Google Gouging? The Cost to Advertisers of Unwanted AdWords Clicks

Things are tough all over, but this seems a bit extreme.

The issue is that some advertisers claim Google is manipulating its search engine in ways that cause them to pay more than seems reasonable. Google, not surprisingly, defends its system. Cavet emptor - let the buyer beware -is the dominant ethos in business. Frequently auditing whatever performance one is paying for is the sensible approach.

Buzzmouth has the story:

"Some advertisers on Google Inc.’s search engine say a little-known feature of the company’s AdWords ad system is causing them to overpay.

The advertisers, including high-end medical professionals, said their ads for services such as cosmetic dentistry or plastic surgery are showing up even when Google users search for unrelated topics such as haircuts or limo services.

Some of the advertisers said when their ads were placed next to search results for unrelated topics, Google users were much less likely to purchase their product or service after clicking on the ads. Advertisers pay Google each time a user clicks on a search ad.

Jeff Dorfman, a cosmetic dentist in New York, said the issue—known in industry parlance as “session-based clicks”—has cost him approximately $3,000 in wasted ad spend of the total $40,000 spent on AdWords ads since late 2009.

Nick Fox, vice president of business product management for the ad system, said AdWords ads work in the “overwhelming majority” of cases.

The scope of the issue is unclear. Some businesses that manage AdWords accounts for advertisers say session-based clicks can lead to wasted spending of more than 10% of an AdWords budget. Medical and other professionals in large metropolitan areas that compete for Web traffic to get new clients appear to be among the most affected, according to interviews with advertisers. Still, several contacted about the issue said they don’t see it as a big problem.

It’s also unclear whether the complaints about session-based clicks will impact the financial might of AdWords, which accounted for most of Google’s $24 billion in revenue in 2009. But at least one advertiser has halted his AdWords account after learning of the issue while others have limited the scope of their ad campaigns in order to minimize session-based clicks.

AdWords, which allows advertisers to place bids in an automated auction to have text ads show up next to search results, has faced prior criticism. Several years ago, Google and Yahoo Inc. settled separate class-action suits by advertisers who claimed they were improperly billed for clicks that didn’t lead to genuine customers. The problem, known as “click fraud,” was often caused by hackers using sophisticated computer programs to automate phony ad clicks. Google said it has long been under control and advertisers aren’t charged for fraudulent clicks that it detects.

The current issue of session-based clicks began in mid-2009, when Google allowed advertisers to view reports of search queries that brought up their ads. Some advertisers noticed a feature, which the company said it began more than three years ago, to automatically show an ad several times during a search session even if the Google user started to search for other things.

Google’s Mr. Fox said the session-based feature is meant to match ads to users who are doing tasks that can take multiple searches, such as looking for a job or shopping for flowers.

Mr. Fox acknowledged there are “edge” cases in which search queries “does not appear to be relevant to the ads, but the context of previous queries indicated that the user would have a strong interest in that advertisers’ ad.” In addition, he said, “a user must be interested enough in an ad to want to click on it.” He said a very small percentage of ad clicks are session-based and that advertisers can limit the scope of their campaign to halt session-based clicks.

AdWords has won some plaudits from advertisers. David Szetela, whose agency, Clix Marketing, manages AdWords accounts for clients, said he believed the session-based feature was helping them.

“If I get a chance to show my ad twice to someone who expressed initial interest, I’m happier,” Mr. Szetela said.

That hasn’t mollified some advertisers. Mr. Dorfman, the New York dentist, said he wanted to show his ads when people searched for things like “cosmetic dentist nyc” or “orthodontist.” But last August, after downloading a comprehensive report of AdWords charges, he saw there were session-based charges for unrelated searches.

For example, Mr. Dorfman said he was charged between $5.36 and $7.26 per click when Google users clicked on his dental ad after searching for “penis enlargement” and “[Chinese characters] in nyc Chinatown,” respectively.

After email exchanges with Google last fall, he said the company gave him a $300 credit but a representative told him his account experienced “expected, normal behavior.” Mr. Dorfman said the Google representative added that his ad likely showed up next to search results for “penis enlargement” because the Google user had earlier searched for “dental implants,” another medically related term.

Google’s Mr. Fox said: “It has to be the case that the users, in the very recent history, searched for terms he’s advertising on.”

Jon Perlman, a Beverly Hills plastic surgeon, suspended his AdWords account last year after he found out he was charged for what he called irrelevant search terms such as “oliva newton john photo” and “tattoo removal studio city.”

“At eight dollars a click, it seems inefficient and unfair,” said Mr. Perlman.

The session-based feature also has troubled some AdWords consultants. Stephen Murphy, whose Australia-based firm PayPerClick manages AdWords accounts for more than 130 clients, said he believes the feature causes advertisers to waste between 12% and 14% of their budget unless their account settings are adjusted.

Mr. Murphy said he looked at which Google users who clicked on his clients’ ads ended up buying a product or service from the client, known as a “conversion.” Within campaigns that let Google use a default setting called “broad match” to trigger the appearance of ads, the rate of conversion for session-based clicks was much lower than non-session-based clicks.

Two others, Richard Fergie and Brian Carter, said they found similar results when studying client accounts.

A Google spokesman said: “Although performance will vary from advertiser to advertiser, session-based clicks in the broad match category perform comparably to non-session-based clicks.”