Wall St. Speaks Out on Online Ad Fraud

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Online Ad Fraud and Waste: A Cynic's Optimistic View


The advertising agency industry is, by its nature, very cynical. Far too many of its professionals see far too many promises left unkept by vendors of services and sometimes by their managers who are, admittedly, frequently placed in challenging positions to manage both up and down. And often the best work is undercut by a client's lack of daring or the pricing of a competitor whose effectiveness might leave something to be desired. That is, if the client doesn't ask the agency to do mediocre work for even less money. In this context, the annual Cannes Lions Festival (which has occurred this week in the south of France) is notable for all of the optimism and positivity that it produces among its attendees as they celebrate the best in creative and media agency services.

A relatively new source of cynicism for the industry which has grown substantially in prominence in recent months relates to fraud and waste, including issues around 'bots and waste in online advertising. Stories appear with increasing frequency in leading business dailies on these topics (which is to say, drawing in the attention of increasingly senior marketers rather than the practitioners who might otherwise have been more aware of the topic through coverage in trade publications). The data can sometimes be staggering regarding the volume of potential waste in online marketplaces.

For example, back in late 2012, comScore reported that 36% of web traffic was originated by bots or other "non-human" traffic. A survey conducted by media trading software company Strata and released last month conveyed that 56% of agencies responding do not trust web traffic measures in general and nearly three quarters agreed that amount of web traffic equal to or exceeding the aforementioned 36% level is fraudulent. On the topic of viewability (which is not necessarily fraud, but certainly represents a form of waste), a comScore study from earlier this year indicated that only 46% of ads qualified as "viewable".

Perpetrators of fraud and sellers of wasteful inventory in general become increasingly clever as they look for new ways to produce the appearance of traffic, and they find new ways to take advantage of the rules that buyers use to determine whether certain activities are fraudulent. This is all the greater an issue as programmatic buying of media takes root, where all buying is rule-driven, and where buyers are increasingly focused on audiences (who, human or non-human, may be found on less expensive long-tail inventory) rather than premium publishers. Even with premium publishers, there is an incentive to find incremental inventory to sell along to advertisers, and the origins of that inventory has the potential to be questionable, wittingly or otherwise. This is one of the consequences of removing long-term human relationships from media trading, as individual suppliers have a diminished incentive to impose quality controls on the inventory they sell. Fraud and waste have become even more prominent as online video becomes increasingly important and captures growing shares of budgets. Arguably, the relatively higher unit pricing of the medium paired with the importance that marketers place on sight-sound-motion-driven advertising contributes makes the topic more critical than ever.

It matters for a few key reasons. It's possible that many of the brand-focused marketers in digital advertising are fully aware of the problems at hand, and budget for the medium accordingly. We can presume that if this is the case, budgets wouldn't necessarily change if waste is removed from the system, although providers of higher quality inventory might see an incrementally higher share of revenue given the relatively fixed budget pools that large brands would allocate to the medium in any given period. However, it's also possible that if large brands (and their procurement teams) do not have a comprehensive grasp of the depth of these problems, there is a risk that budgets would be cut or shifted as these marketers seek to better understand the issues and fight fraud wherever they can. Further, the perception that the inventory sold by a particular company has a high proportion of fraudulent or wasteful traffic creates some risks that agencies and marketers will stay away from that company. When it relates to publicly-traded companies, the concerned parties will include investors, too.

It's important to note that solutions to the problem are becoming increasingly prominent, too. Programmatic trading buying tools (such as demand side platforms, or DSPs) commonly have built-in solutions to account for the problem or otherwise make efforts to manage the issue. Rocket Fuel recently responded to a Financial Times article on this overall topic by noting its 'bot-screening and brand-safety technology as well as its rejection of approximately 40% of all ad space in its bidding efforts. Further, to pick from a few of many other recent items on these topics, programmatic platform AppNexus bought a company called Alenty that helps it focus on ensure it does not direct ad dollars towards non-viewable ads, while another company, RealVu, announced it launched an RTB exchange that is focused on only viewable inventory. As another example, digital video exchange SpotXchange announced it would work with DoubleVerify to fight fraud in various forms.

Whether these approaches work sufficiently for marketers' to feel confident that problems are being mitigated (or less likely, solved) is another matter, but at least there is a genuine interest among marketers, buyers, suppliers and the software providers who work with them to insist on working on the issues. That there is a concerted effort to bring more integrity to digital advertising is a very positive thing for the industry given the depth of these problems. Like the Festival in Cannes, it should also provide at least a minor cause for celebration. Perhaps one day there will even be a Lion for creative efforts to fight waste and ad fraud, too.

Brian Wieser is a Senior Analyst at Pivotal Research Group, where he covers securities which areBrian Wieserimpacted by the advertising economy, including Facebook, Google, Yahoo, Interpublic, Omnicom, WPP, Publicis, Nielsen, CBS, Viacom and Discovery Communications. Brian can be reached at brian@pvtl.com.


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