By Sandeep Kuriakose and R. Chandra Mouli
In the finance world, precision is non-negotiable. The diligent CFO ensures every rupee spent is justified by the value received. In the digital world, what if some part of your digital marketing budget is funding fraudulent ad traffic? Welcome to, sorry wrong word, beware of a gnawing issue in the advertising world that remains largely hidden from view.
Flashback to the classic film “Sholay” where Gabbar Singh taunts, “Kitne aadmi the?” Likewise, the question to ask about digital campaigns is, “Kitne real users the?” As companies invest crores into digital ads, the last thing they want to discover is ads are engaging lots of bots and a handful of humans.
The global annual digital advertising budget is currently USD 600 Billion. However, experts estimate that fraud accounts for over one-third of all digital ad traffic. For CFOs, CMOs and CDIOs, this isn’t just a marketing problem; it’s money down the drain – impacting the bottom line and distorting key metrics deployed in decision-making.
What is Ad Fraud?
Your digital advertising partner is someone you trust, who in turn trusts a supply-side partner, who in turn engages a series of web portals detailed in the media plan. Somewhere in the darkness, in one of the delivery chains and mechanisms, deceptive practices can creep in: False clicks, impressions, or traffic through automated systems. The result is advertisers paying for ads never seen by actual human users.
You have an illusion of engagement, but returns are non-existent. That’s the crux of ad fraud – campaign execution looks great on paper; dig deeper and you discover smoke and mirrors.
The risk of chasing lower CPMs
The standard metric in digital advertising is CPM, cost per mile, or cost per thousand impressions. Consider this scenario: Your marketing team informs they have managed to secure ads at a significantly lower CPM compared to previous campaigns. The initial results look promising—clicks and impressions are up, and on the surface, it seems like the team’s efforts to reduce costs are paying off.
What’s playing out is similar to a scene from “The Wolf of Wall Street.” Everyone’s celebrating high returns, but eventually, you realize something’s off. Much like Jordan Belfort on whose life the film was based, and who manipulated stock trades, your campaign’s success turns out to be fuelled by a large portion of low-quality traffic on cheap media sites, populated by non-human traffic. The lower cost per thousand impressions might seem like a win, but it has exposed your campaign to ad fraud.
How big is the problem?
- According to a report by CHEQ, a leader in go-to-market security, global losses due to ad fraud were estimated at $35 billion in 2020. However, as fraud continues to grow more sophisticated, some experts suggest total losses, including indirect costs, could exceed $300 billion annually.
- A recent analysis of digital advertising revealed that mobile ad fraud has soared, particularly through mobile emulators and bot traffic.
- Industry studies indicate one-third of all mobile ad traffic is generated by bots, which enable fraudulent publishers to ace the system and extract more ad spend without delivering real value to advertisers
How Ad Fraud happens: Tactics of bad actors
Fraudsters have developed a variety of sophisticated techniques to exploit gaps in the digital ad ecosystem:
- Bot traffic: Bots are automated programs that mimic human users. These can click on ads, fill out forms, and even simulate engagement, making distinguishing between real users and fraudulent activity difficult. This is why at times you come across a pop-up that says, Confirm you are not a Bot.
- Residential proxies: Fraudsters use residential IP addresses to disguise their bots, making it appear as though legitimate users are interacting with ads. These proxies help evade traditional fraud detection systems, which may flag suspicious behaviour from known data centres but overlook traffic from residential sources.
- Mobile emulators: In recent years, fraudsters have increasingly turned to mobile emulators – software that mimics the behaviour of real mobile devices. With mobile advertising becoming a big draw, companies are now more exposed to this form of fraud than ever before.
- Domain spoofing: Fraudsters create fake websites that pretend to be legitimate, high-traffic publishers. Advertisers pay premium prices for ad placements on such sites, believing their ads are being shown to genuine users.
- Ad stacking and 0x0 pixel ads: Some bad actors use a deceptive tactic known as ad stacking, where multiple ads are layered on top of each other in a single ad space. Only the top ad is visible, but advertisers are charged for all the stacked ads, even though they were never seen. Similarly, 0x0 pixel ads are invisible to users because they occupy a space too small to be noticed.
Each of these methods allows fraudsters to siphon funds from advertisers without delivering the intended business outcomes. The cumulative effect of these tactics can be devastating for companies spending on digital ads.
The impact on your bottom line
Once exposed, fraud creates ripple effects across the organisation, impacting key performance indicators that finance teams rely on. When marketing departments report on the effectiveness of campaigns, they don’t realise fraudulent traffic has inflated their results.
As in the film “Inception,” where the characters struggle to distinguish between reality and dreams, ad fraud makes it difficult for companies to separate real engagement from fake traffic.
In 2017, an ad technology company exposed “domain spoofing.” Victims of the bot, dubbed ‘HyphBot,’ were brands that inadvertently bought advertising space on fake sites via ad exchanges. Promotional campaigns were viewed by computers and not humans. HyphBot generated over 1 billion fraudulent ad requests per day by faking traffic to more than 34,000 websites.
In 2023, Vastflux – a fraud operation that exploited vulnerabilities in video ad protocols – generated 12 billion ad requests per day and impacted more than 11 million devices. The scam revealed the growing sophistication of ad fraud schemes.
The CFO, CMO, and CDIO’s role in combating Ad Fraud
Stakeholders must recognize this isn’t just a technical problem for the marketing department—it’s a financial problem that requires a proactive approach.
By implementing advanced fraud detection solutions, businesses can dramatically reduce their exposure to ad fraud. These systems use real-time monitoring to detect suspicious activity and block invalid traffic before it has the chance to drain your marketing budget. They identify patterns invisible to the human eye.
However, not all fraud detection services are equal. Some solutions, which may rely heavily on automated metrics and limited verification tools, may fail to apprehend all fraudulent traffic. This is where working with domain experts—not just automated systems—is critical.
Why relying solely on automated solutions can be risky
Many companies rely on automated fraud detection systems provided by big names in the industry. However, these solutions may fail to detect sophisticated forms of ad fraud, especially when fraudsters use emerging techniques. Relying solely on these platforms could make advertisers vulnerable to the problem they are trying to prevent.
Companies must adopt bespoke fraud prevention strategies that go beyond one-size-fits-all solutions. Experts who entered the digital domain early and have kept pace with change can help businesses build customized systems that detect fraudulent activity often missed by larger players in the market.
Reclaim control of your marketing spend
John Wanamaker, a pioneer in marketing in the late 1800s, once said, “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” More than a century later, our worry is only one-third, as evidenced by new-age data.
As an advertiser, you don’t have to fear every campaign will get entangled in fraudulent ad traffic. All you need to do is drive on the right side of the digital highway, stay clear of fatal attractions, and soon your investment will work for and not against you.
(Sandeep Kuriakose is the founder of a programmatic ad-buying platform and an evangelist for responsible media buying. R. Chandra Mouli is a martech and adtech advisor. Views expressed are their own and are not necessarily that of financialexpress.com)