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Ad Fraud is a Problem Sellers Don’t Want to Solve

click fraud conflict of interest

Digital advertising remains massive with Forbes estimating that the global digital ad market was worth $537 billion in 2021 with Google Ads alone accounting for $209 billion of it.

With a market of this size, it’s expected that some fraud occurs. However, detection is exceptionally difficult in digital marketing due to the large scale of advertising efforts, and the ease at which one can be anonomyous.

How ad networks make money

Ad networks make money using two main methods. These are firstly selling ads directly on their own networks and, secondly, selling ads on other networks, which is known as arbitrage between networks. There are three main methods of charging for these services, which are:

  • CPC (Cost Per Click). The client pays based on the number of times their advert is clicked.
  • CPM (Cost per thousand). The client pays based on the total impressions their advert receives. The CPM is calculated by dividing the cost of the campaign by the number of impressions and then multiplying by 1000.
  • CPV (Cost per view). This is a method of charging for video advertising. One view is generally only counted if someone watches more than thirty seconds of the client’s video ad.

Ad fraud remains a huge problem

Advertising trade groups announce that “the ad fraud problem has been solved” every couple of years.

However, this is primarily a matter of PR to keep customers calm and allow networks to continue selling packages that are actually severely compromised by fraud.

In reality, advertising fraud remains a huge problem, particularly in display advertising. Advertisers devote billions of dollars from their budgets to display advertising, which is often purchased “programmatically” or through buying software that finds sites that fit a brand’s media plan and automatically places ads on them. But it is thought that at least 36% of clicks from these display ads may be fake.

This means that they have been produced by computers that have been hijacked by viruses and programmed to visit sites that may themselves be fake. These “ghost sites” are sold to advertisers who, thinking that they are high-quality websites, pay to have their adverts displayed there.

This results in marketers paying for worthless traffic that will never generate any income for the business paying for advertising. However, agencies have little motivation to fight this type of fraud. As they are compensated based on a percentage of spending, they want to see an increased volume of traffic and have no genuine interest in the end customer’s actual ROI. The issue is compounded by the fact that networks will have lower volumes of available impressions if they reduce fraud, making them less attractive to larger buyers.

While ad networks may use anti-fraud software, this is no guarantee that fraud is actually reduced to any degree for the same reason outlined above. If the software is effective, this will reduce the impression available, thus incentivizing the ad networks to use poor-quality software that gives the appearance of doing something without reducing their available impressions and hence their revenue.

Ad fraud example 👇

Google Ads labels ad fraud they detect on their network as “invalid clicks.” 

Users can view this in their Google Ads account by adding the column to their standard campaign reports.  In the example below, we pulled one our latest reports and can see that there was 15-20% of ad fraud in our campaigns. This is a normal campaign and this level of fraud is common from or experience.

Google does reimburse it’s users for these invalid clicks, but other networks often do not. Nor do they even show them to their users in this type of report.

google refund for invalid click activity

Sample of Google Ads report of invalid/fraud clicks

Ad networks are not incentivized to stop fraud

It is very difficult to detect ad fraud and the most common method is to simply see if an ad campaign is performing poorly, such as a low click-thru rate or conversion rate.

Thus, advertising networks are incentivized financially to promote ad slots that have the “appearance” of quality.

Sites with poorer quality or suspected fraud may continue to be sold as long as they generate revenues and provide enough user response so as not to raise a flag by the advertiser. In simple terms, a 25% rate of bad clicks from bots or the like helps the ad networks inflate their impressions offer to clients without being high enough for the customer to see no ROI and pull their business.

Similarly, affiliate networks and affiliate program management services’ business model creates a conflict of interest. Large affiliate program networks usually calculate their fees as a percentage of affiliates’ total sales or paid commissions. These networks also have teams that work with the affiliates to increase their advertisers’ sales and commissions. Therefore the network and affiliate both benefit when more revenue is created, and commissions are pushed up. As a result, the ad network is effectively motivated to keep their clients spending high and ignore any fraud.

How to avoid their conflict of interest

If you are a marketer working with an ad network, this may be a little depressing. If the industry won’t reduce fraud, you can do little as one business. However, there are ways to mitigate its effects on your advertising budget and motivate your ad network to provide you with quality impressions. A few of these are:

  1. Buy ads based on sales or core conversion goals – Advertising networks will want to sell ads that provides low risk to them and, thus, push the responsibility of detecting fraud onto the advertiser. When possible, negotiate agreements with ad networks based on sales or conversion goals rather than those clicks or impressions.
  2. Use independent ad fraud detection software – Fraud Blocker help blocks click fraud 24/7 using sophisticated detection methods. By using an independent fraud prevent service it ensures there isn’t a conflict of interest between the ad buyer and seller. Learn more about Fraud Blocker’s features.
  3. Ask for pricing transparency from ad brokers – Always ask for transparency around mark-ups. Similar to how stock sellers boost prices on their trading spreads before selling shares, some agencies and networks pad their prices of CPCs and CPMs by as much as 50% without sharing that information with the buyer.
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