The Alleged $7.5 Billion Fraud in Online Advertising

"This is the biggest advertising story of the decade, and it's being buried."

So wrote Ad Contrarian Bob Hoffman, the retired CEO and chairman of Hoffman/Lewis Advertising, in June 2013 on a $7.5 billion scandal that has been developing under the digital radar in the advertising world for the past few years. The three main allegations, according to those who are making them:
  1. Half or more of the paid online display advertisements that ad networks, media buyers, and ad agencies have knowingly been selling to clients over the years have never appeared in front of live human beings.
  2. Agencies have been receiving kickbacks and indirect payments from ad networks under the guise of "volume discounts" for serving as the middlemen between the networks and the clients who were knowingly sold the fraudulent ad impressions.
  3. Ad networks knowingly sell bot traffic to publishers and publishers knowingly buy the bot traffic because the resulting ad impressions earn both of them money—at the expense of the clients who are paying for the impressions.


These charges have not seen much discussion within the online marketing community. But the allegations have the potential to affect everyone involved in online advertising—ad agencies, in-house departments, agency and in-house digital marketers, online publishers, media buyers, and ad networks. An entire industry—billions of dollars and thousands of jobs—is at stake.
And it all starts with a single impression.

The impression that you make


Online advertising is based on an "impression"—without the impression, then an advertisement cannot be viewed or clicked or provoke any other engagement. The Internet Advertising Bureau, which was founded in 1996 and "recommends standards and practices and fields critical research on interactive advertising," defines "impression" in this manner:

a measurement of responses from an ad delivery system to an ad request from the user's browser

In another words, an "impression" occurs whenever one machine (an ad network) answers a request from another machine (a browser). (For reference, you can see my definition and example of a "request" in a prior Moz essay on log analytics and technical SEO.) Just in case it's not obvious: Human beings and human eyeballs have nothing to do with it. If your advertising data states than a display ad campaign had 500,000 impressions, then that means that the ad network served a browser 500,000 times—and nothing more. Digital marketers may tell their bosses and clients that "impression" is jargon for one person seeing an advertisement one time, but that statement is not accurate.

The impression that you don't make

Just because a server answers a browser request for an advertisement does not mean that the person using the browser will see it. According to Reid Tatoris at MediaPost, there are three things that get in the way:
  • Broken Ads—This is a server not loading an ad or loading the wrong one by mistake. Tatoris writes that these mistakes occur roughly 15% of the time.
  • Bot Traffic—Whenever hackers write these automated computer programs to visit websites and post spam or create fake accounts, each visit is a pageview that results an an ad impression. According to a December 2013 report in The Atlantic, 60% of Internet traffic consists of bots.
  • Alleged Fraud—In Tatoris' words, "People will hide ads behind other ads, spoof their domain to trick ad networks into serving higher-paying ads on their site, and purposefully send bots to a site to drive up impressions." Noam Schwartz described in TechCrunch two additional methods of alleged fraud: compressing ads into a tiny one-by-one pixels that are impossible to see and using malware to send people to websites they never planned to visit and thereby generate ad impressions. AdWeek found in October 2013 that 25% of online ad impressions are allegedly fraudulent.

Tatoris crunches all the numbers:

We start with the notion that only 15% of impressions ever have the possibility to be seen by a real person. Then, factor in that 54% of ads are not viewable (and we already discussed how flawed that metric is), and you're left with only 8% of impressions that have the opportunity to be seen by a real person. Let me clarify: That does not mean that 8% of impressions are seen. That means only 8% have the chance to be seen. That's an unbelievable amount of waste in an industry where metrics are a major selling point.

Essentially: If you have an online display ad budget of $100,000, then only $8,000 of that ad spend has the chance to put advertisements in front of human eyeballs. (And that's not even taking into account the poor clickthrough rates of display ads when people do see them.)
If you are paying $0.10 per impression, then the $10,000 that you will pay for 100,000 impressions will result in only 8,000 human views—meaning that the effective CPI will actually be $1.25.

How bot traffic affects online ads


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