Google is smart. Today Shuman Ghosemajumder posted “Let click fraud happen”? Uh, no., a post that clarifies Eric Schmidt’s comments on click fraud. It doesn’t go far enough, though. It’s an economic “solution”, yes, but it’s not perfect. In fact, the more I think about this, the more I realize that it would not work at all. Here’s a quote from the Google Blog.

The “let it happen” excerpt followed, in which he discusses the economic forces that can retard click fraud: “Eventually the price that the advertiser is willing to pay for the conversion will decline because the advertiser will realize that these are bad clicks. In other words, the value of the ad declines. So, over some amount of time, the system is, in fact, self-correcting. In fact, there is a perfect economic solution, which is to let it happen.”

It’s OK from the advertiser’s perspective, yes. The problem is that the fraudulent publishers will earn money (no matter how little, no matter how depressed the click prices get), while the legitimate publishers will lose out. The reasoning that Google posts does not explain this, and it seems like they are assuming that every publisher and every advertising outlet (whether websites or search engines) have equal amounts of click fraud.

This is not true.

Some websites produce more click fraud than others. Some websites have virtually no click fraud, and every single one of their clicks are legitimate. In the economic solution described, these publishers lose out. The system favors publishers who have a proportionally higher amount of fraudulent clicks. I think Google realizes this, but they did not say it in their post. I think they should have.
The bottom line? Thinking in terms of an economic solution is dangerous. It favors the publishers who provide fraudulent clicks, while gradually and silently taking money away from legitimate publishers who send a proportionally higher amount of good clicks.