Kiwi advertisers have spent millions on ads never seen by anyone

New Zealand advertisers have lost millions of dollars to ads that have never been seen – or not by human eyes – a marketing expert estimates.

Kris Hadley, founder of Kiwi media agency Together, told the Weekend Herald that ad fraud could be sapping the local market of between $600,000 and $1.6 million a year spent by NZ companies on online advertising.

He bases this estimate on Integral Ad Science (IAS) monitoring, which keeps tabs on how extensive ad fraud is in the local market.

On top of this, said Hadley, NZ companies could also face losses of up to $6.6m a year through paying inflated commissions to so-called tech experts.

Hadley said these estimates were conservative.

Late last month, Fast Company published a report indicating that as much as US$50 billion ($74b) a year is lost globally to criminals engaged in ad fraud.

The report, based on a new study by Tel Aviv-based cybersecurity firm Cheq, said as much as 20c of every dollar spent on digital advertising was stolen through fraud.

This type of ad fraud largely involves so-called programmatic ads, which are purchased through tech platforms designed to connect human eyeballs to advertising.

Hadley said New Zealand’s market for ads sold in this way was about $80m a year.

He said the biggest problem in the local market arose from “bad actors”, who hid their activities and did not use tools such as IAS to ensure the quality of what they were selling on to local brands.

“We know bad actors exist, but at the moment no one is really coming out locally to raise the conversation,” Hadley said.

“There’s a lot to the digital ecosystem that can be opaque and you have group of people who don’t know a lot about the industry and they really rely on their partners to guide them. And in any gap between knowledge and awareness, bad actors can take advantage.”

When digital advertising platforms first appeared, they came with the promise of connecting viewers and advertising.

The argument seemed foolproof. Advertisers would pay only for ads that were seen by their targeted customers.

Businesses across the world bought into that promise, steadily shifting their ad spending across to digital. This was also the case in New Zealand, where overall spending on digital advertising is expected to hit $1 billion when the Interactive Bureau of Advertising for New Zealand releases its annual figures for 2018.

The problem is that less scrupulous players quickly learnt how to take advantage of the system. This has manifested in two main ways: first, through ad fraud and, second, through inflated commissions.

Ad fraud is largely international, with sophisticated criminals developing smart tools that mimic human traffic and siphon advertiser money to fake businesses around the world. This type of fraud has been so successful and low-risk that it is even attracting cybercriminals from other areas, such as the finance sector.

Given that New Zealand doesn’t have the scale of other countries, this type of fraud has not terrified the local market in the way it has in the US, for example. But it does happen here, quietly slicing off a few cents here and few cents there.

The other problem that emerged with digital advertising came in the shape of inflated commissions.

Having learnt how easy and cheap it was to place ads, some unscrupulous operators set themselves up as digital experts and sold their skills to businesses.

Rumours of markups as high as 300 per cent on ad placements did little to dissuade advertisers from pouring money into these ventures. The reason was that marketers who had long paid traditional media fees were still getting a good deal for the level of reach they were getting in digital.

Hadley said the worst operators were careful to hide how much money theyu were slicing off for their commissions. And while the industry had become much more transparent in recent years, there were still examples of opaque business models in the local market.

“If you’ve got no idea how much your partner is making off your money, how the hell could that ever be a good idea?” he said. 

“There are definitely still…

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