Is Click Fraud A Ticking Time Bomb Under Google?

A picture taken on September 24, 2009 in Paris...

It was a long time ago when Google enjoyed the reputation for being the “do no evil” un-corporation.

The studied PR that created Google’s reputation as the coolest corporation ever has slowly eroded away.

After years of using Google as the window on the Internet people have begun to realize Google knows more about them than they know about themselves. The penny has dropped that all is not well–you go to a humor site and Google serves an ad about a subject you’d surfed in the past and realize Google is targeting you.

The famous “creepy line,” espoused by their ex-CEO has become clearer and scarier to many as their Internet sophistication has increased and it is making people nervous.

Videoing your door step with a roving camera car was a turning point for Google’s reputation. Only the most innocent amongst us felt this was a benefit. The latest generation of burglars thought it was great, but it was a violation of privacy that set off Google’s reputation slide.

Google once owned the hearts and minds of the Internet but it was the ripping of open, private Wi-Fi connections by its camera car that set off Google’s fall from grace.

You have to be very forgiving to see this as a simply mistake. As forgiving as the British government are, they were still shocked to discover that the explanation given to the U.S. Feds was both different and more sinister than the innocuous one they got from Google and accepted.

With its engineer reportedly taking the Fifth amendment, the once saintly Google seems to have donned a more sinister cowl.

Yet these outrages are as nothing to the real bomb threatening to nuke Google. War dialing is just the tip of the iceberg.

At the last count (December 2011) Google had sales of $38 billion USD. This is a colossal sum of money with the bulk (96%) of this cash coming from advertising. This revenue comes from AdWords/AdSence. To put this sum into perspective, per year it is about $100 for every U.S. citizen and a week or two of the U.S. national deficit.

A large proportion of this money, $10 billion, comes from advertising Google places on third party Web sites. You can start a Web site, put your content on it and place Google AdSence ads on it and start earning money right away. It’s the spigot of money many Web sites rely on to stay in business.

Google has a monopoly on this, at least as far as the definition goes by the regulators that define them. In any event, Google is the $39 billion gorilla in this business and $10 billion of  third party advertising is a lot of money.

Click fraud is the ticking bomb. It is also a term I was unable to find in Google’s recent year end statement but it exists, Google won’t deny that. Apparently Google click fraud is less than 2%, whilst Click Forensics says overall it was 19% in 2010.

You can Google the numbers yourself and they are astounding.

So let’s forget the percentage of click fraud on Google search engine because whilst it’s still fraud and it is nasty only Google is making billions from it. Let’s instead focus on the Google network of third party sites.

Google thinks that click fraud is 2%, that’s $200,000,000 of third party Web site fraud. This is a huge theft from advertisers everywhere. $200,000,000 is drug baron scale criminality.

Put another way, by that calculation the yearly carve up of this ill-gotten loot is $101 million dollars a year to criminals and $99 million to Google.

But wait, what if it is the 19% Click Forensics say? That is a $1 billion dollars hit for criminals. This is a Madoff or Stanford scale scam. Who are these criminals earning a billion dollars in click fraud?

A quick Google search reveals that at Christmas the FBI busted a single outfit that was generating $14 million from click fraud. In this case they were Estonians and Russians. Then there was the case of Android apps infected with click fraud bots in China, it doesn’t take long to realize that criminals from around the world have been draw to this ocean of money like flies to honey.

In the old days, when butter wouldn’t melt in Google’s mouth, being the platform for hundreds of millions of dollars of fraud didn’t seem to attract anyone’s attention. But with Google now at war on many fronts with regulators around the globe, cookies, unfair competition and war dialing the knives are out.

When they ask about click fraud and start wondering about the kinds of people around the world enriching themselves with illegally gained income it will open up a can of worms for Google they will find hard to close.

The governments of the west have tried hard to keep criminal cash out of the financial system so that terrorists, drugs and mafia kingpins find it hard to launder their money. It is hard to get criminal cash turned into bank balances, click fraud gains however go straight into the financial system without touching the sides.

This billion dollar money laundering short circuit is not just a concern for those in authority, it is a magnet from those looking for illicit gains that come ready laundered.

It’s the perfect crime and as the news flow underlines–it’s organized.

Google is a mammoth company, with an income torn from old media who are failing under the onslaught of a World Wide Web that Google effectively controls. Click fraud is the dirty secret of the Web and while it’s extent is kept under wraps and its scale unacknowledged, it will remain a ticking bomb under all the search engines, and as the king of the hill, Google’s in particular.

Clem Chambers is CEO of leading financial markets Web site ADVFN.comand author of 101 Ways to Pick Stock Market Winners or A Beginners Guide to Value Investing now out on Kindle.