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Fraud Hits Digital Advertising Hard
Invalid traffic, content sharing, and malware cost the digital ad industry $8.2 billion per year
For the rest of the February 2016 issue of CRM magazine please click here

Poorly designed business processes and repair flaws cost the U.S. digital marketing, advertising, and media industry $8.2 billion annually, according to a study by the Interactive Advertising Bureau (IAB) and Ernst & Young. To recover these costs, companies must focus on invalid traffic, infringed content, and malware in the digital advertising supply chain.

Sherrill Mane, senior vice president of research and analytics and measurement at IAB, was floored not just by the cost estimates of what the entire ecosystem is losing in opportunities but also by "the porous nature of the supply chain."

"Until we realize this porous nature and how these things can happen, we're going to have a bigger struggle fighting fraud," she warned.

Of the three problem areas identified by the study, invalid traffic that affects search, audio, video, social, mobile, and Web applications costs the industry the most, at $4.6 billion—56 percent of the total. Invalid traffic causes systems to generate ad-related actions for reasons other than delivering the right ad to the right user at the right time. Examples of invalid traffic sources include hijacked devices that are modified to make HTML or ad requests without the user’s control; adware traffic where HTML or ad requests are made independently of the user’s requests; and browser pre-rendering, where a device makes HTML or ad requests in advance of the user’s navigation to the requested content.

Infringed content—stolen video, music, and text content that is illegally distributed on the Web—costs the industry $2.4 billion. Of that, $2 billion can be attributed to consumers’ spending an average of $8 per month to access what is currently considered infringed content, and $456 million constitutes the advertising revenue that is lost. Examples of infringed content distribution include unauthorized hosting sites that enable users to upload and stream videos, peer-to-peer communities that allow users to browse files on Web sites that link to other connected computers or servers, and unofficial storefront communities where users can purchase and download content from the site’s own servers.

Malvertising, which costs roughly $1.2 billion, injects malware onto users' devices through the digital advertising ecosystem, especially through ad content. The malware is distributed through infected ad content or scripts delivered at the same time as Web content. The idea that users need to click on compromised ads to have their devices infected is a misconception, as several malware delivery methods do not require clicks. For example, link hijacking is when an ad or script automatically redirects a user to a Web site that delivers malware; "drive-by" download ads or scripts lead users to unknowingly download malware; and "watering hole" attacks draw users with a shared interest to a site that delivers malware.

One of the ways the industry is fighting back is through the Trustworthy Accountability Group, a cross-industry accountability platform that works to promote transparency and combat fraudulent traffic, malware, and piracy. "Everyone recognizes that you need a mechanism in the industry that represents the entire ecosystem that can set up proper ways to vet partnerships, proper ways to ferret out who are the good players and who are the ones who are less good, and how to tell the less good ones, 'Hey, fix your stuff,'" Mane says.

Another industry initiative for improving the system comes from the Media Rating Council (MRC). "The MRC oversaw a far more stringent guideline for measurement companies to weed out fraudulent activity. Measurement will also continue to improve as the industry continues to recognize that we have to stamp out these kinds of activities," Mane says. "And if you can't stamp them out, then the measurement guideline says…this is how you identify it and pull it out of a pool of activities that are being attributed to consumers."

Overall, Mane believes that a unified, holistic approach is essential to straightening out these issues. "We're on a mission now as an industry—as a collective ecosystem—to clean up the supply chain," Mane says. "If you go after one piece, that's great, you've done something, but it doesn't stop it from occurring again." 

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