The $ 8.2 billion fraud problem in online advertising that everyone ignores

Despite the growing popularity of mobile applications such as Peace, Blockr and Ghostery, in 2016, ad blocking seems to be the least worrying about digital advertisers.

According to a report released by the Interactive Advertising Bureau (IAB) last December (this report, by the way, is the first study of this kind), the losses caused by frauds in advertising, on average, amount to $ 8.2 billion per year. This is about 10% more than the figure of 7.5 billion dollars, which in June 2013 was unofficially voiced by the author of the famous advertising blog The Ad Contrarian, Bob Hoffman, former CEO and Head of the Board of Directors of Hoffman / Lewis Advertising.

A more detailed layout of fraud by category is as follows:
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• $ 4.2 billion lost due to bot traffic;
• $ 1.1 billion lost due to display of malicious ads;
• $ 2.4 billion was lost due to illegal content (copyright infringement).

Losses on “inhuman traffic” originate from the fact that some people simply do not understand the true definition of the term “advertising display”. This term does not imply a person who once viewed an ad. In fact, this is just one request from a certain web browser that informs the advertising network about the possibility to show ads right now. That's all.

If you want to find out more technical information regarding server requests, you can read my post on data analytics from the server (created in the context of digital marketing), which I wrote last year. Let's say that the eyeballs of typical homo sapiens have nothing to do with requests, and this fact makes the data on the shows in advertising reports useless in their essence.

Why is this so important? The fact is that about half of all Internet traffic is generated by robots. Each time a bot loads a web page, the browser sends a request to the ad network to display the ad, and this is considered a paid ad display, even though no one has seen this ad. With this in mind, I categorically do not understand why people still order CPM campaigns (with payment for 1000 impressions). Advertisers pay for impressions that no one sees.

Being a victim of large-scale fraud by the seller

Losses in respect of displaying malicious advertising arise from the actions of website owners, who by all possible means try to increase their income. At best, we are dealing with immoral things, at worst - with illegal actions. As I told during the Performance Marketing Insights (PMI) conference, which was held last year in London, there are 4 common examples:

• Placement of advertising on top of an existing one, as a result of which only site visitors see only the top ad (at the same time, all these ads are paid for by advertisers);
• Reduction of ad units to the size of 1x1 pixels and placing them in hundreds on one page, which generates impressions for all advertisers, although in fact the advertisement itself is not visible to anyone;
• Purchase bot-traffic from ad networks, which gives 25-100% of profit margin;
• Automatic redirection of users to landing pages or other sites with advertising content.

All these frauds do not end with the actions of "simple" site owners selling advertising space. According to a study conducted by the Ad Age website in March 2015, kickbacks are being used with respect to the purchasers of advertising and advertising networks.

Advertisers pay money to intermediaries who sell advertising content to display their advertising (whose activities, as we have seen before, may already be suspicious), and the intermediary buys advertising space from advertising networks. Then, as stated in the study, advertising networks transfer part of the money to other units of the intermediary agency. In addition to this, the latter allegedly inflate the price for advertisers, arguing that the increased cost of advertising.
One of the participants of the MediaPost advertising community Reid Tatoris (Reid Tatoris) somehow analyzed the figures in the industry and found out that as a result of using bot traffic and various online frauds, only 8% of all digital advertising shows have a chance to be seen by real users. . In this case, advertisers pay for all 100% of hits.

If you go back to a study conducted by the Interactive Advertising Bureau, another significant component of losses in the advertising industry is illegal content, which means the illegal use of paid software and music without proper payment. However, I would not want to focus on this part.

What advertisers can do

This topic has rarely been discussed in the advertising industry. At the previously mentioned PMI 2015 event in London, the speakers were of the opinion that the future is programmable advertising - and their position is quite logical, considering that they represented companies that, to one degree or another, earn from such advertising. At the same time, speakers at the event ignored questions about fraud, which is inevitable in cases where advertising campaigns are driven by cars.

But the problem lies deeper than it seems at first glance. The bulk of the entire Internet is financed by a general agreement on the following principle: the digital advertising industry provides an equal or greater return on investment (ROI) for businesses than any other digital strategy. If we assume that everything written above is true, and in fact no one has ever seen 92% of all online advertising, then Google, Facebook and countless online news resources that keep us updated on all the events will have big problems. It is not surprising that no one wants to discuss this issue.
So, here are some ways online advertisers can protect themselves and their money before the advertising industry finally wakes up:

• Stop running CPI and CPM campaigns . Campaign based on price per action (CPA) is much safer, their results are harder to falsify. Take into account the performance of advertising, based on the sad statistics above. If you pay $ 0.005 for one impression, then for $ 100,000 that you pay for 20 million impressions, you’ll actually give you only 1.6 million "human" impressions (based on the 8% we talked about above) . So actually you pay 0.06 for the “human” show - and that is 1.150% difference from the original price! To understand how digital advertising pays for itself, one needs to use “human” indicators.
• Block countries with a high percentage of bot traffic . According to Ad Week’s online advertising publication, the rate of “suspicious” traffic in countries such as China, Venezuela, Ukraine and Singapore is 86-92% (for example, in the US this figure is 43%).
• Use special services to detect fraud. Projects such as Forensiq, SimilarWeb, Spider.io, Telemetry, White Ops, can help identify and stop suspicious activities.

As the director of marketing and public relations at Logz.io, which develops software for managing log files, I along with other team members participate in the discussion and definition of the marketing activities of our organization. So far we have invested quite a bit in online advertising, based on the arguments I quoted above. Another proof that we have chosen the right strategy is an investigation initiated last year by 20 large companies regarding their advertising costs.

Time will tell whether other companies will follow us in 2016.