The ad industry’s battle with ad fraud rumbles on: who will win?

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Last year, digital ad spend passed $600 billion worldwide. Impressive, right? Here’s a more impressive stat: an estimated $150 billion of that was stolen by digital ad fraudsters and bots. That’s $411 million every day.

We know that digital ad fraud - attempts from cybercriminals to defraud digital advertisers for financial gain by misrepresenting clicks, conversions or data events - now accounts for $1 of every $4 spent on digital ads. This can come in many forms, from cybercriminals working alone or in a group, to large organizations attempting to thwart competitors by hijacking ad campaigns.

Whatever the form ad fraud takes, businesses are hemorrhaging cash. Digital ad spend is being gobbled up by cybercriminals and bad bots before ads can reach real humans and translate to real leads. To get a handle on ad fraud and unlock a huge uptick in ROI, the digital ad ecosystem needs to stamp out complacency, demand more stringent regulation, and keep pace with the most up-to-date solutions.

This ecosystem includes everyone from the website owners to the marketers and the web hosting providers. But to address the issue of digital ad fraud effectively, we need to stop frauds and bots at the source, keeping them off websites altogether: once they’re in, it’s too late. Hosting providers play a key role here as they are the signal path to detect click-fraud. Without websites categorising and reporting click-fraud activities, marketing departments have no way to determine if their clicks are real or fraudulent. By taking the information from website monitoring and incorporating it into blacklists at the ad network level, malicious clicksters will continue to bleed ad budgets without recourse. Hosting providers can help their customers recover as much as 25% of their ad spend.

Nik Rozenberg

CEO and co-founder, BotGuard.

The many faces of ad fraud

Before it can tackle the problem of ad fraud, the web hosting industry needs to understand what it’s up against and where they can add value to their customers. There are many types of digital ad fraud, like geo masking, in which fraudsters disguise low-quality traffic as high-quality, to sell to advertisers at premium prices. Or ad stacking, which layers multiple ads on top of each other in a single ad placement - meaning only the top ad is visible to the user but a click is registered for every ad in the stack. Ad fraud can involve bots, like click injection, click spam, and device emulators. There’s also domain spoofing, cookie or pixel stuffing, and install farms - to name just a few others.

Not only does ad fraud indirectly waste funds - as cash spent on ad campaigns doesn’t translate to real leads - it can even lead to businesses directly losing revenue. Take the example of a small ecommerce business. If the company sees 500 clicks on its ad campaign, it might order lots of new stock in anticipation of an influx of orders. But if these clicks are fraudulent or bot-driven, these orders will never appear, and the business will be left with stock it can’t sell.

Digital ad fraud is complex, comes in many forms, and is constantly evolving. When it comes to knowing how to start protecting campaigns effectively, the industry is facing a daunting learning curve.

When complacency can be catastrophic

As it stands, legislation is failing to protect the digital ad industry. In the US, legislation aimed at tackling digital ad fraud is still in its infancy. There are no laws directly preventing digital ad fraud, and fraudsters and bots are fast outgrowing any attempts to keep them under control.

We’re seeing a similar story across the globe. Last year, the UK government introduced the Online Safety Act, which set out to tackle fraudulent ads by preventing customers being defrauded by ads for fake products or phishing scams. This might help consumers avoid falling victim to fraudulent ads - but it does nothing to protect businesses from being defrauded by malicious actors.

Although digital ad fraud directly affects individual businesses, it impacts the wider economy too. Ultimately, without any guardrails to protect businesses from ad fraud, we’re losing value from the economy, and funds are slipping into the hands of criminals - sometimes even funding organized crime. This threat doesn’t just affect the ad industry: it has national implications.

With ad fraud a snowballing problem with ever-expanding potential for damage and costs, why is the digital ad industry still struggling to get a handle on it? Aside from a lack of understanding of the different forms digital ad fraud can come in, many website owners and marketers don’t understand the sheer scale of the problem. If businesses were aware that they could reach more potential customers just by stamping out ad fraud, they might put more pressure on their hosting providers to take action and provide an easy to add-on solution.

Stopping fraudsters and bots in their tracks

Solutions to protect companies from ad fraud work by using algorithms to identify fraudulent behavior. This could look like abnormally high click-through rates, and poor or low campaign performance - for instance if an ad receives 600 clicks but sees zero conversions. The software can then blacklist certain URLs and IP addresses associated with this suspicious activity.

Some solutions work directly with web hosting providers and can be added on to protect websites of all sizes. Often SMEs don’t have the in-house expertise to know that ad fraud is a threat to their business - let alone the solutions to arm themselves against the problem. When ad fraud protection is sold as an add-on through web hosting providers, SMEs can access ad fraud protection at a lower cost through economies of scale.

The most advanced solutions combine ad fraud and bot protection. As we know, forms of ad fraud like click injection, click spam, and device emulators are driven by bots. All-in-one solutions can ‘kill two birds with one stone’, protecting businesses against both threats.

Making the industry take notice

How can we begin to drag ads out of the clutches of bad bots and fraudsters and enable businesses to unlock better returns on their ad investment? Better legislation would be a step in the right direction. To keep pace with what is an ever-evolving threat and give itself any chance of fighting back, education in the advertising sector is also key. Transforming the industry will mean taking notice of the huge impact of ad fraud, not just on ROI but on the economy at large.

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Nik Rozenberg, CEO and co-founder, BotGuard.