January 29, 2006 -- Google's long-simmering click-fraud problem could explode into a billion-dollar headache for the Web giant, some Web marketing experts are warning.
In fact, a growing number of Google-watchers claim the search giant is ignoring the click-fraud issue because it's so large.
Click-fraud happens when surfers click on Goggle advertisers with no desire to get to the advertiser's site. Knowing Google charges advertisers based on how many surfers click on their ads, the fraudsters click on the ads simply to drive up the advertiser's costs.
The fraud also falsely inflated Google's revenues.
The estimates on the Street, if even close to being true, could rock the stock market darling, set to announce fourth-quarter results Tuesday.
"If Google were to implement a method for stopping click fraud today, it would lose 30 percent of its revenue overnight," said Joseph Holcomb, a search marketing expert.
Holcomb estimates that almost one-third of all clicks on Google's network are suspect, thanks to sophisticated software programs known as "click bots" or "hit bots" that mimic human activity and fool search engines into believing the clicks are legit.
With Google set to report about $6 billion in annual revenue, Holcomb's estimate would put $2 billion in top-line revenue at risk.
Google denies the problem is that large.
But the Web giant's reluctance to discuss the issue leaves industry experts to sniff out the scope of the problem on their own.
Scott Kessler, an analyst with S&P, who downgraded Google last week citing click fraud, among other issues, said that the percentage of fraudulent clicks on Google's ad network could be "in the double digits."
Google currently faces lawsuits from irate advertisers charging that the company is looking the other way while pocketing the proceeds derived from bogus clicks.
One lawsuit, filed by Web-hosting company Advanced Internet Technologies, charges that Google refuses to crack down on click fraud.
"I want my money back," said ATI's Clarence Briggs. "Most of the traffic Google sent my way . . . was not legitimate; it was fraudulent."
Google business product manager Shuman Ghosemajumder called click fraud "a serious issue" but said the company has developed technology to automatically detect click fraud.
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