Economist on Google: "Is Google the new Microsoft?"

Finally Economist came with coverage on Google. I have been awaiting it for the long time because this paper is one of the prime sources for unbiased (if it is possible) information and renown for its sober economic stance. I am strongly advice to invest in your education and buy this issue in paper to smell the ink. They are not questioning particular valuation, but rather came with few important observation comparing dominant positions of Microsoft and Google in their markets:
In the first piece “Is Google the new Microsoft” Economist wrote: “More important, however are the differences that suggest that Google will not be able to establish an IBM-Microsoft-style lock on the industry…in the new era of internet services, open standards predominate, rivals are always just click away (!!!) … Try to avoid using Microsoft software for a day, particularly if you work in office and you will have difficulty; but surviving the day without Google is relatively easy… Large firms such as Yahoo!, which previously farmed searches out to Google, have switched to other technologies (as did Amazon in favour of MSN) Google market share in search has fallen from 80% to around 50% today. Perhaps the clearest evidence that Google’s continued dominance is not inevitable is the fate of AltaVista, the former top dog in internet search. Who remembers is today.” The second piece “Special report Google” dated May, 13th 2006 (no luck for Google now) with halo above second “g” in logo. After math geeks history of the company and its high flying arrogant ambitions (halo staff) Paper stated: “But many who deal with Google in their daily lives are getting fed up with such grandiose notions. Google’s shares after nearly quintupling since they began trading have fallen in recent months. Pip Coburn, an investment strategist, says that “Google was a simple story at one point…But now it is pretty much a mess…Mr Sullivan of Search Engine Watch says Google become distracted…one strength (search) and string of mediocre “metoo” products: Google video is overtaken by YouTube with four times as much traffic, Google News perennially lags behind Yahoo! News, Google instant-messaging software is tiny compared with AOL’s, Yahoo!’s and MSN’s. …(everybody) are getting annoyed by Google’s seemingly endless “betas” Very important is concern about data protection: “As more and more data builds up in the company’s disc farms,” says Edward Felten, an expert on computer privacy at Princeton University, “the temptation to be evil only increases” Here I must add that this privacy issue will be third most important legal issue which will hurt Google in the coming months after exposure of Click Fraud and Child Porn lawsuit. Nobody from Press Day paid any attention to one very important phrase of Vice President on Innovation lady pronounced: “..with our toolbar we know a lot about you and can offer you our help with ads for your needs(!!!)” Google literally scanning every file on your computer and will be spamming your with ads on “relevant” issues like in Gmail! But most importantly is that speaking in the words of bellowed by boys Warren Buffet Google’s business franchise is almost ZERO. Switching cost of the customer end user is literally zero: “competitor is just click away”. Who is really thinking that you can lock-in user by such break through innovation like “Gnotes”. So before buying the deeps try to use some other guys for search, there are plenty: “Search.com searches Google, Ask.com, LookSmart and dozens of other leading search engines to bring you the best results. Search.com metasearch search engine - The only search you need.” Plus Yahoo!, MSN, Accoona you name the others.

Google more bad news to come

Looks like arrogance is not the best way to deal with old Media when you are desperate to make money on their content:

Blow from Yahoo! and Viacom:

"Larry Dignan (ZDNet) submits: The enemy of your enemy is your best pal. Just ask Viacom (NYSE: VIA - News), which is suing Google's (NasdaqGS: GOOG) YouTube for $1 billion while hopping into bed with Yahoo (NasdaqGS: YHOO).
Viacom and Yahoo announced a "multi-year partnership" where Yahoo will be the exclusive provider of sponsored search and contextual ads on all of Viacom's sites. These properties include MTV.com, VH1.com, Nickelodeon.com, comedycentral.com and BET.com and cover "33 broadband sites." Yahoo added that the deal could expand to 140 more Viacom Web sites worldwide.
Yahoo portrayed the Viacom win as a victory for its project Panama, an ad system designed to close the monetization gap with Google. Expectations are high for Yahoo's Panama and the Viacom deal is likely to push them higher.
And there were plenty of Google digs in Yahoo and Viacom's statement.

For me Henry is too much in Love with YouTube but on this one he is on the money:

Will Radio, TV, and Print Save Google's Growth Rate? No.

"So how much TV, Radio, and Print spending would Google have to capture to, say, double its current operating profit? (Assuming no further growth of the online businesses, which obviously should continue to grow quite nicely). Google generated about $3.5 billion of operating profit last year. To generate this much from an offline TV, radio, and print placement business, assuming a generous 10% operating margin (very generous, I think), Google would have to place $35 billion of gross advertising. This compares to about $4 billion it generated from its wildly successful online ad rep/placement business, AdSense, in 2006.
The conclusion? It seems safe to say that, even if everything goes perfectly, it will be a while before Google's offline initiatives contribute significantly to the company's bottom line. "

Google is desperate with YouTube monetising: Capex is eating out margin from search and revenue still to come:

Google Caught Red-Handed with Pop-Up Ads

"Pop-up ads? On a Google website? It seems incredible - but it appears to be true.
In a desperate move to boost YouTube's advertising revenues, Google (GOOG) may be violating some of its most cherished, long-held principles. Beet.TV's Andy Plesser reports that a Best Western ad popped up on a YouTube page he recently visited.
Here's why this is a big deal for Google.
When Larry Page and Sergey Brin decided to allow advertising on Google, they were adamantly opposed to running the pop-up ads that used to carpet the Web, preferring instead to run simple text ads with links.
You can see some traces of this attitude in outdated Web pages on Google's site. The #1 question on Google's FAQ is "Why am I suddenly seeing pop-up ads on Google?" Google's old answer: "Google does not allow pop-up ads of any kind to appear on our site. We find them annoying."
The new answer might as well be "We paid $1.65 billion for YouTube, the whole licensing-content-from-big-media thing isn't really working out, and so we're running pop-ups."

Google Might Be Investing in Electric Cars TNR.v, CZX.v, WLC.v, LI.v, RM.v, LMR.v, SQM, FMC, ROC, TT, TTM, BYDDY, NSANY, DAI, BMW, VLNC, PC, AONE, HEV

"Availability of serious capital for Better Place and Nissan is very encouraging. You have to make your homework right in order to find the right financing opportunities in Electric Cars value chain. Newcomers on Technology or Auto making side will be evaporated overnight by Toyota situation as it is today. It is time when very risky plays on Lithium and REE supply side could provide actually more security as a sector entry with at least technology risk minimised."

Tesla IPO will bring a lot of attention to the Electric Space. Google founders investing in it or even Google itself will bring the story out into the mass media headlines. Market has to climb the wall of worry and such high profile investors will bring necessary comfort for the investors to move into Electric Cars value chain - they will find out very soon that there is not enough pure plays for the magnitude of capital which could be involved. We will have situation in Gold, Majors and Juniors in 2003-2005: First capital moved into gold, than into Major producers and than Juniors took off with multiples to the market cap, when capital was chasing very small market with very hot stories.

ValleyWag:

"Google Might Be Investing in Electric Cars

Tesla wants to go public. But the electric car company, loved by California celebrities and nerds alike, had to first bare all to the SEC. So now we know Tesla is funded by a mysterious front company linked to Google.
Tesla registered with the SEC on Friday. Buried in the copious paperwork is the name of a very interesting "Series C" and "Series E" stockholder: Amphitheatre LLC. We first flagged this entity as a possible Google front when it invested in a zeppelin company started by Google advisor Esther Dyson. The same zeppelin company was later hired by 23AndMe, the Google-funded and -housed genetic testing firm co-founded by the wife of Google co-founder Sergey Brin.
Ampitheatre LLC may well have been acquired by Google along with the company INV Tax Group when Google bought its eight-building headquarters at 1600 Amphitheatre Parkway and 1200-1500 Crittenden Lane in Mountain View. Ampitheatre LLC and INV Tax Group, then believed affiliated with Goldman Sachs, had been the shell companies that held the buildings.
It's hard to imagine why a real estate holding vehicle is now investing in zeppelins and electric cars if it's not controlled by Google. California records are little help; they show the LLC still registered to "INV Tax Group, 180 Maiden Lane, 40th floor," an address once linked to Goldman Sachs in a building now used by a wide array of companies.
Google's a logical investor, anyway, since its founders are already Tesla customers (see picture of Brin in his Tesla, left, by Zach Graves) and investors. Co-founder Larry Page even reportedly "jet pools" with Tesla CEO Elon Musk, and Google has an "electric car" section reserved in its parking lot (see picture at top by Tristan Nitot). It wouldn't be the first time Google co-invested with its founders; it followed Brin into his wife's 23AndMe.
Whether the Google honchos had their financial judgment clouded by the fact that they personally made it to the front of Tesla's fiercely competitive waiting list is something for Google shareholders to decide.
In so doing, they might consider another nugget buried in Tesla's S-1: The company has not yet stabilized its notoriously volatile executive ranks. Among the recent departures is general counsel Jonathan Sobel, formerly of Yahoo. Sobel started in September; he was gone by December. One tipster claims friction with Musk was to blame. The bigger question is whether Musk can forge more stable relationships with his co-workers going forward. Only time will tell. We'll be watching, and we bet Google will be, too.
(Top pic: A Tesla parked at Google headquarters, by Tristan Nitot. Second pic: Sergey Brin driving in his Tesla, by Zach Graves.)"

Google is pure arrogance compare to Yahoo click fraud approach.

""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," Kaplan said.
Google spokesman Steve Langdon said the company continues to believe the Arkansas settlement is fair."

http://biz.yahoo.com/ap/060628/yahoo_click_fraud.html?.v=5

"Yahoo Settles 'Click Fraud' LawsuitWednesday June 28, 9:23 pm ET By Michael Liedtke, AP Business Writer
Yahoo Settles Class-Action Lawsuit Alleging Internet Powerhouse Profited From 'Click Fraud'
SAN FRANCISCO (AP) -- Yahoo Inc. will consider refunding money to thousands of advertisers dating back to January 2004 and pay $4.95 million in attorney fees to settle a class-action lawsuit alleging the Internet powerhouse has been profiting from bogus sales referrals generated through a sham known as "click fraud."
The agreement, given preliminary approval Wednesday by U.S. District Judge Christina Snyder in Los Angeles, doesn't limit Yahoo's liability -- one of several contrasts to a settlement reached in March by online search engine leader Google Inc. to resolve a class-action lawsuit over the same issue.
Google's financial commitment in its case, overseen by an Arkansas state court, is capped at $90 million. That's a sliver of the $13.3 billion in ad revenue that the Mountain View, Calif.-based company has collected since 2001.
As much as $30 million of the Google settlement could be paid to the attorneys who filed the case.
Although Yahoo doesn't know how much money it will end up refunding, company officials seem confident it will be a relatively small amount. Yahoo's ad revenue totaled $9.1 billion from January 2004 through March of this year.
"We want to keep our advertisers happy," said Yahoo lawyer Reggie Davis. "Whatever credits are owed will be 100 percent forthcoming."
In its settlement, Google is offering to give back less than 1 percent of the money spent on undetected click fraud and plans to make the payments in the form of credits that can used to buy more ads on its networks. Yahoo is giving advertisers the option of receiving cash refunds instead of credits.
All advertising claims submitted to Yahoo will be subject to the review of a retired federal judge who will oversee the refund process. Google's review of click-fraud claims won't be subject to any oversight.
The settlement also will give Yahoo an opportunity to provide more clarity about one of the most confusing -- and potentially disruptive -- issues hanging over the rapidly growing Internet advertising market.
As part of the agreement, Yahoo has committed to working with others in the industry to define what constitutes click fraud.
The ruse takes different shapes, but the end result is usually the same: Merchants are billed for fruitless traffic generated by scam artists and mischief makers who repeatedly click on an advertiser's Web link with no intention of buying anything.
Those clicks generate revenue for Yahoo, the owner of the Internet's second-largest advertising network behind online search engine leader Google, as well other Web sites.
The estimates on the prevalence on click fraud vary widely, partly because there are so many different interpretations of the practice.
A recently established index compiling information from more than 1,000 advertisers has estimated that about 12 percent of the clicks on ads running in the Google and Yahoo networks are fraudulent. Other studies have estimated the click fraud rate as high as 30 percent -- numbers that both Google and Yahoo have vehemently disputed.
Yahoo already has given advertisers billions of free clicks because it would rather err on the side of its customers when anything questionable occurs on its network, said John Slade, senior director of product development.
Darren Kaplan, an Atlanta attorney representing advertisers in the class action, praised Yahoo's approach.
"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," Kaplan said.
Google spokesman Steve Langdon said the company continues to believe the Arkansas settlement is fair.
Kaplan and a group of other lawyers had filed a click fraud suit against Google in San Francisco federal court. That complaint was derailed when Google settled the Arkansas class action. Kaplan and Los Angeles attorney Brian Kabateck hope to prevent the Arkansas settlement from getting final approval in a two-day hearing beginning July 24. "

Lithium Drive: Will We See Google Electric Car Before the Electric iCar from Apple? tnr.v, czx.v, alk.ax, lmr.v, tsla, rm.v, nup.ax, srz.ax, usa.ax, jnn.v, abn.v, res, mcp, avl.to, quc.v, cee.v, sqm, fmc, roc, li.v, wlc.v, clq.v, lit, nsany, byddf, gm, dai, rno.pa, hev, aone, vlnc

  Will Google beat the Apple with its own Electric Car? Do not rush to to the conclusions too fast, but all these videos, the latest news from Nevada and Google investments in Electric Cars technology are pointing to the one direction - Electric Cars.  

  Will this company be actually involved in production of Google-E-Drive remains to be seen, but the fact that the Search Giant will be involved heavily in all surrounding technology is already given. Aptera has been lost recently from the headlines, but it enjoyed the backing of Google founders and they both are driving their Teslas.

  Google has what USA Inc lacks the most - piles of Cash. They have brain power, technology and determination to change the world and they have already done it once. Facebook, Twitter and Groupons will be eating ad business away from Google, to compete with Apple on its turf of iconic design will be very tough. Microsoft demise will come at a price of Free OS systems for the consumers. Electric Cars industry gives Trillion market place business opportunity to fill. And we will throw again as with Apple iCar - Why Not?

"Lithium Charge: Secretary Chu Announces New Funding and Partnership with Google to Promote Electric Vehicles. The Electric Cars investment space is getting hotter and big names are beginning to eagerly to pile in. The 5 million investment into the charging infrastructure from U.S. Department Of Energy could sound like a joke compare to China investing billions in Electric Cars or personal investments of some entrepreneurs in Lithium space, but it is one step at a time and names in this initiatives are more important than this amount.
  Once the guys from Google, Facebook and Twitter will move into Green Revolution our Lithium story will take off into parabolic rise - they have knowledge, technology and understanding that Electric Cars are the way forward. They will need to drive their kids to the soccer games after all, even after Peak Oil which is happening now. We do not know which one of them will make the next Coca Cola in Electric Cars space, but we will be ready with our Sugar business - Lithium will be needed for all of them."

"Lithium Dreamz: Apple Tops Google As World's Most Valuable Brand - will you buy an Electric iCar next? Our Lithium Dreamz are already enjoying the favor from Apple and Steve Jobs himself - all world is now going mobile with iPhones, iPads and iPods. If only we can get Steve Jobs into our Electric space and build an Electric iCar for us! It would become fashionable in the matter of days and consumers will be happy to pay premium as with all products from Apple - just to differentiate themselves in the social space. Ultimate consumer experience will help as well!"

UPI.Com

Google eyes Nevada for driverless cars

Published: May 14, 2011

LAS VEGAS, May 14 (UPI) -- U.S. technology giant Google confirmed that it was targeting Nevada as the first state to lobby for the legalization of driverless cars.

That's right: Look, Ma, no hands -- or eyes, either. Google is petitioning the state to allow for testing cars controlled by computers and simultaneously lobbying to allow for an exemption on a ban on sending and receiving text messages while driving.

Company spokesman Jay Nancarrow said the project, which has already included Google cars logging 140,000 miles without drivers in California, is in the early stages of development.

But Google lobbyist David Goldwater testified this year in front of Nevada's state Assembly that cars without drivers could improve fuel efficiency, cut down on accidents and promote job growth.

In California, the testing has been done legally as the tests include having two people in the car -- a passenger monitoring the computer equipment that can fill the trunk of a car and a "driver" ready to take control if something goes wrong.

Google did not say why it choose Nevada to be the first state to allow for driverless vehicles, but policy analysts said they envision driverless deliveries and driverless taxi services.

"In some respects, this is a a great template and a great model. It recognizes a need to create a process to test these vehicles and set aside and area of Nevada where testing can take place," said Ryan Calo, a scholar at the Center for Internet and Society at Stanford Law School"

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Google Earnings: EPS is falling and Growth is slowing

Mass media and Google would like you to belive that everything is just going fine, growth is strong and valuation of a Search Engine is justified at the market cap of 152 billion dollars. After quick play with Google's own numbers you will be woundering why is Eric Schmidt is "... ecstatic about our financial results this past quarter" particularly if "...I would like to remind everybody as I have each year at this time, that we are about to enter our seasonally slower summer growth period, and make sure you factor that in when thinking about how our business will grow." So what is so "ecstatic"? Maybe EPS at 3.18 which is below EPS of 3.29 in Q4 2006. It is decline in EPS of 3% and Google is facing its seasonally slowest quaters ahead. I found it rather disturbing that company with bubble valuation of Price/Sales=12.6, Price/Book=8.2, Price/Earnings=43.2 and Market cap to free cash flow ratio of 83 (!) has slowing revenue growth rate -20% Y/Y, Google's own sites have slowing growth rate-22% Y/Y and its network web sites revenue growth is falling even faster - 24% Y/Y. It is still one trick pony with licencing and other revenue at just one percent of total revenue and even at this low level rate of growth is slowing Q/Q. Portion of Google own sites is rising in total revenue and Networks share is falling with TAC rising. It is reflecting rising competition and distribution deals which are eating margins. George Reyes at the conference call sad: "The answer is that we're doing a lot more deals and the deals are, in fact, carrying a disproportionate amount of TAC. So, at the end of the day and I think I suggested that in my earlier comments, TAC as a percentage of revenue is likely to increase given the deals that we're doing these days." Net income falls in Q1 2007 to 1,002,162 from 1,030,716 in Q4 2006 ('000USD) showing declining net Income margin from 32% to 27%. Sales per head are stagnating at low end in 2006 range at 299.4 ('000USD) All this analyses is based on GAAP figures presented by Google and accounting for all relating expenses including stock based compensation as it should be done according to Warren Buffet which is admired by Google founders. Regarding the latest corporate development Mark Mahaney - Citigroup asked: "... Secondly, a broader question just on display advertising. Larry and Sergey, when you started search, you clearly had something different in mind, something more targeted than the normal advertising that was out there. What generally changed in your thinking that made you think either that the display advertising market was big enough or that you had a targetable solution that was good enough to make you want to make the moves you made, like buy DoubleClick?" Sergey Brin replied "...Advertisers, in many cases, don't have all the metrics information they need to decide which ads to run where. So we have seen good success with that, and we think we can expand that more to broader kinds of media, not just static images and what not. Of course, with this intent to acquire DoubleClick, we think we can make more advertisers much more efficient." With so flexible motto privacy advocats will be alarmed. Deal in general seams to be based on "overreaction" to threat of losing DoubleClick to competitors which resulted in a price tag of 3.1 billion cash offer from Google and I would like to run a few parallels. It is estimated that Double click had roughly 150 million in revenue last year as reported by Wall Street Journal. So Google is paying 20.7 time sales of the company. Google itself is valued at the moment as Price/Sales=12.6, Yahoo! P/S=5.7, MSFT P/S=6.0, so Google is paying premium of 64% for DoubleClick above its own exaggerated valuation which is 121% higher then nearest competitor. By making payment of 3.1 billion dollars and buying company with 150 million dollars in revenue Google will lose interest income in the amount of 161.2 million dollars per year assuming investing in money market funds at 5.2% p.a. Most importantly Google is spending almost 30% of available at the year end 11.2 billion dollars. With flat free cash flow (1.678 billion dollars in 2006 Vs 1.621 billion dollars in 2005, operational cash flow actually decreased by 9% in Q4 2006 from Q3 to 0.911 billion dollars) and still pending lawsuit of 1.0 billion dollars there is not so much money left to fight competition war against Yahoo!, Microsoft and Old Media Guys. With effect of "law of big numbers" already shown in recent decline in EPS, slowing growth rate will become apparent even to most devoted Google followers, inability of "technological" company to create any new products and monetise already made investment in YouTube should ring alarm bells for any investor.

Click Fraud approach YAHOO! vs GOOGLE.

How long will google be able to exploit dumb money from advertisers paying for nothing? Can business model be sustained on fraud? - just a few questions to consider about GOOG valuation.

P.S> Apple is in the heat of stock option scandal, will Google join the club? Reestablished put war positions on AAPL today in Europe market.


"Yahoo trumps Google: Yahoo takes the lead in attacking the click fraud problem
Posted by Donna Bogatin @ 5:51 amDigg This!
Yahoo made a public commitment Wednesday to “provide more clarity about our click protection efforts and significantly more transparency to advertisers in the future.” Yahoo’s commitment to publicly fight against click fraud was announced as part of a settlement of a class action lawsuit filed in the U.S. District Court in Los Angeles by Checkmate Strategic Group, Inc.
The suit alleged that Yahoo failed to do enough to track or prevent click fraud. As part of its settlement Yahoo has agreed to:
• One-Time Extended Claims Period: Yahoo! will offer advertisers a one-time extended claims period during which advertisers can submit click fraud claims for clicks dating back through January 2004. If our investigation determines that a credit is due that was not given previously, we will issue a 100% credit, which can be used however the advertiser wishes to use it.
• Dedicated Traffic Quality Advocate: Yahoo! will appoint a Traffic Quality Advocate who will be dedicated entirely to addressing advertiser concerns about click fraud and traffic quality issues. This advocate will serve as the internal voice of the advertiser within Yahoo! on these matters.
• Annual Access to CTP System and Team: To ensure that the advertising community has ongoing visibility into our Clickthrough Protection system, Yahoo! will host a panel of individual advertisers at our CTP headquarters once a year. During these visits, we will allow the advertisers to review our systems, meet with the CTP team and provide feedback on how we can continue to enhance our approach to fighting click fraud.
• Industry-Wide Click Protection Efforts: Yahoo will work with a reputable third party toward building industry-wide efforts to combat click fraud, including development of industry-wide definitions of click fraud and a comprehensive lists of identified bots.
• Traffic Quality Resource Center: Yahoo! will commit technical and human resources to build a Traffic Quality Resource Center, which will provide advertisers with more detailed information about traffic quality issues (including click fraud) and solutions via FAQs, advice columns, best practices guides and additional access to analytics tools.
Additionally, Yahoo commits to:
• Traffic Quality Inquiry Response Times: Yahoo! will provide advertisers who submit click fraud- or traffic quality-related inquiries with a time by which they will receive the results of Yahoo!'s investigation or, if the investigation is particularly complex, a status update.
• Additional Traffic Quality Refund Detail: To provide advertisers with more clarity around refunds for click fraud and other traffic quality issues, Yahoo! will include additional detail in advertiser refund notices.
If Yahoo’s public commitment to prevent, identify and redress click fraud problems is followed by real, meaningful action, it will provide Yahoo with a valuable, differentiating advantage over Google in their ongoing competitive battle.
Google’s response to a class action click fraud lawsuit filed by Lane’s Gifts in Arkansas:
You may remember that last February, Google was sued in Arkansas over what is commonly called click fraud… We’ve been discussing the case with the plaintiffs for some time and have recently come to an agreement with them which we believe is a good outcome for everyone involved… For all eligible invalid clicks, we will offer credits which can be used to purchase new advertising with Google. We do not know how many will apply and receive credits, but under the agreement, the total amount of credits, plus attorneys fees, will not exceed $90 million…
We have said for some time that we believe we manage the problem of invalid clicks very well. We have a large team of expert engineers and analysts devoted to it. By far, most invalid clicks are caught by our automatic filters and discarded *before* they reach an advertiser’s bill. And for the clicks that are not caught in advance, advertisers can notify Google and ask for reimbursement. We investigate those clicks, and if we determine they were invalid, we reimburse advertisers for them. We will continue to do that, and believe that this settlement is further proof of our willingness to work together with advertisers to reimburse invalid clicks.
Contrast the settlement agreement of Yahoo versus the settlement agreement of Google:
Reimbursement of advertisers
• YAHOO "we will issue a 100% credit, which can be used however the advertiser wishes to use it."
• GOOGLE "we will offer credits which can be used to purchase new advertising with Google."
Acknowledgement of click fraud problem
• YAHOO Detailed six-prong, plan (outlined above) to “move forward to work more closely with our advertisers and others across the industry to fight click fraud.”
• GOOGLE “We have said for some time that we believe we manage the problem of invalid clicks very well…for the clicks that are not caught in advance, advertisers can notify Google and ask for reimbursement… believe that this settlement is further proof of our willingness to work together with advertisers to reimburse invalid clicks.”"

http://blogs.zdnet.com/micro-markets/?p=183

Google is in Structural Crisis. CS

Recent developments with Microsoft attack on Google's "cavalier" approach to copyright protection" highlighted more deep and structural problems to the core of Google's Business. In a simple interpretation all this story with copyright issues is similar to open next to Nike Shop a Warehouse with cheap illegal copycats from Asia. "It will be very good for advertisement of your business" is very weak argument against criminal case. It is plain illegal and will kill Nike Shop. "Companies (Google S.) that create no content of their own, and make money solely on the backs of other people's content, are raking in billions through advertising revenue and IPOs," says Rubin, who oversees copyright and trade secret law at Microsoft." Here Microsoft is right and actually is rising the issue which could save trillions of Dollars to struggling US economy. Even more, until this "too liberal", criminal in nature approach is allowed (I think nobody cares so far and do not understand far reaching complications) it is killing USA economy and eroding the last resource of defence - Intellectual Property Rights. If you are not aware USA was the Driving force from 70s for constructing "IP" infrastructure and Patent and Copyright Protection. It was clear then that industrial wars will be lost to Countries with cheap labor and loose environmental policies. The only place to be for Developed World is in High End of Value Chain products depending on Technological Advances and "IP" protection. Whole industries blossomed on this concept and Google is assaulting one of the last pillars of US Economy. Take out Hollywood, Music, MSFT, Oracle, Cisco and nothing will be to Export from this country! US Dollar will seize to Exist. Will we have Congressional Hearing about it I am not sure, but what happen to Steel makers and Manufacturing we all know now. Google is in structural crisis to its business model, which is build around "open space" WEB and with "open sources" - available to others Technology delivering Similar Customer Satisfaction. It is not unique in plane English - Search is Commodity, as Buffet would put it (in a bad sense of this world) and Competitor is just click away or even in the same application like with Vista. Google was able to build Franchise because for a while its technology was better or perceived to be better by customers. But now Google is feeling the hit: for its Business it needs clicks on ADs, for this it needs Traffic which started to fall diverted to New More Content Interesting Places where customer can easily satisfy his Search need without getting out to Google. Contrary to Yahoo! which is Media Company and creating its own content Google's buying YouTube for 1.6 billion was desperate move trying to capitalise its Franchise further on "borrowed for nothing" others' content, they new it will be a lot of Capex and the monetising model was not in place, but they can not imaging that Copyright issue will put YouTube on the spot immediately. With economy falling in Recession (I do not buy the spin about "blip" in the Bull Market this Reaction is the last chance to get out of Tech) advertising will be cut First. Now Google will feel the pressure on all fronts: Growth of Revenue is falling and will fall further due to Yahoo! and others competition, Capex and costs are rising, payment for content on YouTube will add to cost structure and monetising is still not clear and everybody who is depending on IP rights will be waging war against it. Margins will be squeezed further and Free cash Flow will fall below 2006 level opening Pandora's box of Unsustainable Valuation with slowing growth, earnings without Tax Manipulation will be lower in Q1 2007 and will follow by Crash in stock price. Investors finally with the help of SEC will open their eyes to reality but it could be too late again. Today's Upgrade of UBS which leaked yesterday was done exactly at the low channel support line of Google DownTrend it is no more then act Of Mercy of God to those who did not sell yet, all these "strange" coincidence including perfect match of maximum pain on Options Expiration days will have its time in Court one day. Regarding UBS, they happen to have lending value for Tenke mining from 0.9 CAD up to 5.0 CAD and then "suddenly" found that it is too risky: lot of people lost their Tenke mining shares in Margin calls and somebody got them for cheap. Should I remind you that TNK.to today is above 16.0 CAD? UBS had Strong buy on ENRON and Worldcom as well, good luck following and welcome to 2001 again. Step out of the woods and look around: maybe you are missing something - it could be your money.

Google GOOG and coming Crisis.

From Economist:
"It is rare for a company to dominate its industry while claiming not to be motivated by money. Google does. But it has yet to face a crisis"
"If it goes wrong, how? Beyond its attempts to expand into new markets, the big question is how Google will respond if its stunning success is interrupted. “It's axiomatic that companies eventually have crises,” says Mr Schmidt. And history suggests that “tech companies that are dominant have trouble from within, not from competitors.” In Google's case, he says, “I worry about the scaling of the company.” Google has been hiring “Nooglers” (new Googlers) at a breathtaking rate. In June 2004 it had 2,292 staff; this June the number had reached 13,786"
"Yet for some on the inside, it can look different. One former executive, now suing Google over her treatment, says that the firm's personnel department is “collapsing” and that “absolute chaos” reigns"
"Another Xoogler, who held a senior position, says that by trying to create a “Utopia” of untrammelled creativity, Google ended up with “dystopia”. As is its wont, Google has composed a rigorous algorithmic approach to hiring, based on grade-point averages, college rankings and endless logic puzzles on whiteboards. This “genetic engineering of their workforce,” he says, means that “everybody there is a rocket scientist, so everybody is also insecure” and the back-stabbing and politics are reminiscent of an average university's English department.
Then there is the question of what all these people are supposed to do. “We kind of like the chaos,” says Laszlo Bock, the personnel boss. “Creativity comes out of people bumping into each other and not knowing where to go.” The most famous expression of this is the “20% time”. In theory, all Googlers, down to receptionists, can spend one-fifth of their time exploring any new idea. Good stuff has indeed come out of this, including Google News, Gmail, and even those commuter shuttles and their Wi-Fi systems. But it is not clear that the company as a whole is more innovative as a result, as it claims. It still has only one proven revenue source and most big innovations, such as YouTube, Google Earth and the productivity applications, have come through acquisitions. (S)
In practice, the 20% time works out to be 120% time, says another Xoogler, “since nobody really gets around to those projects for all their other work.” The chances of ideas being executed, he adds, “are basically zero.” What happens to the many Googlers whose ideas are rejected? Once their share options are fully vested they consider leaving. The same phenomenon changed Microsoft in the 1980s, when allegedly T-shirts popped up saying FYIFV (“F**k you, I'm fully vested”). Already some are going to even “cooler” start-ups, such as Facebook or Twitter.
This week George Reyes, Google's finance chief, said he would retire. At 53, he is a multi-millionaire. Mr Reyes has maintained the company's policy of not providing guidance to Wall Street on future earnings, although his comments on growth prospects have moved its share price."

Google GOOG market cap is more then 200 billion dollars now.

Or I must refrase it "Google market cap is more then 200 billion dollars - not for long!"?

Henry Blodget proposed interesting game:

If you were the owner of all Google's shares: would you keep Google or take Cash?
What would you do with your cash?

You can bet this was my response:
"I would take cash: for 110 billion I will buy All gold mining companies in HUI index, then I will buy Lundin Mining - 5.5 billion, 50 billion for Oil&gas companies in Canada, Brasil, Russia and China; for 20 billion I will become King of Junior mining sector and will buy All promising deposits in Gold/Silver/Copper/Zinc/Lead/Nickel/Uranuim and will put 10 billion to short Google over 600. I will keep 4.5 billion in mix CAD/AUD/Euro in order not to think about my investments for 25 years. In 10 years I will buy for 100 million spin off from XinHua Agency former Google just to keep my blog ranking No 1 in WEB 2.0 Bubble search"

It is very simple, but powerful approach to see behind the trees. Very much Warren Buffett style: will you buy not stock, but business at this valuation or you would rather sell?

With economy going into recession, housing slump and credit crunch how will Google survive this valuation? Margins are falling, growth is slowing from the beginning of this year and market is full of rumours about disaster (be careful with this one it is too ground breaking)?

This is total insanity - stock price is pump out and earnings are almost irrelevant: who will care even if Google will miss again and growth will slow further? Now everybody is waiting for Gphone...and we have new target price of 745 to chase another 25% for the crowd amusement.

This company has not produced anything meaningful revenue wise apart from search so far, why it will be different this time?

How will we remember these days in 25 years time? Old Wise Guy Once sad: "Five most dangerous words in investing: It Is Different This Time" The more illusion is going on the harder fall will be, when crowd will through into the towel and not only stock price but shire existence of this company could be threatened.

What will happen if tomorrow there is no google.com page? Will your car stop, or there will be nothing to build that car with? Nothing to build your house with? Nothing to eat or cure your headache? You can not find your way to nearest pizza? Wait, there are still Yahoo!, MSN, ASK. What is the secret? We are very close to find out...

Google WEB 2.0 Bubble:

http://sufiy.blogspot.com/search?q=google

Google is losing its ability to hold our interest to competitors.

It is very interesting to find out from this very well written article that Google is actually losing competative game in retention of interest from the internet audience and its importance and further accepted by the investment crowd "implide value" are way overated which is becoming evident in technical picture and deteriorating fundamentals :

"Key Observations
Only 20 domains capture a whopping 39% of all our time spent online.
Only 2.1% of our time is spent on Google.com (GOOG) (includes all sub-domains). This surprised me somewhat, given how much I think I use Google everyday. I still think I use Google quite a bit, but now realize I don’t spend much time on the site itself. Google is NOT a portal with loads of content. Gmail and Google News are the only services that I spend considerable time on. Search, Maps, etc are quick look-up utilities, as they should be.
Even if one adds time spent on Google's YouTube.com (#12) to Google.com’s (#5) tally — it still only adds up to 2.7%, and is well below time spent on Ebay.com (EBAY) (#4).
MySpace (NWS) (#1) is miles ahead of Yahoo! (#2), however Yahoo! impresses. Yahoo holds a significant lead over Google+YouTube.com, Microsoft's (MSFT) MSN+Live.com and AOL+AIM.com. Yahoo simply needs to merge with MSN to take #1 (hint hint)
The presence of Adultfriendfinder.com on this list is surprising, but hey, everyone needs a friend, or two!"

http://internet.seekingalpha.com/article/25309

Google's growth is slowing dramatically

Few more observations on recent trends in Revenue and Net Margin of google presented in CC slides

http://investor.google.com/pdf/2006Q3_ConfCall.pdf

First of all I dare to say that they have monetised everything from the existing traffic with diminishing growth and they are desperate to buy new traffic in order to monetise it. The biggest problem here that YouTube traffic is not monetisable straight forward if meaningfully monetisable at all. But few figures: Growth in Google.com is in the slowing trend Q3/05 +20%; Q4/05 +24%; Q1/06 +18%; Q2/06 +10.4%; Q3/06 +13.5%. Share of Network Revenue is declining Q2/05 85%; Q3/05 76.3%; Q4/05 72.8%; Q1/06 71.5%; Q2/06 69.6%; Q3/06 63.8% and growth in Network revenue is slowing even more aggressively: Q3/05 +7%; Q4/05 +18%; Q1/06 +16%; Q2/06 +7.4%; Q3/06 +4% (!) What has happen? Partners has figured out how to monetise traffic without Google? Nobody is growing apart from Google (which is slowing down itself)? Click fraud with better audit available to advertisers is taking its cut from "partners" clicks? We can only speculate here, but trend is established and it must be very disturbing to Google management. Cost of this Network traffic is increasing, if you will proper apply TAC to share of Network Revenue you can see following picture: TAC/NetwRev Q2/05 78.4%; Q3/05 60%; Q4/05 78.7%; Q1/06 77.9%; Q2/06 78.7%; Q3/06 79.6%. So total picture is that growth of Revenue on Google.com is slowing to 12-15%; Growth of Network Revenue is slowing dramatically to single digit figures and its cost TAC pushing 80%. Net Network Revenue was Q1/06 205 mil 15.8% of Rev Google.com; Q2/06 212 mil 14.8%; Q3/06 212 mil (!) 13%. Somebody is playing math here? Do you remember how insurance companies like AIG smoothed their earning with "Partner Deals"? Traffic exchange even more easy to regulate or maybe some of the "Partners" in the "Network" in the Family. But no offence Boys - you are hardly pushing any Law here and clear in your intentions: Selling your shares smooth and fast. All written above went straight into the money: Net margin contracted in Q3 vs Q2 from 29.4% to 27.3%. Should I send it to Google? Or they already have these slides for internal use?

Brasil, now Korea then everywhere: Child porn

"Google accused of exposing Korean kids to porn
Search giant allegedly failing to check users' ages
Simon Burns in Taipei, vnunet.com 19 May 2006
ADVERTISEMENT


Google is allegedly exposing children to obscene online content in South Korea, according to government officials quoted in local media reports.
However, state ethics watchdogs claim that they have been unable to talk to the search firm because it does not have a local representative office, the Korea Times reported.
Leading Korean search portals confirm that users are at least 20 years old before showing search results that contain sex-related keywords. Google's Korean search engine does not, the newspaper reported.
Because the search results page includes summary text taken directly from other websites, it may contain language deemed to be obscene.
Although the age of consent in South Korea is 13, the age at which people legally become adults and are able, for example, to marry without parental approval is 20.
Google has had trouble breaking into the Korean market, which is dominated by local companies.
The search giant's share of click-throughs has been estimated at between 10 and 17 per cent by various sources this year, with rival Yahoo holding about 30 per cent.
"Google is not legally required to check whether internet users are over 19 years old before showing the search results for adult content," Han Meyong-ho, an official at the state-run Information Communication Ethics Committee told the Korea Times.
However, Han said that it would be "proper" for Google to check that users are adults in a similar manner to other popular Korean-language search sites, including Yahoo's Korean portal.
Despite Han's claim that his office had been unable to communicate with Google, the Korea Times said that it had spoken with an "unnamed Google official " in Korea.
According to the newspaper, the official claimed that Google was already filtering out adult-only sites from search results. This appears to be a reference to the company's SafeSearch technology."

http://www.infomaticsonline.co.uk/vnunet/news/2156469/google-exposing-kids-porn-sites

Here is official news release from Bloomberg

"D.E. Shaw Sells Its Entire Google Stake, Pares Tech Holdings2006-05-15 17:08 (New York)By Jason Kelly May 15 (Bloomberg) -- D.E. Shaw & Co., the world's biggesthedge-fund firm, sold its stake in Google Inc. as the stock fell6 percent during the first quarter, according to a governmentfiling. D.E. Shaw's sale of 1.46 million Google shares was itsbiggest during the period ended March 31, according to aregulatory filing today. The stake in Google, owner of theworld's most-used largest Internet search engine, was worth about$606.9 million at the end of last year, according to the filing. As the firm, run by David Shaw, sold Google, it bought 1.39million shares in Internet search rival Yahoo! Inc., worth $44.9million at the end of the quarter. Mountain View, California-based Google in January said its profit missed analysts'estimates, snapping a streak of better-than-expected results thatdated back to its initial public offering in 2004. Google is accelerating innovation to fend off competitorsincluding Microsoft Corp. and Yahoo, Google Chief ExecutiveOfficer Eric Schmidt said May 11 at the company's annualshareholder meeting. Shares of Google rose $2.07 to $376.20 at 4 p.m. today inNasdaq Stock Market composite trading. Sunnyvale, California-based Yahoo gained 22 cents to $31.03. Shaw spokesman Trey Beck didn't immediately return a phonecall seeking comment. New York-based D.E. Shaw's total holdings were worth about$38.9 billion at the end of the period, according to the filingmade with the U.S. Securities and Exchange Commission. The firm,founded by Shaw in 1988, bought 5.62 million shares of Royal Bankof Canada, that country's largest bank, during the first quarter. Cisco, Apple Shaw, a former computer science professor at ColumbiaUniversity in New York, is known for using sophisticated computerprograms to pick stocks. Of the 10 stakes that Shaw sold completely, five wererelated to computers, telecommunications or media, includingVodafone Group Plc and Comcast Corp. Shaw also pared its holdingin Cisco Systems Inc., its fourth-biggest holding, by 3.8 millionshares. Shaw's biggest holding is a 9.75-million share stake inApple Computer Inc., worth $611 million at the end of thequarter. The firm increased its holdings of Hewlett-Packard Co.,its eighth-biggest position, by 2.6 million shares.--Editor: MoodyStory illustration: To chart the share performance of Google, see{GOOG US GP }. For a rundown of funds' activitiesduring the first quarter, see {NI 13F }.To contact the reporter on this story:Jason Kelly in Atlanta at (1)(404) 507-1307 orjkelly14@bloomberg.net.To contact the editors responsible for this story:Emma Moody at (1)(212) 617-3504 or emoody@bloomberg.net."

Google against Who Is Who in Hollywood and Broadcast business

"NEW YORK, Feb 12 (Reuters) - A group of major media companies has accused Google Inc. (GOOG.O: Quote, Profile , Research) of benefiting from the sale of pirated movies and providing business support to two Web sites suspected of offering access to illegal film downloads, the Wall Street Journal said on Monday."

What is most interesting here is the list of companies alleging Google of Evil doing:

"The media companies, which the paper said include News Corp. , Viacom Inc. , Sony Corp., General Electric Co.'s NBC Universal, Time Warner Inc. and Walt Disney Co. , allege that Google deliberately directed traffic to Web sites that were engaged in fostering piracy, the paper said, citing people familiar with the matter."

"Google reportedly helped film pirates
Major studios charge Google suggested keywords such as 'bootleg movie download,' and 'pirated.' Search engine execs pledge reform."

This is serious, as predicted here Content providers will not just sit and watch how their money are stolen with the speed of light in the bandwidth. Just one week ago on Bloomberg Disney CEO has put: we need to draw a line where the marketing becomes something different when actually we must be paid for(phrasing is mine S.). Authors writing books will prevail, not catalogs or even best searching engines in the libraries, all IP industries are threatened by Google approach and it is ridicules to think that it will be sustained in the long term or you can base your business model on it. Google is fighting on too many fronts right now and its core consumer product is deteriorating: any search engine which will be able to bring you really precious relevant results without ad spam will send Google into oblivion. Just look what happen to the web thanks to paid search now, how many percent of it is just parking sites full of ad spam without any original information. Do not go further then my Yahoo! back link counter on this blog: 30% of links are just parking sites with Key Words.

Google GOOG YouTube will continue to be a money drain.

News are old, but with a new meaning in the recession times: Google can not monetise its 1.65 billion investment, revenues are not material (200mil for 2008 is estimated) and it is officially a money drain from other profitable business. When you consider running costs for all those blades and bandwidth eaten by huge video traffic the picture will become even more bleak.

From: Google: We Can't Figure Out How To Make Money On Web Video, Either

"Of course, one other obvious solution to YouTube's sales woes would be to simply start advertising on YouTube pages, period. Nearly any page you see on the site today is ad-free. But Google is showing a billion clips a day. Why not simply start loading some of those pages with AdSense units?
Because of the other big admission in the WSJ story -- Google is afraid to sell ads on 96% of its inventory:
Fearful of fueling allegations that it is profiting from copyright infringement, Google will only sell ads against YouTube clips that have been posted or approved by media companies and other partners -- roughly 4% of the total, says one person familiar with the matter.
The story ascribes Google's fears to the billion-dollar Viacom suit, but we think that's not fair: Even if Philippe Dauman ends up settling with Google, it's not going to resolve the copyright cloud hovering over YouTube. So either Google's going to need a legal ruling that gives it the go-ahead to make money on its copyright-violating inventory -- or it's going to have live with diminished expectations for its $1.65 billion business."

Hard Data on Google Bear Case

Lets keep all media hype away and quick short covering amusement following it and check out Google's development in recent Q in order to try to understand its valuation compare to its piers. Upside now is known and everybody is on Buy side with price target 600 (+30%). Shorts are killed and short ratio is less than one day trade, no easy money for upside after yestoday short covering left, somebody has to start to buy into this story at this 460 level. First Google came with Rev 2.69 billion which is less then 2.76 which I have projected from PWC predictions of 16-18 billion online ads market in 2006 with Google Share of 40.5% of this market in Q3 (seasonal trend applied) So, first Google did not manage to increase its market share in Q3. Second, lets look at earnings GAAP ($) Q1 1.95, Q2 2.33 (+19%), Q3 2.36 (+1.3%!?) Earnings growth dramatically slowed. Third, revenues: Q1 2.25, Q2 2.46 (+9.3%), Q3 2.69 (+9.3%!?) math's precision or can I smell some cooking oil here? 44% of revenue is coming from international business. All hitfarms are located in pure "international "destinations India, China, Malaysia, Russia etc. Revenue growth is slowing with increased risk of cutting back on advertisement due to economy slowdown and click fraud awareness buy the customers. Fourth, Net cash from operations Q1 0.825 (37% of Rev), Q2 0.841 (+2% 34% of Rev), Q3 1.0 (+19% 37% of Rev) Capex Q2 0.699 (0.319 Real eastate 0.380 "normalised"), Q3 0.492 (+29%!) So Google Capex increase is really much bigger then their Rev growth 29% vs 9.3% with constant Net cash from operations at 37% Rev, Free Cash Flow is under compression. Total Free Cash Flow for nine months is 1.112. If we will project Rev growth for Google at 12% for Q4 vs 9.3% for Q3 they will make Rev Q4 3.0 (less then based on PWC and 41% of market 3.2) Net cash from operations at 37% of Rev 3.0 will be 1.1, if we apply 20% growth for NCFO in Q4 (vs +19% Q3) we will get 1.2 so lets assume NCFO will be in the middle = 1.15. What about Capex? I think it will be increasing dramatically with moving into video: broadband, storage, new blades, electricity. But if we even aply same growth to capex as to Rev +12% (they said it will be bigger then Rev growth, Q3 was +29%) Capex Q4 will be 0.551. So, Free Cash Flow in Q4 will be NCFO-CAPEX=0.6 and total FCF 2006 will be 1.712 If stock will not move from 460 we have MC=142 billion MC/FCF=83! YHOO is projecting FCF 1.35 in 2006 (lowered recently) with MC at 32 their ratio is MC/FCF=24 If the Google will manage to make even 2.8 EPS in Q4 (+19%) (do not forget annual charge for all those "to be expenced option related expences which they did not account in past Qs) GAAP 2006 will be 9.44. So with GOOG at 460 we have company with 2006 est MC/FCF=83, P/E=48.7, P/S=14.2 with slowing growth in EPS and Revenue and most important with dramatic compression in FCF. YouTube will bring dilution, much more CAPEX in Video Game and No revenue so far. What is the more reasonable valuation of Google: if we give GOOG MC/FCF=40 (69% over YHOO for leadership and "strength") MC with 1.712 FCF must be 68.5 billion with 310 million shares outstanding before YouTube diluton it is...221 share price. When MR Market will figure it out I do not know, but I am testing the water with March 2007 460 puts.

Real size of the click fraud problem.

Click fraud a huge problem Study finds practice widespread; many cut back online ads
Verne Kopytoff, Chronicle Staff Writer
Wednesday, July 5, 2006 now part of stylesheet -->

Internet advertisers paid $800 million for bogus clicks on their marketing messages last year, shaking confidence in the industry and prompting many to reduce spending with Google, Yahoo and other Web sites, according to a study to be released today.
The survey, by Outsell Inc., a market researcher in Burlingame, is one of the most detailed looks at the nagging, high-profile problem known as click fraud. Advertisers have long complained that major Internet sites don't do enough to combat the practice or, at least, disclose the extent of it.
Internet advertisers pay companies like Google and Yahoo every time someone clicks on their ads. The advertisers also share revenue with Internet companies based on how many advertising clicks their Web sites generate. Click fraud occurs when scammers repeatedly click on ads to cause a rival company to be overcharged. In another incarnation, fraudsters place the ads on their own Web sites and then click on the links to get a piece of the shared revenue they've agreed to with Google or Yahoo.
In today's report, advertisers say that 14.6 percent of all clicks are bogus. Moreover, three-quarters of advertisers said they had been victims at least once.
The perception of pervasive fraud has prompted many advertisers to change their spending. Many are asking why they should fork over money - significant amounts, in some cases -- for phantom shoppers.
The study found that 27 percent of advertisers reduced or stopped spending on click-based advertising. An additional 10 percent said they intend to curtail spending.
"In our opinion, it is not acceptable that advertisers fund the illicit profits of the scammers," Chuck Richard, vice president of Outsell, said in the report. He added that the fraud is easy to get away with and that Web sites have done little to stop it.
Gaude Paez, a spokeswoman for Yahoo in Sunnyvale, denied that her company is lax about click fraud. Rather, she said, Yahoo rigorously polices the problem with a range of automated filters so that customers aren't excessively charged.
Through the years, Yahoo has detected and declined to bill for billions of dollars in suspect clicks, Paez said. Users can always request refunds if they believe that they were erroneously billed, she added.
Outsell found that 7 percent of advertisers request a refund, netting an average of $9,507. Unsolicited refunds were paid to 4.2 percent of advertisers, with an average of $9,444 coming from Google and $4,068 from Yahoo.
Some advertisers who say they have been defrauded may be mistaken, Paez said. What looks like an unusual spike in clicks, for example, may actually be the consequence of a particular search term suddenly rising in popularity because of a news event or a holiday.
A spokesman for Mountain View's Google didn't respond to a telephone call seeking comment.
Advertisers have sued Google and Yahoo, claiming that the companies fail to filter enough of the fraud. Both recently reached settlements in separate class-action lawsuits over click fraud.
Outsell's survey was based on the responses of 407 online advertisers representing a cross-section of U.S. business. Their spending ranged from several thousand dollars online annually to more than $10 million.
That some of the advertisers cut some of their spending had a big effect on the finances of Google, Yahoo and other Web sites, according to Outsell. Combined, they missed out on $500 million in revenue in the United States, according to the report.
Still, the U.S. Internet advertising industry grew in 2005, as did Google and Yahoo. Such marketing, called pay-per-click, was a $5.5 billion business overall.
"Regardless of how impressed anyone is with the growth of pay-per-click advertising, it's dragging an anchor behind it," Outsells's Richard said in an interview. "It could be much larger."
Paez said that her company's business is still healthy. "We continue to see a lot of advertisers joining the network and increasing their spending," she said.
Ads priced by the click appear most frequently on search engines, in the margins next to results. On average, the advertisers paid $1.39 for each click on their ads during the first three months of the year, according to Fathom Online, a search engine advertising company in San Francisco.
The ads, which appear as mostly text and a link, are usually specifically tailored to the search terms. For example, a user who enters the query "beach vacation" will typically see ads from travel companies.
Richard said that major Internet companies could help improve their perception by advertisers by being more transparent. Google and Yahoo decline to make public any internal data about click fraud for competitive reasons and for fear that fraudsters could use the information to get around the defenses.
The stance has frustrated many advertisers through the years, who say they should know up front what level of fraud to expect and how many illicit clicks they get and when. Previous estimates have calculated the amount of fraud at between 10 and 30 percent of all clicks.
Richard said that dissatisfaction with click-based advertising is fueling the drive to a different type of online marketing that he insists is better for merchants. The idea, sometimes called cost per action, would require advertisers to pay only when a consumer clicks on an ad and then buys a product or asks for a brochure.
Such advertising is gaining popularity, with San Jose online marketplace eBay recently disclosing plans for an advertising network that would farm ads out to other Web sites. The site operators would be paid if visitors click on one of the ads and then buy a related item on eBay within a few days.
"Pay per click is a really rudimentary advertising -- a baby step -- and it's destined to decline and be replaced by other advertising methods," Richard said.
Click fraud
A survey about fraudulent clicks on online advertisements offers a window into a problem faced by many advertisers. Here's some of the findings:
Clicks believed by advertisers to be fraudulent: 14.6 percent
Money paid by advertisers for bogus clicks: $800 million (2005)
Advertisers who said they were victims of click fraud: 75 percent
Advertisers who said they reduced click-based advertising or plan to: 37 percent
Revenue lost by Google, Yahoo and other Web sites, as a result: $500 million
Advertisers who request refunds because of fraud: 7 percent
Average refund: $9,507
Source: Outsell Inc.
E-mail Verne Kopytoff at vkopytoff@sfchronicle.com.
Page C - 1

Google Hunting Seasons Begins

Prise is 11 billion cash position. As it was written before: "you can not base your intire business model around stolen content, Guys you must try harder for 140 billion market cap. Prize to "defend America" is in Google's Peggy cash position of 11 billion dollars. It is too big to miss, expect more law suites and more Heavy Weighters joining the Hunt". The rush will be to sue Google until company has enough money to pay, with slowing growth and broken technical strength stock is due for the hard times:

"SAN FRANCISCO (MarketWatch) -Viacom Inc. has filed a $1 billion lawsuit for copyright infringement against Google Inc.'s YouTube unit, alleging that more than 160,000 videos of its content have appeared on the free video-sharing Web site without Viacom's permission.
The suit, filed in U.S. District Court in New York, also asks that a judge bar YouTube from allowing its users to post any copyrighted videos.
Viacom is the first entertainment giant to file a copyright infringement lawsuit against Google since the No. 1 Internet search provider bought YouTube for $1.65 billion in stock last year. At the time of the purchase, announced in October, insiders predicted a bevy of copyright lawsuits would follow.
The Viacom lawsuit illustrates the difficulty Google and YouTube have had in reaching licensing deals with entertainment companies whose videos appear on the site . Viacom had been in negotiations with Google to license its content, it said, but talks have since ended.
"Their business model, which is based on building traffic and selling advertising off of unlicensed content, is clearly illegal and is in obvious conflict with copyright laws," Viacom said in a statement.
The litigation follows a demand by Viacom earlier this year that YouTube remove 100,000 video clips from its shows, including "The Daily Show" and "The Colbert Report." It was the largest such demand YouTube faced from a copyright owner, and the Web site complied with the request within a week.
Viacom adds that "YouTube's strategy has been to avoid taking proactive steps to curtail the infringement on its site, thus generating significant traffic and revenues for itself while shifting the entire burden - and high cost - of monitoring YouTube onto the victims of its infringement."
The lawsuit also touches on the challenges faced by YouTube and other video sites that let anyone upload videos, seemingly without any oversight.
Relying on user generated content has helped YouTube become one of the most popular sites on the Internet, but it's also opened the door for pirated content, and as Viacom has shown, potentially costly litigation.
A representative for Google and YouTube didn't immediately return a call seeking comment. Ben Charny is a MarketWatch reporter based in San Francisco."

Google GOOG Earnings and Growth are Falling further

The most important ring bell for all Google shareholders should be falling by 12% margin from almost constant before 33% to 29% of revenue. With increase in revenue of 58% Y/Y Google demonstrated falling growth rate of -25% Y/Y. Google network growth is falling even more faster by -38% Y/Y due to heating up competition. Net Income actually fall from 1billion to 0.9 billion comparing to the 1st q 2007. Total cost and Expenses are growing 116% faster then revenue growth rate Q/Q. Sales per head is down by -6%. With all this deteriorating fundamentals investors still were ready to pay last Thursday 548.59 which brings Google to valuation of P/S=12.9, P/E=47, P/FCF=74. Even if Google could justify P/FCF=40 with slowing growth and falling margin share price has to have a dive into 300.00 territory. The problem here could be that on the way down support of the company could be devastated by losses and Google could become victim of its own success. Licencing and other revenue is still around 1% of total revenue and falling in absolute figures. All risks of one trick pony related to Search business where competitors literally one click away remains. This results are second in line with deteriorating fundamentals after slowing growth and earnings trends in Q1 2007 discussed here. How long could management be allowed to run the company based not on fundamentals but on "competitive landscape" will depend on its shareholders. This analyses is based on Google own published report.