about these kinds of issues. If your company is slow to act, you’ll fall behind,
    lose market share, and jeopardize your long-term success.