Seems to me Schmidt’s comments have been unreasonably taken out of context. Schmidts opening comment was “Let’s imagine for purposes of argument that click fraud were not policed by Google and it were rampant …”. It’s clearly a hyperthetical paradigm, and not a statement of intent.

In fact, PayPal profits from fraud in an indirect sense, and in a way that is completely ethical, IMO. Basically, think of what you would do if you didn’t have PayPal. You would e-mail or telephone with a merchant; arrange for credit card or western union transfer, and wait for your goods. Or you would remit money on scores of different web sites with no unified seller rating system. Any dispute would be handled/ignored by local authorities on each side, and you would have little recourse to alert other potential buyers if the seller ripped you off. PayPal adds some level of anti-fraud technology, seller ratings, consistent user interface for remitting payments, and so on.

So the point is that fraud is rampant, and is a growth industry — services like PayPal capitalize on this, because the fraud would be even worse if you didn’t go with PayPal. And there is competition in this space, so they have an incentive to keep fraud down..

When these companies are knowingly profiting directly from those crimes, they should be just as liable to pay for those crimes. At the root of this is the knowledge that a crime is being committed. Since Google has confirmed that it exists, they also know that they are profiting from it.

That means they are knowingly accepting stolen money in my book.

Doug

I have seen estimates of anywhere from 30% to 70% being fraud. But I have to stress that I don’t think Google is necessarily doing anything wrong here. The most basic underlying tenet of free market economy is that a seller should charge as much money as the market will bear. In fact, you could argue that it is *unethical* to charge based on some other factor, such as cost. So when Google claims to charge on a per-click basis, that is somewhat deceptive (and could be unethical if it were true). Google is not really selling “clicks” (the advertiser does not get value from “clicks”, they get value from buyers viewing their product and being informed about opportunity therein. So if the advertiser still sees significant value for spending a certain sum of money and getting a certain amount of business in return, it is still an ethical transaction. Google could either eliminate clickfraud, and charge more; or they could tolerate clickfraud and share a bit of the “money the market is willing to pay” with hackers. But in either case, it is obvious that the “market is willing to pay”. Eliminating clickfraud will not reduce the amount advertisers are willing to pay — only competition can do that.

I have the sneaking suspicion that Google actually has the capability to stop this fraud but won’t push the button until they’re forced to. It just makes them too much money. I wonder how far Google’s profits would fall if they were to shut off all of the fraud happening with Adsense and Adwords.

Donna Bogatin of ZDNet has a nifty little quote from Google CEO Eric Schmidt on click fraud.  In that quote, Eric says that the “perfect economic solution” is to just let click fraud “happen”.  He claims that the PPC market wi…