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Is digital advertising the biggest fraud in history?

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Enron is commonly referred to as the biggest fraud ever, costing investors over 70 billion USD. Perhaps Lehman Brothers did even more damage. Or Bernie Madoff. It's hard to say. But without a doubt, we do now have a new candidate, and it's not a company or a person. It's an industry; digital advertising. But what is really behind the accusations that billions are lost every year to fraudulent practices in the industry? I discussed the issue with three industry experts. Here is our in-depth analysis of everything that is wrong with digital advertising, and how to solve the conundrum. We try to explain the issues with as little technical jargon as possible because we do not want to be guilty of the same tactics ad networks use to lure advertisers into highly questionable schemes. 

 

We all agree that digital advertising seems like a fantastic idea, whether it is Google Adwords, Facebook, native advertising, reward ads, etc. They don’t cost much to produce, and you can reach millions of potential customers around the world.

 

But the same technologies that made the advertisement online possible are now causing advertisers to lose millions of dollars every day. Part of it is unscrupulous behavior by agencies and ad networks, who work with publishers who specialize in creating ad inventory out of nothing. Part of it is stupidity or willful blindness by advertisers and agencies, bad targeting, and a lack of understanding of how ad placement works. But a large part of it is just plain fraud.

Let's start with the simplest problem.

 

Digital ads show up in the wrong place

Even with expert targeting, ads interrupt the consumption of media in the most annoying way. Let's say you are interested in hand tools. The advertisers know that, so they will show you an ad while you are reading an article about travel in Tuscany. While the targeting of ads has become better, the placement of ads is still terrible. I'm not in the market for hand tools while dreaming of Tuscany. You caught me off guard, and I will find your ad inappropriate.

 

Some of the misplacement is hilarious. Ads for diapers and baby products spawned on gay dating apps, ads in German following you around for months just because you logged in the Wifi at Frankfurt airport one time. I bought a new ASUS notebook computer two months ago, and I still see ads for ASUS notebooks everywhere I go on the internet. As much as like my notebook, I am now annoyed by the brand unnecessarily stalking me online.

 

There is hope, however, notes Lyle Wagner: With improvements in data collection this targeting is getting better as cookies are placed on user’s devices which track user behavior and compared with other cookies to create an image of the user. Although this has potentially negative implications in terms of privacy, in the area of ‘advertising annoyance’ it actually shows great promise in showing better, more relevant and interesting ads to users. In Europe and Canada, privacy laws make the collection of PII (Personally Identifiable Information) actually illegal, so privacy concerns are being dealt with in some key markets. Strict privacy laws may actually prevent the ad experience from improving. Users are forced to choose between privacy and relevance.

 

Reward ads

Increasingly ad inventory is sold to networks using them for things like Wi-Fi log-in, receiving freebies, or as rewards in games. "Click on the ad to get 10 minutes of free Wi-Fi" is a way to incur costs for the advertiser, but it has zero value for the consumer if the ad is not relevant. I am going to click on the ad just to get my 10 minutes, not to buy your skin mask.

 

Whole business models are built around this practice. In many cities, there are now Wi-Fi-networks, some of them run by big telecoms operators, which force users to click on an ad to get initial access, and on one or more ads to continue using the network after several minutes. Most advertisers we spoke to are not aware that their ads are being used for this purpose. By offering up to 10 different ads to click on, operators claim to give users a choice and thus "target' them. That is nonsense. The majority of users randomly click on any ad available, skip it, and then go on to do what they really came to do: use the Wi-Fi network. Much the same is true for in-game reward ads. Even if a user is potentially interested in a product, he or she very likely is logging on to the network for another purpose and will not be distracted by the ad. Hardly any gamer will be derailed from his path to glory by an ad about hair shampoo. 

 

Yet not all reward ads are a waste of money. "Watch the ad to upgrade to a magic sword" again creates value for the player, but does a disservice to the advertiser if the user has no interest in the project. Here the industry is slowly improving. Better quality and more interesting ads (think of puzzles or arcade-style mini games) when used appropriately, have been shown to create a positive brand association and resulting brand lift on users exposed to them. An astonishingly high number of users react to these interactive ads by clicking through to the brand's website, so not all is bad.

 

Video ads: stop interrupting me

Youtube's ad model is essentially copying television, and it is annoying as hell. Ads in videos are increasingly irrelevant (I see nothing but skin care products and car ads in my location; I do public transport and my skin is great, thank you very much.) Digital natives have already been conditioned to wait for the few seconds it takes to click the ad away. Ad content is not absorbed at all, and yet those few seconds count as an ad view and incur costs to advertisers.

 

Here too, better targeting and data collection are needed to show only really relevant ads in the relevant environment. The same data collection that causes all those privacy concerns, remember? And if only brands could start making ads that are actually fun to watch, instead of the same boring stuff they've annoyed us on television with for decades.

But I mean, who cares, because ...

 

Most ads are never seen by humans

The final straw is of course real fraud, and here it gets hairy. Websites created just to show ads, bots watching ads instead of humans, apps programmed just to get as many ad clicks as possible, are all losing advertisers billions each year. According to a number of security firms, as reported in the  Telegraph, criminals use "armies" of hijacked computers to mimic humans browsing. Such computers create fake websites and watch as many as 300 million videos there per day. An estimated 70% of online adverts are never seen by humans, the paper reports.

 

“Bots are rampant and ad fraud is at its highest ever point,” Dr Augustine Fou, a cyber security expert, told The Telegraph.

WhiteOps reports that MethBot, an ad-fraud scam, costs advertisers at least 3 million USD and probably more than 5 m every single day. 

This is just the tip of the ice berg. How did that happen?

 

Programmatic is evil

Lyle notes: This problem has been exacerbated in recent years by the rise of programmatic advertising which replaced the old network-publisher relationship business with a more automated approach where machine-based ad exchanges control the ad placement process without human oversight. This led to a massive drop in price and quality.

 

This is finally starting to be rectified by more technology. Ad verification technologies have been developed that are able to monitor and detect suspicious ad viewing behavior, and they may succeed in saving the ad industry from implosion.  

But before it gets better, it may get worse.

 

The biggest scam of all: attribution fraud

Attribution fraud in app marketing is probably the biggest scam of all. All the big networks from AdColony, AdAction to unity, Tapjoy, Applift, Taptica, etc. have at one point or another been accused of massaging the numbers.

 

Part of the blame here goes straight to Apple and Google for refusing to cooperate with attribution companies by offering a transparent and simple way to track users and traffic sources. Attribution companies have had to develop ‘fingerprinting’ technologies as a workaround thanks to the big OS’ insistence on controlling the install process. But the bottom line is, even without the fraud, an ad you must click on to get something else is just annoying. 

 

Egocentric Irritation: Anti-social ads

Simon Kemp thinks that even when advertisers do manage to display a relevant ad to someone in their audience, far too many of them waste that opportunity by delivering ads that focus on egocentric brand content. "We're being as anti-social as it gets; we're going on a date and only talking about ourselves. As a result, more and more people around the world are blocking ads completely. We've irritated our audiences so much that they're actually willing to spend their own money on tools that help them avoid the nonsense that most advertisers are spewing out."

 

"There's only one sustainable answer to this problem: advertisers need to get better at building meaningful exchanges of value with their audiences, instead of interrupting them with more and more irrelevant crap."

So, if digital advertising is to survive, we 're going to need to make some radical changes, as this recent video from Simon explores. 

 

So ... quoi faire?

On the one hand, companies will have to turn to more sophisticated methods of content marketing and building audiences. The big brands will be better at this than smaller firms, who lack resources. But for most companies, the whole concept of "audience building" and creating your own digital assets is an anathema: no expertise, no strategy, no vision.

 

Secondly, ads have to become better. More interesting, interactive ads, better quality video and in future VR and AR implementation will lead to a better ad experience. Anti-social is out, real connections are in. This is a challenge for marketers everywhere; it is, even more, a challenge for brands who will have to abandon decades of accepted practice and embrace a completely new way of thinking about ads. 

 

Thirdly, technology must solve many of the problems it has created. Verification of users through accurate data, probabilistic and deterministic verification, analysis of in-app/site user behavior analytics in conjunction with media buys etc. have a long way to go.

 

Finally, we have to solve the conundrum of privacy. Consumers, in particular in Europe and Canada, are screaming for stricter privacy laws without understanding what that does to their online experience. Regulators have no sympathy for advertisers and thus play their part in dismantling the industry. More privacy means more ad-blocking, which means that much of what is available for free will no longer be available as ad revenues dwindle. It is bad ad policy but also strict privacy laws which make even websites like CNN and Forbes look spammier every day by serving the bottom of the inventory barrel to consumers. A few years ago there was one rotten apple. Now the barrel is slowly spoiling.

 

Light at the end of the tunnel

I believe technology will solve part of the problem, and brands will slowly embrace other forms of marketing. But for the immediate future, fraud in digital advertising is a serious issue and will only get worse, unless brands wake up to the amount of money they are wasting, regulators stop appeasing consumers without considering the industry, and ad networks are held accountable for their fraudulent practices. It's high time we took this issue seriously.

 

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Article by Martin Hiesboeck, with contributions from 

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