Follow the Money: What's at Stake in Digital Ad Fraud

Here's why advertisers and publishers can't afford to ignore fraudulent practices.

When John Wanamaker famously observed that half the money he spends on advertising is wasted but it's not clear which half, he wasn't concerned about ad fraud. Advertisers and publishers today have much more to contend with as digital fraud muddies the waters.

Millions of online advertising dollars go to waste due to bots, click fraud, and out-of-sight placements, according to comScore, Google, and other sources. Advertisers are not the only ones who are hurt by fraud; the issue has negative consequences for publishers too.

Ad fraud-practices that deliberately deceive advertisers and publishers-is a rising concern in the digital space. As publishers race to meet campaign requirements and draw traffic to their websites, fraudsters are seizing this opportunity to introduce fraudulent or nonhuman traffic.

"Even some of the most respected and high-profile publishers can inadvertently introduce bad traffic into the system," writes Forrester Research analyst Susan Bidel in her report, Ad Fraud: Tackle Digital Ads' Dirty Little Secret And Make Money In The Process. "They may think they are buying from reputable sources, but unless they follow the supply chain through to its end, they can't be certain."

Using bots to register impressions or clicks on ad units is a popular way to drive up cost-per-thousand (CPM) rates. Bots are programs that take over computers and run in the background to generate fake ad impressions or serve unseen ads. As a result, fraud distorts the supply and demand system that governs inventory pricing. Advertisers are paying for nonhuman traffic to their ads and publishers are competing with inventory that doesn't exist or is consumed by bots.

Ad fraud is also becoming increasingly sophisticated. Some bots serve multiple unseen ads behind an ad the consumer sees, and the advertiser is charged as if all the ads had been seen. Others pick up cookies from a website to make it appear that consumers came from certain affiliate sites to collect the commission.

Bots can even imitate the behavior of consumers and watch a video or try to make a purchase. Videos cost more to create, so CPMs are higher against this limited supply, making them a prime target for fraudsters. Bots account for 23 percent of video ad views, according to a report by the Association of National Advertisers (ANA) and White Ops, a bot detection vendor.

Identifying ad fraud
Reports differ on how extensively the ad industry has been infected by ad fraud. According to the ANA and White Ops report, advertisers could lose as much as $6.3 billion in 2015 to fraudulent operators. The study tracked 181 campaigns among 36 ANA members (including Colgate-Palmolive, Johnson & Johnson, Walmart, and Verizon). And a study by Clearstream, a video advertising platform, shows that 55 percent of real-time bidding auctions are fraudulent buys. Clearstream's study is based on more than 3 billion RTB auctions that occurred within three months.

Analytics specialist comScore also dug into fraudulent ads. The company said it analyzed hundreds of digital ad campaigns and found that a relatively small number of ad campaigns actually accounted for the majority of ads served to non-human traffic. About one-fifth of the campaigns measured accounted for three-quarters of the fraudulent impressions recorded, according to comScore.

Half of the publishers tracked had less than 1 percent of non-human traffic running through them, comScore said and 85 percent of the sites had less than 5 percent bot traffic.

"In total, the bottom 21 percent of campaigns contributed 75 percent of all NHT impressions," according to the report, which goes on to note that "many publishers have clean inventory but the few who do notand stream in high volumes of non-human impressions can bring down thevalue of an entire ad buy."

Whose problem is it?
Even if only a small percentage of ad campaigns have been affected by ad fraud so far, the problem will continue to grow until the ad industry takes responsibility for the issue, say experts. "Publishers, marketers, agencies, and ad tech companies are all complicit, either through the actions they take or by turning away from the problem," Bidel maintains.

Part of the problem is that companies see few incentives to tackle ad fraud, adds Brian Geist, a managing director at digital agency Neo@Ogilvy. "There was no benefit to being the first one to clean it [ad fraud] up," Geist notes. "Advertisers want to buy cheap inventory and publishers don't want to give up the revenue." However, as more reports show that non-human traffic is more often found in inventory purchased through ad networks and ad exchanges, ad tech companies "seem to be doing the most to try to stop fraud" Geist adds. "They have the most to lose and so cleaning it up is in their best interest."

Publishers are also beginning to demand more transparency into inventory, such as video. According to arecent study by Integral Ad Science, a media valuation platform, nearly 40 percent of publishers say the Media Rating Council's viewability definition (50 percent in-view for one second) is not aggressive enough. Publishers who embrace transparency can potentially differentiate themselves and help advertisers move away from paying low prices for questionable inventory.

Tackling Ad Fraud
Vendors like Sizmek, comScore, Clearstream, and Telemetry are including ad fraud solutions with their analytics or ad-serving stacks. There are also a few best practices that advertisers can use when buying inventory, says Brian Mandelbaum, Clearstream founder and CEO.

For instance, when buying video inventory, "be very specific about your requirements," Mandelbaum says. "If you're looking for a large video player, by what dimensions? Also, agree in advance on the business metric you're purchasing on. By what percentage is it considered viewable and who will be measuring it?"

Trade organizations like the American Association of Advertising Agencies (4As), the Interactive Advertising Bureau (IAB) and the (ANA) are also targeting ad fraud solutions. Last fall, the three organizations teamed up to form the Trustworthy Accountability Group (TAG), a nonprofit focused on rooting out fraud, malware, and piracy in the online and ad ecosystem. TAG is still "in startup mode" but the organization is developing standards to inject more transparency into the ad industry and combating fraud, says TAG President and CEO Linda Woolley.

"The kinds of standards we're working on will be tailored according to what you do in the ad ecosystem and to determine if you follow certain procedures in your business practices," Woolley says. "They'll be questions like, 'do you vet your agencies?' 'Do you ask them where they're buying inventory?' 'Do they ask for certain attestations about where that inventory comes from?'"

TAG is also working on an accreditation system to assess the legitimacy of businesses. The organization is considering creating an identifier or seal of approval that firms can receive by submitting information about their business, like a tax identification number and how long the company has been in business.

At the same time, it's impossible to completely eliminate ad fraud, Woolley notes. "Fraudsters are clever and they have a lot of resources," she says. "Once one method stops working, they'll just move on to something else. However, creating business standards and having companies identify themselves to get paid can at least reduce the problem."

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