The Alleged $7.5 Billion Fraud in Online Advertising
Samuel Scott, Director of Marketing and Communications at log analytics startup Logz.io, discusses the issues of ad fraud in the digital advertising industry. It has been estimated, that despite advertisers paying on average $0.10 per impression, due to ad fraud and viewability issues, only 8% of impressions are likely to be seen by humans, increasing the cost per (human) impression to $1.25. Scott alleges that industry publications are reluctant to discuss the issue as they do not want to draw attention to the fact that ads are being seen by so few consumers. An article by Media Post suggests that the huge wave of recent media reviews will help the industry start to tackle ad fraud as advertisers are starting to take things into their own hands.
by Kaila Colbin , Featured Contributor, June 26, 2015

The year was 1996. A friend of mine had created a Web site to track bond prices in real time. He had just sold his first ad. “Can you click on it?” he asked me. “Every time you do, I make five cents.”

At the time, like the Internet itself, the problem he jokingly referred to was in its infancy. But that’s no longer the case. As our media consumption has shifted online, the incentives to commit ad fraud have grown. And the Shakespearean irony is that the very thing that makes the Internet seem so compelling for advertisers -- the promise of attribution, of measurability, of precision -- is exactly the thing that makes it prone to exploitation.

“But how can that be?” you ask. “Surely precise measurement is a good thing?”

It is -- or rather, it would be, if we could get it. The problem is twofold: We’re measuring the wrong thing, and we’re not measuring it all that precisely.

Let’s start with what we’re measuring: impressions. Which sounds great. Don’t we all want to make a good impression?

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But impressions are badly defined, as my MediaPost colleague Reid Tatoris eloquently articulated. They’re not about people; they’re about browser requests to ad servers. They’re a proxy -- and a bad one.

As author Peter Drucker said, “What you measure gets managed.” If I’m being compensated for the number of browser requests to ad servers, and not for how many people actually see the resultant ads, then I’m set up for quantity over quality. I don’t care if the ads are broken or if the traffic is inhuman, because I don’t get paid to care about it.

The upshot? Tatoris calculates that only 8% of ads even have the possibility of being seen by a human. It’s time to update Wanamaker: apparently 92% of my ad spend is wasted; I just don’t know which 92%.

Bob Hoffman wrote about this problem two years ago, in a piece called “The $7.5 Billion Ad Swindle.” I wrote about it a year ago. Samuel Scott at Moz wrote about it this week.

It doesn’t seem as if much has changed, and it’s easy to see why: The people who benefit from the system have no incentive to change it. As Scott says, “Agencies have been receiving kickbacks and indirect payments from ad networks under the guise of ‘volume discounts’ for serving as the middlemen between the networks and the clients who were knowingly sold the fraudulent ad impressions. Ad networks knowingly sell bot traffic to publishers and publishers knowingly buy the bot traffic because the resulting ad impressions earn both of them money -- at the expense of the clients who are paying for the impressions.”

So publishers make money. Ad networks make money. And agencies make money. The only ones suffering are advertisers -- and, by extension, consumers.

Which brings us back to the title of this article. A few weeks ago, Business Insider reported on an unusual wave of big companies calling media agency reviews. And when they say big, they mean big: “Some of these — P&G, Sony, and 21st Century Fox — spend more than $US1 billion on advertising each year.”

These companies are the answer. They have to be. They are the only ones with both the incentive and the clout to fix the system. And, yes, there will be individuals in these organizations doing their level best to sweep the issue under the rug -- CMOs who have to explain why they spent so much money on highly attributable, highly measurable advertising that turns out to be not attributable or measurable at all -- but they have to be held accountable, and they in turn have to hold everyone else accountable.

We’re counting on you, Sony. Don’t let us down.