Cyber Fraud Online: Have Reports of Online Ad Fraud Been Greatly Exaggerated?

Nobody debates that online advertising has a fraud problem. But as chatter about it reverberates around the industry, some executives now claim the issue is being exaggerated.

A portion of online ads can never actually be seen by real consumers, largely because of scammers that use non-human “bot” traffic or “invisible” ads to cheat marketers out of ad dollars. But questions about the size and severity of the issue remain unanswered. It’s essentially impossible to quantify what percentage of ads is fraudulent across the entire Web, or to estimate the number of ad dollars being wasted as a result.

Some industry execs say the fraud problem is being overestimated, often by companies selling technologies designed to prevent it.

“It is a problem, but like any problem it can get overblown,” said Scott Knoll, CEO of Integral Ad Science, which sells ad fraud protection products itself. Mr. Knoll authored a blog post this week on the issue on the Interactive Advertising Bureau’s web site. Fraud reports “created lots of opportunity and companies have popped up almost overnight to capitalize on it. These companies exaggerate the problem to gain attention and to help create more demand for their products and services,” Mr. Knoll argued.

One number helped drive the story. In February the IAB held a member summit at which ad fraud was a central theme. During a keynote presentation the group’s incoming Chairman and Ziff Davis CEO, Vivek Shah, quoted a blog post written in October 2012 by Brian Pugh, comScore’s vp of audience analytics. The post estimated “non-human” traffic represented 36% of all web traffic in 2012, but it didn’t state 36% of online ads were being served to this non-human traffic, or that 36% percent of online ad dollars were being wasted.

Numerous trade publications and news outlets, WSJ included, reported the number when Mr. Shah referenced it. Now, nearly two years after Mr. Pugh’s original post, it’s still regularly used to illustrate and to quantify online ad fraud. Firms selling fraud solutions point to it as a reason potential customers should purchase their products. Others selling online ads say it’s far too high.

“That stat was thrown out during the IAB meeting to prove the point that there is a problem. Now people have glommed onto it and are using it to help sell their products,” said Alex White, vp of product strategy at ad technology company Sizmek. “I’m not saying there’s not a fraud issue, because there is. I’m saying anyone that tries to put a number on it is typically doing so for self-serving purposes,” Mr. White added.

The IAB also worries the scale of the problem is being misunderstood. “It is a problem. But there are a lot of people that believe the problem might be bigger than it is,” said Scott Cunningham, the IAB’s vp of technology and ad operations. The IAB itself represents ad sellers, whose businesses could potentially be undermined by allegations of fraud.

According to Mr. Cunningham, the fraud problem is often confused with the “viewable” ad challenges the industry also faces. Fraud pertains to ads that are impossible for real users to see, he said, where viewability refers to ads that a real user could have seen, but didn’t. They’re both important issues for the way online advertising is traded, but they’re separate ones.

“When we talk about fraud, other issues such as viewability often work their way into conversation, and that can confuse the matter,” Mr. Cunningham said.

It’s also important to recognize that fraud exists to varying degrees in different parts of the online ad market, ad execs warn. For example, a marketer that buys ads directly from well-known publisher sites might find those ads less susceptible to fraud than another that buys exclusively through ad brokers and aggregators, such as ad exchanges and networks.

“Estimates are being made by entities that don’t see all the inventory across the industry. The only way you’ll see close to 50% fraud is if you’re looking at a suspect area,” Mr. Knoll said.

That might be the case, but marketers are buying more ads through exchanges than ever, ad execs say. As a result, it’s important to ensure those marketplaces remain fraud-free if they expect marketers to shift their dollars there.

“The suggestion that it’s overblown is a little bit dangerous,” said Andrew Casale, vp of strategy at online ad company Casale Media. “The open exchange market is rife with problems today. I would sign my name next to 50% fraudulent traffic in open ad exchanges,” he added.

But ultimately it’s impossible to accurately estimate the size of the fraud problem across the entire industry, ad execs say, especially in a dollar amount since prices vary so much across different ad-buying approaches. As a result, the industry would benefit from taking a non-alarmist approach to the problem, according to Mr. Cunningham.

“It’s really important to talk through this in a pragmatic and level-headed manner,” he concluded. “Unfortunately aspects [of the fraud problem] haven’t been communicated that well to advertisers in industry, who might just be confused based on some of the the misinformation out there.”