How Facebook Beats Ad Fraud
Digital marketers, weary of online scams, will start placing more ads on Facebook (FB) rather than run the risk that their ads will be shown to robots instead of actual people.
That was one conclusion of an advertising industry breakfast in New York last week, titled “Bagels & Bots,” where executives explored the pervasiveness of botnets—networks of corrupted computers that provide an easy way for criminals and hackers to defraud big brands out of billions of dollars. Here are some new numbers, and the implications for advertisers.
Online ad exchanges are a fertile ground for fraud.
Scammers, who have been present since the early days of online advertising, are adept at finding new ways to cheat the industry. One of the latest tricks involves directing millions of bot visitors to “ghost sites”—which contain a thin scrip of “content” but few real readers—and then collecting money from marketers who shell out big bucks to show ads to these fake visitors.
The result, according to Integral Ad Science, which spearheaded the Bagels & Bots event, is an appalling rate of fraud across the industry:
Integral estimates the fraud costs online advertisers $6 billion a year. Although the figure can’t be independently verified, Integral is hardly the only one to sound the fraud alarm. Other firms, including Dstillery and Spider.io, have likewise published research about the ghost site scam, as well as various other scams–including serving ads in the form of 1×1 pixels that can’t be seen by anyone.
The reason for the fraud is simple enough: It’s a low-risk way to make a lot of money for the masterminds, most of whom are based in Eastern Europe and beyond the reach of the FBI. Here’s an Integral graphic that shows who’s involved:
To drive home the point, Integral executives used special software to show how an infected laptop can, undetected by its owner, serve up a thousand ads an hour—ads that companies pay to show users, but which are seen by exactly no one.
Ghost ads make safe sites like Facebook an attractive alternative.
To understand why the fraud is so rampant—and how advertisers can avoid it by buying from the likes of Facebook—it’s helpful to understand more about the ad exchanges where most of the fake ads come from in the first place.
These exchanges act as giant bazaars, where big advertisers such as Disney (DIS) or Macy’s (M) use automated programs to purchase Web page real estate on which to show their ads. The huge breadth of the exchanges is appealing to marketers who need to reach millions of people at once.
The downside, however, is that anyone can dump ad inventory into the exchanges, including the shady folks who control the botnets and the ghost sites. In this sense the exchanges, which take a cut of the sales, are like giant flea markets that contain merchants selling crappy, counterfeit goods; AOL (AOL) recently learned this the hard way, coughing up $405 million for Adap.tv, a video exchange stuffed with bots and fake ads.
The exchanges have habitually shown themselves unable—or unwilling—to purge the scammy ad stock. As a result, industry experts at last week’s Integral event predicted, more advertisers will turn to platforms that have massive ad inventory but that can also offer guarantees against rip-offs. And there’s only a handful of them, with Facebook atop the list.
“FBX is fraud-free. The purity exchanges will win,” said Gartner (IT) analyst Andrew Frank, referring to Facebook’s ad exchange, where brands can bid in real time to “retarget” users of the social network based on their browsing history.
The Facebook Exchange stands out from traditional exchanges because it’s more like a curated department store than a flea market: Advertisers know where their products will appear and which customers might buy them. (Google’s (GOOG) AdX is similar in that, although the exchange works across many websites, the search giant polices it for bad actors.)
“A difference with Facebook is that we have logged-in users,” a company spokesman wrote in an e-mail. “We have good authentication. Facebook as a whole takes fidelity very seriously—and FBX is part of this.”
More power for Facebook, and calls for a “public hanging.”
In the wake of Yahoo!’s (YHOO) steady decline in the display ad business, Facebook has emerged as the only real rival to Google’s dominance of the online ad space. If the fraud fears persist, the two giants will likely consolidate their lead even more at the expense of the other exchanges (and, in Facebook’s case, will further squeeze out the smaller ad-tech companies that have helped it build its exchange).
Meanwhile, the controversy over the scam sites has left members of the ad industry pointing fingers over who’s to blame for the mess. “Nothing will change until there’s a public hanging,” Gartner’s Frank told the roundtable.
Such a hanging—perhaps in the form of civil lawsuits or even criminal charges—seems appropriate to hold accountable those who look the other way while obvious fraud is taking place.
That may not happen, however, since few people in the industry are willing to speak up about the fraud problem in the first place. The exchanges don’t want to talk about it because it makes them look bad; at the same time, many of the ad buyers burned by the scam are reluctant to tell their bosses or their clients, fearing they’ll be blamed.
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