Why marketers can no longer afford to ignore the ad fraud tax

November 19, 2020
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This interview was first published in Forbes

As digital and mobile usage continues to increase amid the pandemic, businesses have been forced to rethink their digital strategies and expand advertising budgets to reach consumers. On top of navigating oversaturated digital spaces this holiday season, advertisers are also facing consumers’ heightened sensitivity around privacy — with more than 70% of adults taking action to protect their digital and online privacy, such as turning on private browsing or turning off mobile trackers, according to recent data from Prosper Insights and Analytics. This is on top of the increasingly stringent policy taking effect in states like California, with a nationwide law expected to soon follow.

But as marketers experiment with new copy, designs and channels to optimize their reach, marketing teams are continuously ignoring, or simply accepting, an even bigger obstacle – fraudsters are preventing many consumers from ever seeing them.

The issue of ad fraud has been perpetually unaddressed. Why? Because marketing teams don’t have the tools to recognize it.

For a better look at how ad fraud has become a “tax of doing business” for marketing and advertising teams around the world – and how this class of fraud has become the most lucrative form of cybercrime – I recently spoke with Luke Taylor, COO and founder of TrafficGuard.

TrafficGuard is an Australia-based ad fraud protection solution provider serving brands, agencies and ad networks across the globe. The firm is dedicated to protecting digital ad campaigns from fraudulent and invalid activity that’s currently plaguing businesses’ ad spend by as much as 30%, costing the ad industry billions. Luke shared insights on how fraudsters responsible for this activity operate in the background around the consequences this corruption has on businesses’ bottom lines and a marketing team’s overall campaign intelligence when they accept ad fraud as a tax of doing business instead of taking action against it.

The vast majority of businesses have no clue that 30% of their advertising budget is taxed away. From fake mobile display traffic to bots, ad fraudsters are undercutting businesses’ marketing and customer acquisition efforts.

Gary Drenik: What is the ad fraud “tax”?

Luke Taylor: Ad fraud and other forms of invalid advertising traffic waste up to 30% of a marketer’s advertising budget. CMOs have become complacent with this aggressive attrition to their ad campaigns, considering it just a part in doing business, which is why it’s dubbed a “tax.”

Every time you see or click on an advertisement, the company advertising pays the website for that displayed ad, as well as any number of ad tech vendors that facilitate the process. For those vendors to receive more money, they need to increase advertising engagement. Some will go to the effort of growing their audiences. Others will use trickery and tactics to get non-genuine human engagement or completely fake bot engagements. Getting paid for this invalid traffic is ad fraud. Fraud is simply presenting something as one thing, when you know it is another. Ad fraud is selling advertising engagements when you know they are not the result of genuine interest in the advertised offering.

Ad fraud has been around since digital advertising was invented. Due to a lack of preventative solutions, many advertisers have resigned to it. Rather than trying to find solutions, they simply accept that they could be losing as much as 30% of their spend to ad fraud and see it as an additional cost of online advertising. In 2018, advertisers lost $44 million of advertising spend per day to fraudulent traffic in North America alone. It’s anticipated to reach $100 million a day by 2023.

Today’s advertising ecosystem is so complex that it’s extremely difficult for businesses to determine whether ad fraud is impacting their advertising. As a result, businesses aren’t taking steps to check if they’re at risk, let alone taking actions to protect themselves.

Drenik: How common is this “tax” and does it affect everyone equally?

Taylor: The vast majority of businesses have no clue that 30% of their advertising budget is taxed away. From fake mobile display traffic to bots, ad fraudsters are undercutting businesses’ marketing and customer acquisition efforts.

Every professional in advertising knows that ad fraud exists, however, most believe it is happening to someone else because it’s difficult to detect without the proper tools. Due to the lack of visibility and awareness, companies don’t realize how much more effective their advertising performance could be with fraud mitigation and ad quality assurance tools.

Wherever there is money in digital advertising, there is ad fraud. All channels, all geographies, and all players in the ecosystem – despite their “not me” mentalities. At TrafficGuard, we have comprehensive and unique insight into the advertising journey. We are able to detect invalid traffic across all digital channels – including what might be considered premium channels like Google Ads as well as programmatic, performance, mobile app. TrafficGuard also operates across different campaign types (CPM, PPC, install campaigns) and all stages of the advertising journey (impressions, clicks, installs, events).

Drenik: How do these fraudsters operate, what’s in it for them and how much money are they “collecting” from businesses’ advertising budgets?

Taylor: Sophisticated criminal organizations are making billions of dollars from taxing away organizations’ advertising spend. Like any successful business, they are adapting and diversifying in the pursuit of growth and profit-making the problem of ad fraud a continuously moving target.

Ad traffic comes from millions of sources and the reality is that the individual fraudster is so far removed, it is nearly impossible to pinpoint the origins. The more funds flow to fraud, the more attractive and formidable this type of organized crime will become. The more money that flows to fraud perpetrators, the less effective the whole digital advertising ecosystem will be.

Drenik: What are its consequences on businesses’ bottom line and intelligence?

Taylor: In addition to paying an unnecessary portion of your advertising budget to this tax, there are many other consequences of ad fraud to businesses’ bottom lines, intelligence and ability to grow.

Ad fraud and other forms of invalid traffic skew your advertising performance data. This has obvious implications for marketing and affects everything from budgeting to campaign optimization. But the impact of ad fraud doesn’t stop at advertising. Product, user experience and website design teams rely on data to determine opportunities to improve the customer experience. If the data they use is polluted or skewed by the presence of invalid traffic, their efforts are spent in the wrong areas.

There are also other broader ecosystem impacts that don’t directly affect your business but reduce the effectiveness of the digital advertising ecosystem for everyone, including you. Advertising intermediaries, the companies who connect your advertisements to sources of traffic, must spend time and pay out of pocket to address ad fraud, reducing their ability to scale your advertising to the best quality sources of traffic.

Also check out: The hidden costs of mobile ad fraud

Drenik: How does it compare to other forms of fraud like payment fraud or paycheck protection fraud?

Taylor: Ad fraud is much easier to commit and more costly to businesses than other forms or relevant fraud. HP Enterprise highlighted in its Business of Hacking report that ad fraud is the easiest and the most lucrative form of cybercrime, even above credit card fraud, payment fraud and bank fraud.

The average company now spends 16% of its IT budget on cybersecurity protection measures, yet these same decision-makers will completely ignore ad fraud. And overall, information security spending is expected to reach $123.8 billion in 2020, according to Gartner.

Drenik: How can companies evade this “tax”?

Taylor: The cost of ad fraud is much bigger than just the wasted media spend commonly considered ‘the tax,’ which is why it is imperative to evade. Some anti-fraud tools are also considered a tax, largely because it is difficult to see their value or whether they are actually protecting you from anything. To avoid paying both of these taxes, you need a solution with two fundamental components: prevention and transparency.

When fraud is stopped at the source, you don’t waste media spend, it doesn’t pollute your data, optimization is significantly more effective and you can safely and confidently scale your ad spend without having to go through time-consuming manual volume reconciliations.

Fraud prevention shouldn’t be in a black box. Transparency is essential to be able to see clear and defendable reasons for each invalidation as a demonstration of reliability and effectiveness. You should have access to reporting that shows you how fraud prevention is helping your business overall. That is the difference between ad tech that feels like a tax and ad tech that is actually delivering value.

When fraud is stopped at the source, you don’t waste media spend, it doesn’t pollute your data, optimization is significantly more effective and you can safely and confidently scale your ad spend without having to go through time-consuming manual volume reconciliations.

Drenik: What else about ad spend and how it’s managed these days is ‘taxing’ on businesses? At Prosper Insights and Analytics, we have been highly engaged for over 8 years with helping digital marketers better target their prospects using accurate privacy-compliant models. Our work has resulted in helping our clients to redirect misguided ad spend due to inaccurate data targeting originating from outdated, misinformed big data sets — which is common (I wrote about this last year).

In light of the new privacy regulations (CCPA and GDPR), What’s your take on data targeting in digital advertising? How can we improve its end results for advertisers and ultimately their companies’ bottom lines? And what role does ad fraud play in realizing results from digital targeting, if it does indeed play one?

Taylor: As well as strengthening privacy regulations around the globe, tech giants like Apple and Google are also taking steps to reduce the ability of advertisers to track users. Much of what data companies and advertising platforms process to provide targeting is about to be subject to the CPRA – the new and improved CCPA. This means, where data is available to marketers for targeting, they need to be diligent in checking its origin and consent to ensure it is compliant, particularly in California. The alternative is targeting not based on user behaviour and characteristics but on the context the advertising is placed in.

Regardless of the type of targeting, the presence of invalid traffic doesn’t change. In fact, the opacity created by strict privacy regulations could make it easier for ad fraud and invalid traffic to flourish undetected. Adequate protection against invalid traffic is paramount. This helps you to understand the true performance of various advertising channels to guide your advertising optimization efforts. If you are building a first-party data asset, removing invalid traffic helps to safeguard the integrity of your data. If the data you use for targeting or other marketing optimization is skewed by the presence of invalid traffic, then the outcomes of these functions will also be compromised. As TrafficGuard’s Head of Data Sciences says, “rubbish in, rubbish out.”

Also check out: Advertisers seek to delay Apple’s new privacy measures with regulator complaint

Drenik: Thanks Luke, your insights on the ever-present and fast-growing digital marketing ad fraud problem demonstrate the severity of this challenge. Creating a solution to protect against ad fraud is no longer an option for digital marketers, it is a requirement.


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