Google Inc. has set Thursday as the deadline for investors to register for its initial public offering, moving forward with plans to auction off shares even as it and others offered fresh cautions about the search engine's future revenue and profit prospects.
Investors wishing to participate in Google's initial public offering have until 5 p.m. Thursday to register for the auction at ipo.google.com, according to a statement issued yesterday on the site. After that, Google anticipates that brokerage firms will begin to accept bids for its 25.7 million shares. The company has estimated the range of its IPO to be $108 to $135 per share.
Google's public offering has been eagerly anticipated by investors hoping to snap up an early stake in one of the technology world's brightest stars. But many analysts, and even Google itself, have warned repeatedly about the risks. Yesterday, the company and others warned that some of Google's past profits may stem from practices some are now calling into question.
In a new filing with the Securities and Exchange Commission, AskJeeves Inc., a business partner of Google's, disclosed that both companies are defendants in a class-action lawsuit filed Aug. 3 that seeks to recover online gambling losses incurred by California residents during the past four years. Google was included in the suit because it once profited by distributing casino ads enticing people to gamble. In April the company announced it was stopping the practice, but some gambling sites have managed to take advantage of the search engine's automated systems to continue to air their ads, in defiance of Google's new policy, experts said.
"This could pose a problem for them. There is enough evidence of things slipping through the cracks," said Andrew Goodman, author of a forthcoming book on Google and the owner of Page Zero Media, a firm that devises online marketing campaigns.
Google declined to comment on the lawsuit.
In addition to gambling ads, Google said in its latest SEC filing that some people have found other ways to manipulate its computerized ad system, sometimes in ways that inadvertently generate revenue for the company.
For instance, Google charges advertisers based on how many people click on their ads. During a recent Internet search industry conference, experts described how some businesses have actively sought to hurt competitors by devising ways to click repeatedly on their rivals' ads, raising the cost of the ads.
"We are exposed to the risk of fraudulent clicks on our ads," Google said in its latest SEC filing. "We have regularly refunded revenue that our advertisers have paid to us and that was later attributed to click-through fraud, and we expect to do so in the future. . . . If we are unable to stop this fraudulent activity, these refunds may increase. If we find new evidence of past fraudulent clicks we may have to issue refunds retroactively. . . . This would negatively affect our profitability, and these types of fraudulent activities could hurt our brand . . . which could lead to loss of advertisers and revenue."
Google is trying to combat the problem through automated computer programs that detect unusual clicking activity and has formed an internal investigative team to police online misbehavior, people familiar with the matter said. Google views the problem as an important industry issue that must be addressed broadly to avoid a loss of confidence among advertisers, people familiar with the search engine's perspective on the matter said.
Industry experts said click fraud and online gambling ads pose a threat of unknown magnitude and could grow.
"All of these issues are worrisome," said Scott Kessler, an analyst with Standard & Poor's Corp. "It definitely could negatively impact growth prospects."
"Click fraud is going to happen on some scale," said Andy Beal, vice president of Keywordranking.com, an online marketing firm. "I don't think it will become a huge issue."
Google also disclosed in its SEC filing that it facing a growing number of pending trademark infringement lawsuits that could prove costly and hamper growth. Google, a defendant in lawsuits in France, Germany, Italy and the United States, already has been forced to curb some of its business practices in Europe, though no cases in the United States have gone to trial.
The trademark lawsuits allege that Google improperly profits by trading on the registered names of other companies in its ad programs. Geico Corp., the local insurance giant, Louis Vuitton and a coterie of other firms are seeking to stop Google from selling ads linked to searches based on their product names and trademarks. Yahoo has a more restrictive policy on the use of trademark names in ads.
"Google derives 95 percent of its revenue from advertising. A substantial percentage, we believe, comes from the sale of trade names and brand names," said David Rammelt, a lawyer who is representing American Blind and Wallpaper Factory in a trademark lawsuit against the search engine. "A company cannot hijack the brand name and reputation of a trademark owner and sell it to its competitors."
Google officials declined to comment on the issue. This week, the company paid Yahoo an estimated $328 million in stock to settle an unrelated patent dispute, which Google said would force it to report a loss for the quarter.