Google exec calls click fraud the "biggest threat" to the Internet economy, urges quick action.
December 2, 2004: 6:30 PM EST
By Krysten Crawford, CNN/Money staff writer

NEW YORK (CNN/Money) - A top Google official said that growing abuse of the company's lucrative sponsored ad-search model jeopardizes the popular Internet search engine's business.

"I think something has to be done about this really, really quickly, because I think, potentially, it threatens our business model," Google Chief Financial Officer George Reyes said Wednesday.

Reyes, speaking at an investor conference sponsored by Credit Suisse First Boston, was referring to an illegal practice known as "click fraud" that occurs when individuals click on ad links that appear next to search results in order to force advertisers to pay for the clicks.

cost-per-click advertising, marketers pay a search engine, like Google, Yahoo! or FindWhat.com, when users click on links to the advertisers' Web sites. Google and others also generate revenue by posting sponsored ad links on other Web sites and splitting the fees generated by user clicks.
The paid-search model is now the fastest-growing form of Internet advertising, according to the Interactive Advertising Bureau.

But analysts, fraud experts and now Google (down $0.56 to $179.40, Research) are openly fretting about the rise of click fraud.

The main perpetrators appear to be competitors of advertisers and also scam sites set up for the sole purpose of hosting ad links provided by Google, through its AdSense unit, or Yahoo!, through its Overture service. Humans or specially designed software then click on those ad links in order to "steal" revenue from advertisers.

Estimates of how prevalent click fraud has become since it appeared four years ago are all over the map. Jessie Stricchiola, the president of Alchemist Media, estimated that as much as 20 percent of all clicks on paid search ads are shams.

In recent months, Google has become increasingly vocal about the problem. In regulatory filings leading up to its initial public offering this summer, the company has reported that it has regularly paid refunds related to fraudulent clicks.

"If we are unable to stop this fraudulent activity, these refunds may increase," Google said in one of the filings.

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