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This column was originally published on
on Jan. 24. It's being republished as a bonus for
So let's talk about this
click fraud thing for one second, as it hasbecome a large part of the bear case on Google right now.
Look, Google knows there are some teens in Siberia, and yes, probably Duluth too, who are messing with click-through rates by repeatedly hitting ads.
But the big question isn't whether or not this nefarious stuff is going on.It's whether or not this evil stuff (to borrow the Googlite phrase "do noevil") is going on to an extent that Google's customers will be surprisedto find out about.
It's related to how advertisers in television and magazines (and all other media) have to account for TVs that are left on for the dogs while nobody's home, or for subscribers who never open the magazine. And guess what --both the sellers and the buyers of such advertisements are aware of andaccount for this ahead of time.
You see, Google tells its customers beforehand that there will be clickfraud, and it even accounts for that in its pitch. That's right, whenGoogle tells a customer that they can expect X return on investment (ROI)when using Google's ad network, Google's already included clickfraud in those numbers. So in essence, the only way for this supposed click-fraud issue to really become problematic is if it's worse thanGoogle realizes. Consider it the online marketplace version of Wall Street's "worse than expected" scenario.
At this point, click fraud appears to be a tiny, tiny fraction of ad hits,probably less than a couple percent of all clicks. But even if the problemwere to escalate to a higher fraction of all clicks, Google would simplyfactor that higher rate into its models and work with the customers tomaintain a high ROI. Where the issue could become problematicwould be if it becomes such a large fraction of clicks that the ad networkROI becomes unattractive to Google's customers.
Is that the case right now? Before answering, I'd suggest a lookat the remarkable growth that Google is enjoying. This company is one ofthe fastest growing companies in the history of the planet, and companiessimply don't grow like this if they're selling a bad product. Google'scustomers are obviously generating high ROI from Google's ad network orthey'd stop using it.
The click-fraud issue exists, to be sure, but Google and its customers areplenty aware of it and already factor it in. Let's move on, shall we?
Google Goes Traditional
I'd be remiss if I weren't to mention Google's purchase of dMarcbroadcasting.
The Street has focused on how dMarc's model is centered on mostlyconnecting advertisers with terrestrial radio stations and that Google is getting into traditional media. That's not quite accurate. Think backto Google's mission: "to organize the world's information and make ituniversally accessible and useful." Radio, television, movies, books, Websites, magazines -- any and all content is what Google is trying toorganize. And more importantly to shareholders, Google is trying toleverage that content to sell ads.
So yes, Google's made a purchase to get a foothold into the radio world, and it's going to continue to move into rich -- and traditional -- media in order to deliver on its mission.
In a speech Monday night, I told the crowd, "People always ask me, 'Cody,what are the next Apple and Google?' Grab a pen, because I'll give youthe two stock symbols that I think are next: The first is AAPL, and thesecond is GOOG."
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At the time of publication, the firm in which Willard is a partner was long Google and Apple, although positions can change at any time and without notice.
Cody Willard is a partner in a buy-side firm and a contributor to TheStreet.com's RealMoney.
He also produces a premium product for TheStreet.com called
The Telecom Connection and is the founder of Teleconomics.com. The firm in which Willard is a partner may, from time to time, have long or short positions in, or buy or sell the securities, or derivatives thereof, of companies mentioned in his columns.None of the information in this column constitutes, or is intended to constitute, a recommendation by Willard of any particular security or trading strategy or a determination by Willard that any security or trading strategy is suitable for any specific person. Willard appreciates your feedback --
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