By now you are probably asking yourself, “If we know ad fraud is massive, and we know how it’s done, why is it thriving?”
It’s a damn good question!
The Risk Factor
The first reason is probably the easiest to understand. With ad fraud, there is almost no risk. Prosecution for ad fraud is essentially non-existent. In fact, in many jurisdictions its status as a crime is not even clear.
A great deal of ad fraud, like so much web activity, is transnational. While the malefactors may be on one continent, the victims may be on another. The laws in one country may be quite different from another. The cultural concerns about fraud may be intense in one country and nowhere to be found in another. Does the government of North Korea really worry about fraudsters in its jurisdiction who are extracting money from clueless American corporations? It is quite likely that there are hostile governments themselves who are sponsoring some of the fraud.
Even within jurisdictions there is skepticism. Is it really a government’s responsibility to babysit the foolish and irresponsible advertising investments of corporations? Many would say no. If corporations and trade organizations aren’t even willing to acknowledge the problem and take vigorous action to protect and defend their own dollars, why should governments?
Perverse Incentives
All along the money chain, the incentives to acknowledge and attack ad fraud are missing. You would think that advertisers, who are the primary victims, would be heavily incentivized to do something about it. They are not.
The chief marketing officers of most corporations, who are responsible for marketing expenditures, have been promoting the benefits of online advertising to their stakeholders (CEOs, CFOs, Boards) for years. It is not in their best interest to look like fools who have been taken to the cleaners and have wasted millions (in some cases tens and hundreds of millions) on fantasies.
Here’s a note I received from a very smart former ad executive I’ve known for years who is now working on the marketing side:
“Now that I’m ... on the client side, I’ve noticed something: It’s in nobody’s interest for digital ad numbers to be true as long as they’re good. Whether that’s ‘reach’, ‘engagement’ or whatever other idiotic measure they use.
“The client wants to see numbers go up every month, regardless of their value or truth. Same for the media planner and buyer. Ditto for the account team and the creative guys. No one will question the efficacy of the numbers because they love showing the CEO (who understands nothing about marketing) that we gained x number of followers, reached an additional y people, and z more people saw our ‘content.’
Everybody is in on the con. None of the involved parties want anyone to examine the numbers as long as they’re good. No one. It’s pathetic.”
Ad agency holding companies have invested heavily in adtech businesses. One would not be overly cynical to wonder if their enthusiasm for online advertising was driven in part by self-interest. Some agencies derive 40% or more of their revenue from online advertising.
There are also perverse incentives in ad agency and adtech compensation models. Most agencies are paid on volume, not quality. The more advertising they buy the more money they make. For the most part, they make the same commissions and fees whether they are buying fake audiences or real audiences; fake websites or real websites.
The illustration below, from the World Federation of Advertisers, charts how money flows through the programmatic advertising system. For the most part, agencies receive the same compensation regardless of how much fraudulent advertising they are inadvertently buying. They make their commissions before the fraud.
It’s not that the agencies are complicit with the fraudsters, it’s just that they have no financial incentive to do very much to protect their clients’ interests. Instead, they hire inadequate fraud detection companies to cover their asses, and like CMOs, tell their stakeholders that it is the other guys who are getting screwed, not them.
Fraudsters have tremendous incentive to be aggressive. They can make enormous amounts of money. What incentives do agencies have, to play defense? Are they going to make more money? No, it may even cost them money. A typical programmatic ad buy will include thousands of websites. It’s much easier to employ questionable fraud detection vendors who do perfunctory scans than to forensically analyze the code behind ad activity on tens of thousands of websites.
Information Asymmetry
Throughout the programmatic money chain sellers have information that buyers don’t have. What most advertisers don’t understand is that the reports they get on traffic and clicks are often unreliable. These reports contend that visitors are real but they are not. As the World Federation of Advertisers says, “ ... reporting validates a visitor to be authentic, but it is actually fraudulent.”
Advertisers have no choice but to rely on these questionable reports because the alternative is unworkable. Confirming the validity of a report on a programmatic media buy may entail doing forensic analyses on the audience activities of tens of thousands of websites. No one can do this. And yet, believing one of the reports you get from a verification vendor is like believing your 16-year-old’s explanation of how the car door got scratched.
Information asymmetry always leads to problems. People and organizations think they know things that they don’t really know. Meanwhile people who have better information are in a position to take advantage of their information superiority.
Everything the ad tech industry has ever told us about privacy and security has, in the fullness of time, been shown to be horseshit. The truth is, they are incompetent, irresponsible, and dangerous. On May 24, 2017, the Association of National Advertisers and its cyber-security consultants at White Ops announced that based on a study they had conducted, online ad fraud would drop 10% in 2017. The CEO of the ANA said, “Marketers
worldwide are successfully adopting strategies and tactics to fight digital ad fraud ... ” Just one week later, Check Point, a software technology company, announced a previously undetected fraud operation called “Fireball”. Check Point reported that Fireball had infected 250 million computers and 20% of corporate networks worldwide. Forbes said, “ ... [it] might be the biggest Android ad fraud ever.”
There are very few in the marketing and advertising world who understand the intricacies of programmatic systems. There are even fewer who can go under the hood of a programmatic media buy and analyze activities to understand what is real and what is not.
There are even fewer who have the time, energy, or inclination to analyze the code on the tens of thousands of websites where a programmatically distributed ad will wind up.
A famous case involves Chase bank. They were advertising on 400,000 sites every month. Imagine having to analyze the audience and click activities on 400,000 sites to understand what is really going on. On a hunch, they reduced the number of monthly sites to 5,000 (a reduction of almost 99%) and saw no difference in performance. An astounding number of the sites they were buying programmatically were worthless.
The bad guys are constantly looking for ways to attack whatever defenses the good guys can put up. The good guys are always playing defense. To understand this better, let’s take a brief detour and talk about basketball and hockey. Basketball is a game with rules that greatly favor offense. If you’re playing defense and you breathe too hard on your opponent you’re called for a foul. Consequently, basketball is a game with a lot of offense. You usually have to score over 100 points to win.
Hockey is the opposite. In hockey, the defensive player has some very substantial advantages. You can pretty much maim or kill your opponent and not be penalized, as long as you don’t do it with a tire iron to the windpipe. The result is that four goals are usually enough to win a game.
Ad fraud is like basketball. All the advantage is to the offense—that is, the fraudsters. The criminals have the information, the good guys are searching for it. The gullibility of advertisers is beyond explanation. I guess they must think there is someone somewhere who’s looking after their interests. There isn’t.
Their agencies aren’t protecting them either. It’s not that agencies are complicit in the fraud, it’s just that they have very little incentive to do anything about it. As long as clients keep pressing them for lower and lower media costs they’ll continue to use programmatic methods for buying cheaper and crappier media. Unlike traditional media where lower costs-per-thousand (CPMs) usually indicate efficient buying, in digital media lower CPMs often indicate they are wasting money buying bots, not people.
Their CMOs aren’t protecting them. And worse, they’ve been ramming digital fantasies down their throats for years.
The 4A’s (American Association of Advertising Agencies) isn’t protecting them. The 4A’s has become a lapdog for the big six advertising holding companies, and the big six are feasting at the online ad buffet.
The IAB (Interactive Advertising Bureau) is a cruel joke.
The ANA (Association of National Advertisers) is beyond redemption. So who’s going to protect dazed and confused brands from themselves? Ad agencies have been particularly negligent in educating their clients about how much they may be losing to ad fraud. Online advertising spending constitutes about 2/3 of all ad spending. No one wants to disturb that golden goose. Meanwhile advertisers, seduced by the unrelenting hype about the miracle of online advertising, can’t get enough of the stuff. One can only wonder how strongly ad fraud remediation would be pursued if the beneficiaries were being punished instead of rewarded.
Also everyone thinks it's the other guy that's getting screwed. You see, 'we have systems in place that protect us... blah blah blah... it's the other guys that are getting the shaft.' Everyone thinks it's the other guy. -
Finally, adtech creates a lot of wealth for a lot of people. Nobody wants to mess with that.
If I'm a CMO, and I'm buying fraudulent crap cheap but it generates metrics that make me look good...
...and everyone knows it's 'the other guys' who are getting screwed
...and the ANA says, 'nothing to see here'.
...and my adtech vendors are paying me to speak at their sales conferences and training sessions
... and the only people making noise about this are those annoying jerks and blogweasels who no one pays attention to anyway
... I think I'll just leave well enough alone.
And there one more thing. Read on...