A Crisis in Online Ads: One-Third of Traffic Is Bogus

Billions of dollars are flowing into online advertising. But marketers also are confronting an uncomfortable reality: rampant fraud. Abney and Associates

About 36% of all Web traffic is considered fake, the product of computers hijacked by viruses and programmed to visit sites, according to estimates cited recently by the Interactive Advertising Bureau trade group.

So-called bot traffic cheats advertisers because marketers typically pay for ads whenever they are loaded in response to users visiting Web pages—regardless of whether the users are actual people.

The fraudsters erect sites with phony traffic and collect payments from advertisers through the middlemen who aggregate space across many sites and resell the space for most Web publishers. The identities of the fraudsters are murky, and they often operate from far-flung places such as Eastern Europe, security experts say.

The widespread fraud isn't discouraging most marketers from increasing the portion of their ad budgets spent online. But it is prompting some to become more aggressive in monitoring how their money is spent. The Internet has become so central to consumers, that advertisers can't afford to stay away.

Digital "is too important," says Roxanne Barreto, assistant vice president for U.S. digital marketing at L'Oréal SA, which recently uncovered evidence that an online ad purchase was affected by fraud and other problems. "Slowing down spend represents a missed opportunity to connect with our core audience."

Spending on digital advertising—which includes social media and mobile devices—is expected to rise nearly 17% to $50 billion in the U.S. this year. That would be about 28% of total U.S. ad spending. Just five years ago, digital accounted for 16%.

The big question is whether attitudes will change if signs of fraud increase. Many people in the ad business are worried. Ziff Davis Inc. Chief Executive Vivek Shah, the chairman of the Interactive Advertising Bureau, said at the group’s annual conference last month that Internet advertising was facing a "crisis."

Several big advertisers—including L'Oréal, General Motors Co. GM + 0.64% and Verizon Communications Inc. VZ-0.57% —have found that some of their online ad purchases were affected by fake traffic, people familiar with the situation say. Such examples threaten advertiser confidence in the effectiveness of digital compared with traditional media, such as television.