The great Google disaster?
Ouch. On Tuesday Google closed down 4.6% to $464. More importantly though, could be these latest reports that growth of paid clicks on Google in the U.S. went from 37 percent in October to 0.3 percent in January. Is the sky falling? I would say Yes. And I would say No. In actual fact, most people would observe that Google appears to be tightening the reins on clicks to combat click fraud and generate better clicks in general. Once Google gets a handle on this issue, it is very likely that the stock could come back up.
Consider some key findings for click fraud data reported for Q4 2007 by Click Forensics:
- The overall industry average click fraud rate rose to 16.6 percent for Q4 2007. That’s up from the 14.2 percent click fraud rate for the same quarter in 2006 and 16.2 percent for Q3 2007.
- The 2007 industry average click fraud rate grew by 15 percent over the industry average click fraud rate for 2006.
- Q4 2007 click fraud traffic from botnets was 15 percent higher than click fraud traffic from botnets in Q3 2007.
The bottom line was becoming clear. Google needs to put a stake in the ground now before it becomes all to obvious for paying publishers that an increasing percentage of click leads is coming from bots, unemployed slackers and unsavory international sources.
Traffic in the publisher networks like Google AdSense is apparently nothing to write home about. Over 70% of the sites that make up networks are made-for-ad sites or parked domains. The bulk of click traffic from these sources is probably worth exactly $0. However, it could be argued that Google is not doing enough to help advertisers get a handle on these types of garbage sites. Maybe Google has enough economic incentive to avoid taking a militant stance at this time. But that can’t last. Advertisers aren’t stupid. If the quality of their ad spend continues to look as bleak as it does right now they will either cut back on their spending or they will move money elsewhere. Either way, it would not bode well for Google’s already battered stock price.
Oh, and by the way, you may be wondering something. If these made-for-ad landing pages in fact DO NOT provide valuable traffic to advertisers, why do these stupid things still exist at all? Fair question. Google, in part, is to blame. When they launch incentive programs like AdSense for Parked Pages they are effectively arguing “Wasted Advertising Dollars for Garbage Pages and Invaluable Leads”. Oh sure, Google on the other hand has tried to put an end to the pure arbitrage business but one wonders if it is really enough.
At the end of the day, this story will end like so many others and it is not a complicated trajectory. When customers stop feeling like they are getting value from their spend they will change their habits. When they change their habits, money is redirected. When money is redirected, stock price is affected.
I believe Google understands and is committed to improving advertising quality. How that belief will map to yet more ongoing efforts and programs that thwart growing click fraud and while delivering increasing value to consumers are the big questions that investors are trying to find answers to.
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