A specter is haunting Google. Google derives the majority of its revenues from selling tiny text ads. Lots of internet publishers publish tiny text ads. Since advertising is sold on cost-per-click basis, the more clicks the more revenues for (NASDAQ:GOOG) and publishers.
Some unscrupulous publishers have tried to accelerate the ad clicking process with click bots and other schemes. Google has a very logical reason to ignore clickfraud, since doing something about it would lower revenues and collapse the share price.
Depending on who you ask, click fraud is insignificant (Google's take) or upwards of 70% of Google's total ad sales. The problem and issues for abuse are well known in the webmaster community. Yet the broader world is mostly unaware of Google’s fraudulent profits.
Lots of Wall Street analysts, many of them working for companies that have extensive underwriting relationships with Google, continue to maintain buy and strong buy ratings on shares of GOOG. Many of them also engage in questionable revenue projections.
On Wednesday, CNBC did a feature on clickfraud. Now everyone on Wall Street knows about the issue and just how bad it is. I predict that real soon now, a wave of analyst reports will come out minimizing the issue and its impact on the demand for tiny text ads from Google. (Here's the video)
But if advertisers know that at least 70% of their ad spending on Google is wasted, how many will continue to buy ads?
Google insiders probably know about the problem as well, as collectively they have sold well over $3 billion worth of shares in the past six months. That is more stock than Enron insiders sold in the six years prior to bankruptcy. Sometimes the sheep do shear themselves.