Yahoo Closing The Door On Click Fraud?

Yahoo! Inc. (YHOO) stands to significantly benefit from a completely un-reported but very real class action lawsuit, Checkmate Strategic Group Inc. vs. Yahoo! Inc..  Ironically, Yahoo! stands to benefitfrom being sued by its advertisers based on the legal action’s settlement terms… terms that absolve the Web advertising giant of liability for fraudulent, and more importantly “unwanted”, clicks sent to advertisers over the last 8 years.  In return, advertisers get the opportunity to ask for credits (to buy more advertising) and these credits may ultimately be denied by the company.

Upon my review of documents obtained from the courthouse, the process to petition Yahoo! for credits is a remarkably laborious one that, in the end, works against tens of thousands of advertisers who purchased click-based advertising from Yahoo! (formerly Overture).  Based on my research, the process is intentionally geared (by lawyers for Yahoo! and for Class) to be a difficult one that not only promises advertisers next to nothing but automatically opts them into the Class without their consent.  As the clock winds down this is looking more and more like a sure thing… a slam dunk for Yahoo! and the Class’s representation… not the Class itself.

$5 Million: A Small Price to Pay

Checkmate, indeed.  You may recall Google’s (NASDAQ: GOOG) “settlement” with advertisers and how it was a raw deal for advertisers, even though it was widely perceived by media and advertisers as Google manhandling the click fraud issue.  Just like Google, by setting precedent Yahoo! nabs a ‘get out of jail free’ card. 

Make no mistake, the $5 million Yahoo! will pay to Checkmate Strategic Group is, in effect, a VERY cost effective insurance policy against click fraud concerns that may arise in the future; all while, legally, never admitting fault and promising advertisers not one dime based on my research of court documents.  Some industry insiders are going as far as questioning who is behind Checkmate Strategic Group (read: Are there any ties it may have to Yahoo! itself?).

Letting Yahoo! Walk

The Class (Yahoo! advertisers who have not opted out of this settlement) itself has got to be large.  I’d wager to say it could be up to 95% of all advertisers doing business with Yahoo! given these two facts: 

1) Advertising trade media and bloggers have yet to cover this story and we’re nearing its end;

2) Lawyers representing advertisers have auto-opted them in without asking for consent.

If you’ve paid for advertising on Yahoo between January 1998 and July 31,1006 you’re automatically a part of the Class which effectively voids (releases) the claims of advertisers over an 8 year period.  Again, if you’ve done nothing (that includes not even having heard of this lawsuit) the settlement’s release, in this case, will let Yahoo! off the hook for any fraudulent (or worse “unwanted") clicks it may have sent your way.  Advertisers: You have no further recourse, no refund or guarantee for credit and a claims process that will keep you busy for months… never mind the expense you’ll generate in attempting to claim your advertising CREDITS. 

Want to opt out of the class (retain the right to hold Yahoo! accountable)?  You must do so in writing.  Certified mail, please!  Bye the way the deadline date has come and gone.

I’ve spoken with numerous search marketing agencies, who manage multiple advertiser accounts, like Rimm-Kaufman Group, who tell me they have advised their clients to, first, seek advise of legal counsel.  Some agencies indicate they have informally (citing a need to talk to a lawyer) advised clients to opt in and out of the Class.  None I spoke to would go on record with details.

Making a Claim

Assuming an advertiser opts out they will ultimately try (key word) to file a claim with Yahoo! seeking what is, in their mind, due to them.  Here’s the process in summary: Fill out a form and mail it in—certified mail, required—for consideration (by November 20).  If Yahoo! decides you qualify for credit, Yahoo! will be in touch with a yes or a no.  If they send you a yes letter (they admit owing you for fraudulent clicks) you need to submit, again by certified mail, another credit request form.  I find this use of certified mail remarkable.  If ordinary first class mail is good enough for paying taxes or getting a passport why isn’t it good enough for Yahoo!? 

This “settlement” is being offered not out of guilt or admission of wrong doing.  Quite the contrary; it’s offered without any logical reasoning at all beyond Yahoo!’s supposed intent to set things right with those few (smart!) advertisers (i.e. Lane’s Gifts & Collectibles) who dare to allege various forms of click and syndication fraud.  According to me?  Nope, read the settlement.

Also worth noting is that I’ve not seen the form Yahoo! requires to determine if you qualify for credit… what’s on this form I wonder?  What information must an advertiser provide?  It seems advertisers need to decide whether to participate in the settlement or to opt out before they can even see the claim form.

What Advertisers Lose

I’m not a lawyer but I can read… and what I’m reading is infuriating from the advertisers’ viewpoint.  Any click fraud claims (and I suggest there aren’t going to be many) submitted to Yahoo! and denied will be subject to the review of a retired Federal judge who will make sure advertisers get a fair shake. 

According to the settlement, the Honorable Gary L. Taylor will take a look at your situation after Yahoo! shares with him “documents related to Yahoo’s review of the Class Member’s Claim Form.” Yahoo! gives itself a ‘“reasonable period of time” to forward these “documents”.  I guess they’re not in a hurry for this part but let’s also consider that Yahoo! literally doesn’t need to send anything to this judge beyond “documents” that “relate” to an advertisers’ claim form… not the claim but the claim form. 

Further, Judge Taylor will be limited, in his review, to the information provided by Yahoo!.  His judgment: Final.  Your right to appeal?  None.  Your right to even tell Judge Taylor why you’re unhappy and why you think Yahoo! overcharged you?  No, sorry… you don’t have that right during appeal either.  The kicker: How will Yahoo! let you know of the Judge’s results?  They’ll have all kinds of options including emailing them to you.  Whatever Judge Taylor decides Yahoo! will communicate it to you in a “reasonable period of time.” Hold your horses.

Advertisers: Willingly Forfeiting Rights

According to the settlement document, Class advertisers release (meaning they forfeit their right to pursue) Yahoo! BROADLY from “challenged clicks.” This is a term defined to cover all “un-wanted clicks” and other broad categories.  Think about that for a minute.

Let’s consider a specific example where an advertiser had terminated its pay-per-click advertising account with Yahoo! through the proper and appropriate method.  Yet suppose Yahoo! continued to charge the advertiser for whatever reason.  Those clicks, and the associated charges, are clearly “unwanted.” Hence, this settlement gives Yahoo! the right to point at this settlement—blocking the advertiser’s request for refunds.  Potentially the same goes for advertisers unhappy to have their ads placed in spyware, typosquatting and other back alleys Yahoo! had promised (some say falsely) it wouldn’t use.

Checkmate: Yahoo! Is Off The Hook

Checkmate’s lawyers get about $5,000,000 or so and, yes, Yahoo! will be (sarcasm) severely punished.  They’ll be forced to

“... launch an online traffic quality center” (a reference center for advertisers to learn about “traffic quality")

“... designate a Yahoo! employee as a traffic quality advocate” (they already have this, of course)

“... start a program in which it chooses at least three advertisers per year who will be invited to Yahoo! to obtain special access to Yahoo’s traffic quality team… click protection systems...”

“... work with third parties in an effort to develop industry-wide standards that define click fraud, set forth standards for detection of fraud...” (they’re already doing that too)

Objections Anyone?

“We want to keep our advertisers happy,” Yahoo attorney Reggie Davis told the Associated Press in June. “Whatever credits are owed will be 100 percent forthcoming.”

Darren Kaplan, an attorney representing the Class in this suit said,

“I can only conclude from Yahoo’s actions that Yahoo both cares a great deal more than Google about its own customers and that Yahoo! has a lot more confidence in its prior click fraud detection efforts than does Google.”

After reading this I thought gee… Mr. Kaplan seems like a pretty nice guy (i.e. speaking so kindly about Yahoo! as he sues them) so I figured I’d call him up.  Last week, I asked if he would provide me with a copy of objections to this lawsuit.  He refused my request yet I noticed that the same group of attorneys acting as Plaintiff with the Yahoo Syndication Fraud lawsuit are listed as an objecting party in this case (U.S. District Court, Central California District, 2:06-cv-02737-CAS-FMO).  Just yesterday Draucker Development’s site posted a link to the Checkmate objection itself which is worth a read as it presents, very meticulously, reasoning as to why this settlement isn’t a fair or good one for advertisers; in fact, it’s a harmful one.  Included on Draucker’s legal team is a familiar name, Ben Edelman. 

The Economy of Ignorance

I firmly believe this kind of stuff to be part of a thriving and, indeed, growing sub-economy… one based entirely on the ignorance of advertisers and, many times, consumers.  This kind of shady business is what spurs growth inside the online advertising industry; growth that seems unstoppable at this point and which plays upon the gaming of technical systems, user behavior and now new territory—the legal system. 

I suggest that this kind of b.s. is, in the long run, a danger to online advertising as a whole as it serves only to poison the waters advertisers swim in.  In short, sooner or later lies are exposed and resentment sets in. 

One of my most respected and knowledgeable colleagues, Sam Harrelson says, “Google must deal with the one term that was not discussed during the conference call: click fraud.”

Must they?  Sam goes on to tick off a long list of highly paid analysts and financial institution on Google’s recent earnings call—none of whom had any interest in click fraud.  Says Harrelson,

“The amount of click fraud alone should cause Google to address the issue, especially on conference calls announcing record high profits. However, they didn’t address the issue at all. A panel full of Wall Street analysts with the ability to ask questions didn’t approach the issue.”

Why, Sam?  I suggest that click fraud as an issue is officially dead.  Deceased.  Gone to meet its maker (no, it’s not just stunned).

Yahoo! has clearly taken notice of rival Google’s ability to all but convince the world that click fraud doesn’t exist.  Case in point: Google’s recent earnings call never broached the subject of click fraud.  Not a word about the single most significant and growing problem (remember when we once called it the single biggest ‘threat’ to online marketing?) was mentioned by Google executives and, more importantly, top industry analysts. 

Game, set, match: GOOG.  Yahoo! looks to be knocking this one out of the park even further by jumping at the opportunity to create legal precedent that re-defines the notion that fraud against advertisers has ever, or could ever, happen in its network.  Yes, Yahoo! is on the same path Google found itself on just months ago and this time the implications will be more offensive… in fact, damaging for advertisers. 

We Ain’t Seen Nothin’ Yet

Wayne Porter says we’ve not seen anything yet.  Online advertising fraud is not only on the rise but reaching mind boggling levels of sophistication.  Mr. Porter is another of my respected colleagues and Sr. Director of Specialty Research at FaceTime Communications.  According to Porter…

“The pay-per-click search industry has yet to agree on what constitutes ‘click fraud’ as opposed to ‘invalid clicks.’ Similarly, ‘syndication fraud,’ which calls into question the way an advertisement is delivered to a user, is also in need of definition.”

According to Porter, click fraud—in its most basic sense—is the malicious defrauding of advertisers and the systems that enable them.  This can be executed through the use of humans, automated scripts, electronic agents or software ‘bots’ to simulate human clicks.  Of course, there are even more complex threats emerging such as Porter’s teams most recent find, the kMeth worm.

Just as I posit that Yahoo! follows in Google’s footsteps on the legal front, Porter suggests they’re also mimicking Google on the advertising front.

“Yahoo! is modeling their new approach, called Panama, after Google’s ad placement algorithm.  For example, a click-based ‘quality factor’ will partly determine ad placement and position.  Like Google, we will likely see Yahoo! providing new levels of service such as dynamic keyword insertion and regional ad targeting which have been long missing and desired by advertisers.”

Porter told me it’s unclear how Yahoo’s quality factor will be applied, but moving from a straight bid-for-placement ad model to one with this loosely defined ‘quality’ variable opens up a new fraud opportunity… such as impression fraud.  Says Porter,

“Simply put this involves the fraudster generating ad impressions… thereby driving click-through ratios down and, thus, gaming the system a bit to drive down the ultimate position of a particular ad or group of ads.”

Porter suggests advertiser satisfaction will now hinge not only on controlling syndication fraud (being challenged based on contract law) and click fraud but controlling impression fraud.

That is, advertisers who are paying attention and not factoring all kinds of fraud, unwanted clicks, etc. etc. as a cost of doing business.