Ad fraud is out of control -- billions lost by media industry, says a new report

​Advertising fraud is hitting new highs -- enabling multi-billion dollar crimes, claims a report from a leading ad researcher.
Written by Tom Foremski, Contributor

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Fake media sites using techniques such as buying fake traffic to appear real and pretending to be legitimate media websites such as Hearst's Esquire.com are running off with billions of dollars in revenues.

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"Ad fraud is at all time highs both in rate and in dollars," says Augustine Fou, an independent ad fraud researcher. "And what's worse is fraud detection is not catching it so people have a false sense of security."

Fou was the former chief digital officer at Omnicom's Healthcare Consultancy Group, a $100 million agency. He just released State of Digital Ad Fraud Q2. The report he shows two examples of "insane profits from ad fraud."

The examples show how arbitrage allows fraudsters buy cheap traffic and sell it at a premium -- achieving gains of 25 times and 45 times return on investments.

Buying $183,000 of traffic can result in a $4.6 million payout. And that is just one campaign and one technique. The potential payout for the year is in the billions of dollars.

Fou notes that the Financial Times discovered ad fraud of as much as $1 million a month going to fake FT.com sites but managed to stop it by persuading 24 advertising exchanges to drop the fraudsters.

Fake pageviews dominate

The extent of the problem is huge. Fraudsters are able to generate a larger inventory of pageviews than all the legitimate publishers combined.

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Fou says that much of the ad fraud could be blocked fairly easily but that media buyers are paid by clients to lower the average cost of ads, and that means they buy cheap fraudulent traffic.

"Very, very sad situation. Good publishers that had real journalists and news rooms are dying because they can't make enough money -- because the ad dollars were diverted out of the ecosystem into the pockets of bad guys, via ad fraud," says Fou.

He dispels several myths like that fraud detection and fraud filters work. These have huge security holes. And pre-bid filtering and programmatic ad buying do not reduce ad fraud.

Who benefits?

The huge amount of fraud is benefiting Google and Facebook, which already dominate all new ad business. These "walled gardens" make it difficult for fraudsters to use the same techniques as they do on the open web.

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And recent changes in policy at Facebook have forced many ad tech companies to close because of a ban on third-party data analysis that aids fraudsters.

No blockchain solution

Blockchain cannot solve the problem of ad fraud, he says. "The ad tech middlemen who need to adopt it actually prefer to have less transparency not more."

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Much of the problem of ad fraud doesn't require new technologies but can be addressed through changes in business practices.

For example, marketers should not incentivize agencies to buy cheap traffic. Also, advertisers should focus on conversions as a metric, and low quality/suspicious traffic sources should be turned off at the start of a campaign and not at the end when being claimed as a refund.

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