Yahoo Click Fraud Settlement Increases Transparency

After a year of litigation, a California judge gave preliminary approval to a settlement in a class action suit against Yahoo concerning click fraud. Google also settled a class action lawsuit revolving around click fraud earlier this year. There are some important differences in the two settlements, which might reflect some very different attitudes at the two competing search engines.

You might remember that Google agreed to a $90 million settlement last March to clear up litigation in a class action lawsuit led by Arkansas-based Lane’s Gifts and Collectibles. Yahoo’s settlement, at least initially, isn’t nearly as large; the venerable search engine will pay $4.95 million in cash to plaintiff’s counsel. In Google’s case, the plaintiff’s counsel received $30 million, while credits to advertisers for the class action were capped at $60 million. Yahoo’s settlement has no such cap on advertiser claims.

Yes, you read that correctly. Yahoo has said that it will not put a cap on the refunds if it finds evidence of click fraud. The company is even quite optimistic that its claims payments will not be overly onerous, even though it made billions of dollars in revenue from pay-per-click advertising during the period covered by the class action.

Does Yahoo have a good reason for this optimism, or is it just bravado? Well, it’s worth remembering that Yahoo Search Marketing came out of Yahoo’s purchase of Overture, the company that created the pay-per-click search advertising model back in 1998 –- so by definition, Yahoo has more years of experience with this particular business, and its pitfalls, than anyone. It notes on its web site that “one of the very first challenges we identified was the potential for people with bad intentions to click on listings with the sole purpose of generating a charge to the advertiser. To address this challenge, we quickly established a system of proprietary technologies and people dedicated to protecting our advertisers from click fraud and other traffic quality related issues.”

Indeed, during the litigation process between Yahoo and Checkmate Strategic Group, Yahoo invited the plaintiff’s counsel and their experts to take a look at the search engine’s proprietary click through protection system in action. Yahoo even gave the plaintiff’s counsel access to team members and filtering data. After this review, Yahoo proudly states that “the Plaintiff’s Counsel and their experts determined that Yahoo! has in the past and continues to operate a click protection system that goes above and beyond what is necessary to address recent industry estimates about click fraud.” With some estimates of click fraud quoted as high as 20 percent, that is no mean feat.

The terms of Yahoo’s settlement seem to be more wide-ranging than the terms of Google’s settlement, and not just on the matter of money. First, let me start with the sections that deal with the eligible period for the refund. Here Google is actually a little more generous than Yahoo. Normally, Google allows advertisers to apply for reimbursement for fraudulent clicks within 60 days of when the clicks occurred. For Google’s settlement, the search engine giant has stated that “we are going to open up that window for all advertisers, regardless of when the questionable clicks occurred…This agreement covers all advertisers who claim to have been charged but not reimbursed for invalid clicks dating from 2002 when we launched our ‘cost per click’ advertising program through the date the settlement is approved by the judge.”

Yahoo’s settlement, on the other hand, offers advertisers “a one-time extended claims period during which advertisers can submit click fraud claims for clicks dating back through January 2004.” Like Google, Yahoo says it is issuing a 100 percent credit for clicks it finds to be fraudulent that were not previously credited. It has been noted, though, that Google’s credits can only be used to purchase new advertising with Google; Yahoo’s credits “can be used however the advertiser wishes to use it,” which at least implies that they will be made in cash. It seems worth reiterating that Google’s settlement has a cap, while Yahoo has not placed a cap on the amount of claims. To give you an idea of the sums of money involved, Yahoo made $9.1 billion in ad revenue from January 2004 through March of 2006.

And I have to give Yahoo extra credit here: the company has enlisted the aid of a retired federal judge to oversee the claims process. To my way of thinking, that sends the message that Yahoo is going to do everything in its power to make sure the investigation and refunds are handled fairly.

The details of Google’s settlement seem to stop there, but Yahoo is just barely getting warmed up. On its web site, Yahoo lists five terms to the settlement agreement, and even goes so far as to state that it will take two additional steps, not required by the terms of the settlement, to help combat click fraud. If this already sounds like a company willing to go above and beyond to make its advertising customers happy, wait until you see the nature of the additional terms.

Practically all of Yahoo’s additional terms aim at increasing the company’s transparency in its handling of click fraud, and letting its advertisers know that they have a voice within the search engine that will be heard. For example, one term mandated by the settlement obligates Yahoo to appoint an ombudsman, a “Traffic Quality Advocate” to address advertiser concerns about click fraud and traffic quality. This person is specifically intended to “serve as the internal voice of the advertiser within Yahoo! on these matters,” according to Yahoo’s web site.

Understanding that visibility works both ways, Yahoo agreed to a third term in the settlement that further opens up its click through protection system to its advertising customers. Once a year, the venerable search engine will bring a panel of individual advertisers to its CTP headquarters. These advertisers will then be able review Yahoo’s CTP systems, meet with the team responsible for fighting click fraud, and give Yahoo feedback on how it’s doing and how it can improve.

Recognizing that click fraud permeates the entire industry, not just one or two companies, Yahoo agreed to address this problem in the fourth term mandated by the settlement. The company will work with reputable third parties to build industry-wide efforts to fight click fraud. These include developing an industry-wide definition of click fraud. Frankly, it’s amazing to me that there isn’t such a definition yet; how are you supposed to fight something if you don’t have a definition of what it is?

Even more usefully, this industry-wide effort will include creating a list of recognized click bots, and other measures. It will be interesting to see if perhaps the technical wizards at Yahoo can come up with some kind of software protection for its affiliate advertising network that fights click bots the way that antivirus software fights other malware; for all I know, such a system may already be part of the company’s click through protection.

The final step mandated by Yahoo’s settlement sounds like a real contribution to transparency. The search engine said it will build a Traffic Quality Resource Center, charged with providing advertisers with all sorts of detailed information concerning traffic quality issues and solutions, in the form of “FAQs, advice columns, best practices guides and additional access to analytics tools.”

Yahoo has publicly committed itself to taking steps to increase the transparency of its click through protection process that go above and beyond the terms of the settlement. You read that right. To some extent, these two points are almost mere details, but properly implemented, they could go a long way toward reassuring advertisers that Yahoo is handling their click fraud issues with all the care and prompt attention they deserve.

The first one, in fact, deals with response times. Yahoo stated that it will provide advertisers submitting click fraud or traffic quality inquiries with a specific time by which they will know the results of the company’s investigation of the issue. If it’s a really complicated investigation, Yahoo will at least let them know when they can expect to receive a progress report. Granted, this is a somewhat vague point; after all, Yahoo isn’t saying it will resolve all issues by a specific time, only that it will let advertisers know when they can expect some kind of resolution or status report. We’ll have to see how this works in practice.

The second point concerns the advertiser refund notices themselves. Yahoo has pledged to include additional detail in these reports, so that advertisers can have a clearer idea of the traffic quality and click fraud issues covered. Like the first point, this is a little vague –- how much detail will be included? How clear and understandable will it be? But, as with the question of response times, it seems like a step in the right direction.

So what have we learned from this tale of two settlements? Well, if Yahoo handles this correctly, it stands to gain some very good press, at least with its advertisers. Stand Yahoo’s settlement next to Google’s, and add in Google’s general reputation for secrecy, and I know which company I’m nominating for “most worthy to use the ‘Don’t be evil’ slogan.” Of course, Yahoo really needs the good publicity right now, given the current mess of its China policy. Now if it can figure out a way to turn this transparency policy into something the average search engine user thinks of as “cool,” it might raise its market share. As it stands now, it may only raise Yahoo’s long term advertising revenues –- which isn’t a bad thing either.

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