It's time to rethink the ways that the ad tech sector approaches a growing criminal enterprise that is worth billions of dollars.

While Hollywood portrayals of mafia bosses gleefully orchestrating lucrative criminal plots have embedded themselves in our collective cultural imagination, the reality of ad fraud's impact is equally cinematic. Ad fraud will be the second most lucrative form of organised crime (behind drug trafficking) within the next decade, according to the World Federation of Advertisers.

The punishment, or lack thereof, doesn't seem to fit the crime. There is a widespread perception that ad fraud is innocuous - a small-time operation that only exists in the dark, hidden corners of the internet. This is not so accurate. Responsible for a staggering annual loss estimated in the tens of billions of dollars, this is far from a minor issue. It’s time to give ad fraud its due consideration as a highly lucrative juggernaut that exists within an industry already under intense scrutiny for every dollar of ad expenditure.

In this exploration, we go beyond the stereotypes to unravel the intricate web of ad fraud, revealing its true scale and consequences.

The Current Landscape 

As one would imagine, there is no one-size-fits-all instance of ad fraud, it comes in many insidious forms - ranging from non-human traffic, ad stacking, clickbait websites, manipulated traffic, and more. Among these, click fraud stands out as a huge problem. One illustrative example is the Methbot operation, a notorious click fraud scheme uncovered in 2016. Operating out of Russia, Methbot created an army of automated bots that mimicked human behavior, generating billions of fraudulent ad impressions and clicks on video ads. This operation alone cost advertisers an estimated $7mn (~£5.75mn) per month.

Impression fraud, another prevalent form, also poses a significant challenge. It involves the creation of counterfeit web traffic or the use of hidden iframes to artificially inflate ad impressions.

When we attempt to quantify these instances, what emerges as particularly startling is the projected worldwide advertising expenditure in jeopardy - this is an estimated fraud rate of 5.1% in unmanaged campaigns or a cost of $121k to advertisers for every billion impressions in an unmanaged campaign. This translates to a loss equating to billions of dollars.

What Is Facilitating So Much Ad Fraud?

An overly convoluted supply chain could be the main culprit in the fight against ad fraud. What was once a fairly linear process is now home to multiple interdisciplinaries present within many layers of complex ad tech, meaning that fraudsters have many corners to hide and operate from. Furthermore, as the media investment in a particular environment increases, so does the motivation for fraudsters to counterfeit inventory. 

Within the advertising sector, digital video emerges as a prominent target, primarily because its media pricing experiences the most rapid escalation when compared to display, television, and out-of-home segments. Heightened standardisation affords industry organisations like the IAB the opportunity to establish guidelines and engagement models tailored to specific landscapes. Yet, certain burgeoning segments, such as digital out-of-home, in-game advertising, and Connected TV (CTV), continue to experience rapid growth without the benefit of standardisation, rendering them susceptible to malicious actors.

The consequences of ad fraud within the digital advertising realm are far-reaching and multifaceted. Financially, it drains billions of dollars annually from advertisers' budgets, leading to inefficient spending and reduced return on investment. Ad fraud rapidly depletes advertising budgets, posing a significant obstacle to marketers' endeavors. As ad budgets are squandered on fictitious leads and conversions, the overall marketing budget diminishes. 

Even more concerning for marketers, digital ad fraud disrupts spend optimisation efforts. It can distort campaign data to such an extent that it leads to erroneous decisions regarding future campaigns. For instance, ad fraud can produce high clickthrough rates alongside minimal conversion rates. These seemingly "poor results" might compel you to prematurely terminate a campaign, despite the fact that, without the influence of ad fraud - often caused by fraudulent clicks - the campaign would be performing well. The industry's fixation on vanity metrics exacerbates this issue. A focus on eye-catching numbers, such as high clickthrough rates, often deters deeper inquiries into data authenticity. This leaves campaigns vulnerable to the misleading influences of ad fraud.

Ultimately, ad fraud erodes the very foundation of trust and transparency within the industry. Advertisers lose confidence in the metrics that guide their campaigns, while publishers suffer damage to their reputation as fraudulent ads unknowingly infiltrate their platforms. For consumers, ad fraud results in a compromised online experience, as deceptive and disruptive ads disrupt their browsing, potentially leading to diminished trust in digital content. 

Tackling Frontiers of Fraud

“From what I can see in FouAnalytics data from clients around the world, ad fraud remains as rampant as ever. Markets outside of North America are continuing to see digital ad budgets shift into programmatic channels. But they appear to be more aware of ad fraud and more aggressively using analytics to assess the quality of the media they are buying. The only way to "future-proof" against existing and emerging threats is to continue practicing extreme vigilance and use advanced analytical tools that allow you to understand what is fraud and what is not fraud. Relying on black-box fraud verification is no longer sufficient to keep pace with innovative fraudsters..”

Dr Augustine Fou, FouAnalytics - Independent Ad Fraud Researcher

Combatting the pervasive issue of ad fraud can be approached through two defined strategies - technological innovation and industry-wide collaboration. Enhanced transparency through blockchain technology is gaining prominence, allowing for a verifiable and immutable record of every ad impression. There is also artificial intelligence and machine learning algorithms, which are being harnessed to detect anomalies and patterns associated with fraudulent activities in real-time, thereby bolstering fraud detection efforts. Moreover, industry collaborations and initiatives, such as the Trustworthy Accountability Group (TAG) and ads.txt, are establishing stringent verification and authentication processes to ensure that ad inventory is sourced from legitimate publishers. 

Industry players are increasingly recognising the need to collaborate in the fight against ad fraud. Recent initiatives, such as the Trustworthy Accountability Group (TAG), have demonstrated the industry's commitment to establishing standardised practices and guidelines. TAG's efforts, for instance, have led to a notable 84% reduction in fraud in TAG Certified distribution channels, according to their 2022 report.

The significance of industry-wide cooperation lies not only in mitigating financial losses but also in safeguarding the reputation and credibility of digital advertising. By sharing insights, experiences, and best practices, stakeholders can collectively bolster their defenses against fraudulent activities. This collaborative approach not only facilitates the early detection and prevention of ad fraud but also fosters a more transparent and trustworthy ecosystem for advertisers and consumers alike.