I don’t want to get into the whole debate over how big “click fraud” is — with some estimates as high as 14 per cent of all online pay-per-click advertising (in which Google and Yahoo are the leading players), and Eric Schmidt of Google arguing that the problem is self-correcting (something Mark Cuban takes issue with). Google is also trying to settle click-fraud related lawsuits.

I do think it’s interesting to watch the markets, including the black and grey markets, find ways of profiting despite Google’s restrictions on click fraud — which can involve either paying people to click on your ads (if you run a website), or paying people to click on your competitor’s ads (if you’re an advertiser who wants to drive up your competitor’s costs). When it comes to the former, there are stories popping up all over about offshore “click farms” where impoverished families in India make money by clicking ads — the 21st-century equivalent of stuffing envelopes.

And a reader named Mike just sent me a link to something he came across at the Blogging Stocks blog: auctions on eBay that sell the services of click-fraud artists. As the post describes it, there are half a dozen auctions with titles like “5 Google Adsense Ads Clicks Hits Each day for 5 Days” (Buy It Now for $1.99) that advertise how they “Don’t deal with worthless hits/clicks. These are real people clicking on your Adsense ads. Real money flowing into your Adsense account.”

They advertise how they arrange it so that multiple clicks don’t come from the same IP address in a 24-hour period, since that would trip Google’s fraud filters. No doubt some of them will be found out anyway, but others will spring up — it’s like Whack-A-Mole. And of course there’s always ClickMonkeys.

Could pay-per-click be on its way out, as my friend Scott Karp has argued? And if so, what replaces it — cost-per-action? No doubt fraudsters will find a way of gaming that too. For what it’s worth, my friend Markus from PlentyofFish, who knows a lot about online advertising, says there’s a lot of hype about click fraud, and security consultant Bruce Schneier has some thoughts at Wired News.

Google has responded on its official blog to the post about Eric Schmidt’s “let it happen” comments (hat tip to John Battelle).

I’ll admit that I’m as much of a fan of the contrarian argument as anyone — maybe even as much as my buddy Scott Karp over at Publishing 2.0. But I think he and some others are a little too quick to congratulate Seth Jayson of Motley Fool for his insight into how Google is “killing the Internet,” as the Foolish columnist puts it.

The first thing that bugged me about Seth’s column wasn’t that he blames Google for all the spam-blogs and other crap on the Internet, it was the fact that he started off with a crack about all the insider stock selling at the search company — and he comes back to it at the end, as though all those insider sales are a clear indication that Google is pulling one over on the stock market. This one has been tossed around a fair bit since the news came out that Google’s insiders sales accounted for about 51 per cent of all the insider selling in the Bay area in the first quarter.

There are a couple of problems with that line of argument, however, and the first one is kind of obvious: Who in their right mind wouldn’t sell some of their stock if it had gone up by more than 500 per cent? And the other problem with the argument is that the vast majority of those massive share sales by Eric Schmidt and Larry Page and Sergey Brin were pre-programmed long before Google’s stock rose to the heights it is at now. If you look at the insider transactions in Yahoo Finance, you will see the words “automatic sale” beside almost every single one of them.

Don’t get me wrong. I think Seth and others have a point that Google’s click fraud problem could be larger than many investors (or advertisers) expect. But it’s stretching things to say the company is somehow killing the Internet. I remember what search was like before Google came along, and it is a hell of a lot better on balance. The volume of junk mail doesn’t mean the postal system is broken — it just needs to be managed better. And all those insider sales prove exactly nothing.

Former Merrill Lynch and Oppenheimer analyst Henry Blodget of Internet Outsider – which is where Henry pretends to still be an analyst, even though his legal settlement with Eliot Spitzer prevents him from actually becoming one again – has posted a long rant about Google announcing a proposed settlement in a “click fraud” case. Among other things, he seems upset that the search company disseminated this info by posting something on the official Google blog. Here’s what he says:

“To make matters worse, the company released its “statement” about the settlement on its blog. A $90 million payout on a critical issue at the forefront of every Google observer’s mind… and the company has an anonymous associate general counsel type up an “update” on a freaking blog. Google needs some new PR people, and it needs them now.”

Anyone agree with that? I’m not sure I do. I may not believe that the traditional press release is dead, but I would agree with Steve Rubel that blogs are serving the same function for many companies – and rightly so. Why shouldn’t Google put out news by posting something to the blog? I assume the company is still complying with disclosure in other ways, such as filing to various securities-related newswires and so on. And smart reports for wire services are watching the Google blog and filing stories about what they put there.

Want to keep up with Google’s statements on something? Subscribe to their RSS feed. I’m not sure why Henry thinks this is such a huge deal, unless it’s that blogs are somehow a joke and “real” companies do things the old-fashioned way, by sending out press releases and email spam and so on. How is posting on a blog any different than putting a press release on your website? Plenty of companies do that and no one complains.

Update:

Henry has expanded on why this bothered him. Still don’t see it, Hank.