Concerned over how ad fraud may impact consumers, two lawmakers are asking the FTC to look into the issue.
Ad fraud, in particular, the use of bots to generate fake clicks, is a growing problem and now the Federal Trade Commission has been asked to look into the issue. Recently, Senator Mark Warner (D-Virginia) and Senator Charles Schumer (D-New York) released a letter sent to the FTC asking the federal watchdog what it has been doing to address the issue of fake Internet traffic.
“Bots plague the digital advertising space by creating fake consumer traffic, artificially driving up the cost of advertising in the same way human fraudsters can manipulate the price of a stock by creating artificial trading volume,” the two Senators explained in their letter to FTC Chairwoman Edith Ramirez.
A big part of the rise in fraud has been the rise in Internet advertising and the money involved. In 2017, Internet advertising revenue reached $59.6 billion, its highest ever, according to a report by PwC. In the first quarter of 2018, the industry set a new quarterly earnings record, with revenue reaching $15.9 billion for the quarter.
While spending on Internet advertising has grown, it isn’t clear if its effectiveness has, and ad fraud is a significant problem. One study cited in the letter found that as much as 88 to 98 percent of ad clicks on platforms like Google, Yahoo, Facebook, and LinkedIn are not human clicks, but being done by sophisticated computer systems called “bots.”
On the consumer end, digital advertising has become a nuisance, and one consumer is increasingly trying to avoid. According to some recent reports, and the Senators’ letter, Internet ad blocking is on the rise as consumers use new technology to block ads, and the industry is aware and trying to correct the problem.
However, a much broader challenge facing advertisers and ultimately affecting consumers is the booming ad fraud industry. According to a report from the Association of National Advertisers, ad fraud will cost the industry $7.2 billion in 2018 and the World Federation of Advertisers believes that fraud will cost the industry as much as $50 billion by 2025, and will become the second largest source of income for organized crime after illegal drug trafficking.
One of the issues leading to the increase in fraud has been the development of programmatic ad buying platforms that allow more automated ad purchasing. Similar to the way stock exchanges function, these platforms give advertisers the ability to bid on ad placements in real-time, mainly relying on consumer traffic to determine the price. This reliance on traffic as the leading metric has increased the value of ad fraud and helped it grow.
The Senators outline much of these developments in their letter to the FTC, explaining that the rise in ad fraud is reaching a level that will cause problems for consumers. “The cost of pervasive fraud in the digital advertising space will ultimately be paid by the American consumer in the form of higher prices for goods and services,” they explain. “Just as federal regulation has evolved to keep pace with the ever-growing sophistication of our financial markets, so must oversight of the digital advertising space.”
The fraud is not just problematic in how it raises the cost for consumers, but also how it is performed. Fraudsters use “bots” and malware programs to mimic the behavior of real consumers and click on Internet ads. Sometimes these are standalone programs, but often this involves installing malicious software (malware) on personal computers. This gives the fraudsters the ability to make their computer click on ads without the user knowing, but it also gives them access to a person’s computer and all their data.
The sophistication behind the fraud has made detection an even more significant challenge. In fact, companies are now working on developing ad tech products that can help detect fraud. PerimeterX Partners, which produces anti-fraud tech, recently partnered with ironSource, an app tech firm, to fight ad fraud, using advanced technology that analyzes computer actions to determine if a human or a machine does them. Also, the Senators’ letter cited moved by Google, the Trustworthy Accountability Group, and others to fight the problem from within the industry.
As the problem grows, it is no surprise that the government is beginning to get involved more actively. The question is how effective they will be. To start, the Senators have tasked the FTC with answering some questions about what they are doing to fight ad fraud and what they might be able to do in the future to regulate the industry and prevent the further rise of ad fraud.