I’ve written before about The Laundromat Called Digital Advertising, observing that “digital advertising is the most scalable, versatile, cost efficient, and safe washing of funds you can find anywhere at any time. But it’s even worse than that — add in international tax evasion, organized crime, funding of terrorists and hate groups, and the concept of vertically integrated bad guys and you get a glimpse into the world of digital advertising today. It hasn’t always been this bad, and there is still some real digital marketing going on. But in the years since programmatic ad tech took off (circa 2012-13), the amount of fraud and other crimes has shot up as well.
In the early days of digital advertising, advertisers (buyers of ads) bought from publishers (sellers of ad space) directly. But with programmatic ad exchanges, ads are placed on millions of websites and mobile apps that no one has ever heard of. Advertisers don’t interact with any of the millions of sites and apps; they just buy ads through one place, the ad exchange. By disconnecting the buyer from the seller, programmatic ad exchanges introduced murkiness — the lack of transparency — into the digital advertising ecosystem. This led directly to much greater opportunity for fraud and other crimes.
Programmatic Ad Exchanges Created More Opportunity for Fraud
Over the years, case upon case of fraud have been documented (e.g. AppNexus, 92% of their inventory was fraudulent); yet everyone seems to forget those happened or simply assumes fraud doesn’t happen to them. But fraud affects everyone from the advertisers, to the good publishers, to consumers. Bad guys set up fake websites, copy and paste some ad tech code onto the sites, and start selling billions of impressions. Prior to the arrival of ad tech (“advertising tech”) fraudsters could never sell ads to the biggest brand advertisers like P&G, Unilever, Coca Cola, etc. Now every manner of bad guys can sell ads to the biggest advertisers that spend billions in digital advertising, and divert those ad dollars into their own pockets under false pretenses.
The fraudsters’ sites have no real human visitors because no one has ever heard of them. So those fake sites “source” 100% of their traffic, from bots. Bots are software programs designed to repeatedly load webpages. Bots can generate as many pageviews as desired; ads load when webpages load, so fraudsters can create 10’s of billions of ad impressions out of thin air, without needing any real human audiences. The same is done with mobile apps, committing ad fraud by loading billions of ad impressions under false pretenses.
Middlemen Make More Revenue By Allowing Fraud to Continue to Grow
The 100s of billions of ad impressions created by fake sites and apps are sold to big advertisers through programmatic ad exchanges. One would assume that the exchanges would be more strict about not letting in fraudulent sites and apps to sell ad inventory through their exchange. Some are strict; but others value their own revenue growth more than being strict about who not to let into their exchange. If these sites and mobile apps are generating large numbers of ads, and therefore ad revenue for then, they happily welcome them and let them stay. They may even relax the rules for “high income producers.”
Similarly, media agencies love the big numbers of ads they can buy through ad exchanges, and the low prices. Fake sites can afford to sell ads a far lower CPM (cost per thousand) prices than real, mainstream publishers, because the fake sites have no cost of content; they don’t have real writers and editors making real content. In fact some fake sites just plagiarize all their content or have no content at all. No one notices, because no humans ever go to these sites. Even the advertisers (buyers of the ads) have never visited these sites; so they successfully sell billions of impressions to them via the ad exchanges and media agencies. The media agencies depend on fraudulent sites to continue selling low cost ad impressions, so the agencies can please their clients by showing larger numbers of impressions purchased, at lower average costs, quarter after quarter. The media agencies don’t commit the ad fraud, but they depend on the ad fraud to continue — for their own revenues and profit margins.
