Oct
26
2011

Google Adsense Ponzi Scheme

http://wealth-ed.com/2009/07/will-google-be-the-next-ponzi-scheme-to-fail/

Here is a provocative take on an internet juggernaut: Google is nothing but a giant Ponzi scheme that is coming undone as I write.

This is not an accusation, but more a hypothesis. What gives this hypothesis legs is a recent discovery that Google is aggressively cracking down on so-called “violators” of the terms and conditions of its “Adsense” program. My own website recently fell victim to this ruthless and mindless activity. We have been gradually building our readership and hence our traffic through the combined effort of good, original content of the financial kind, and a parallel effort to monetize our traffic so we can continue offering this commentary at no cost to the reader.

As measured by various metrics tools for the internet, we were succeeding at Wealth-Ed.com and were just beginning to gain some traction with readers. Our writings are picked up now by SeekingAlpha.com and our insights and observations are available to many. Our well-timed pieces on General Growth Properties and more recently on the prospects for natural gas ETF, UNG, caused our views to spike. It was not through any illicit effort to create fictional traffic that our page views increased, but through hard and time consuming work combined with good luck and timing. Naturally, as our traffic increased, so did the balance in our Google Adsense account.

Then, without warning two weeks ago, our account was not suspended, but was permanently canceled by Google, apparently for all time. And our Adsense revenues were absconded by Google. Not just this website, but any other website we should ever develop is also barred from any relationship with the Adsense program. Again, there was no warning, no real chance to appeal (only a token automated email appeal form that returned a computer generated rejection). I was floored. How can a company that claims it wants to “do no Evil” justify this malevolence? Google is no longer the white knight, but has become Darth Vader.

We at “Wealth-Ed.com” could not believe that we were somehow singled out from the millions of similar websites that have been created and that utilize Adsense to help pay for the effort in some small way. We had done nothing wrong that we knew of that violated Google’s rules. The relationship between small website or blog developer and Google is supposed to be symbiotic. Small websites like ours put Google on the map.

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Google attracts advertisers because it has such great reach and exposure through millions of small websites. It needs the billions of webpages to provide the internet real estate and associated “eyeballs” to sell to its advertisers. Google depends on small businesses and entrepreneurs more than any other internet or computer based software company. Microsoft , SAP and Oracle all rely on large business customers for the bulk of their revenues. But Google is almost entirely dependent on its ad-based business model that is dispensed through a myriad of startup websites. “Wealth-Ed.com” and all other similar small, entrepreneurial webpages on the “net” allow Google to exist.

So, how does Google figure to go forward by biting the hand that feeds it? This is a question that must be asked by any investor. My only answer is that Google is in big financial trouble that is not yet revealed by their published financial statements. This trouble comes from the same place that has exposed many other Ponzi schemes recently, most notably, Bernie Madoff’s. As the economy falters and advertising revenues dry up, Google is losing its primary source of income. It is no longer able to take money from one source, advertisers, and give it to another, Adsense ad posters, to keep the pyramid upright.

A good Ponzi requires a very convincing story which generates substantial public interest. The Ponzi sponsor then monetizes this public interest by collecting funds with a promise of great returns. The returns are generated by money brought in from other participants, not from any specific benefit created by the Ponzi artist. The Google Ponzi speculation is a little more subtle, which also makes it a little harder to uncover. Its scheme is supposedly made legitimate by a multi-paged, “fine print” contract that gives it the ability to shut down any website for just about any reason imaginable, or no reason at all except at the whim of Google. But is this contract really legal and enforceable?

As we started researching the crackdown on small businesses, we uncovered that there are thousands of others in the same situation. Many of our fellow small website developers have written about their own experience and loss of Adsense revenues. Many describe that it happened to them just as it happened to us: with no warning, no real chance of appeal, no one at Google to talk to, and unilateral confiscation of all their earned Adsense revenue. One such participant, Aaron Greenspan’s “Think Computer”, was officed in the same county in California as Google, Santa Clara. Greenspan took Google to small claims court…and won! (and then lost on appeal to a bevy of Google lawyers). I am sure Google knows that most web owners are not in a position to sue and wanted to drive the fruitlessness of litigation home by the appeal. Once again, Google demonstrated its utter contempt of the same customers and business partners who have made it what it is.

As Google continues to cut off its advertising partners reducing the number of ad page views what will the advertisers think? Google’s viewership will be greatly reduced and so will their ad traffic. The advertisers will respond by cutting back even further on their advertising. Google revenue will subsequently fall as will its profits, which may turn to losses given the enormous overhead created by the recent reckless moves by the management of Google.

The Google stock has a lofty price and multiple to earnings. It is valued as though it will continue to grow at 20% a year well into the future. But, if ad revenues and profits drop as we think they might, Google stock should be sold or shorted. Google’s latest attempt to remake itself into a full-featured business software company will cost it a king’s ransom. Taking on Microsoft, Oracle and SAP on their own turf could be the demise of Google. Hubris has its costs. Shorting Google stock is how we plan to recoup our losses of Google Adsense revenue.

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