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.

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.