This year, digital media spending is expected to outstrip spending on traditional media, such as television and print. Advertisers, lured by the promise of precise targeting, better ability to measure return on investment, and changing consumer media consumption patterns, have poured money into digital at an almost exponential rate. And, while there are studies (largely by digital media agencies) documenting the effectiveness of such advertising, there remain major questions regarding the effectiveness and efficiency of such spending.
The emergence of online advertising fraud over the last several years has complicated matters. A major study commissioned by the Association of National Advertisers (ANA) in conjunction with digital forensics firm White Ops, released in January 2016, found staggering levels of criminal fraud in the industry, resulting in the theft of an estimated $1 for every $3 spent on digital by advertisers – for an average loss of $10 million for each of the 42 advertisers studied.
More recently, in January 2017, Procter & Gamble Chief Brand Officer, Mark Pritchard, speaking to the Interactive Advertising Bureau’s Annual Leadership Meeting, gave a stern warning to the industry: “The days of giving digital a pass are over. It’s time to grow up. It’s time for action.” Mr. Pritchard said the company had vowed not to pay any digital media, ad tech companies, agencies, or other suppliers for services that do not comply with its new rules, which include transparency in the way its digital dollars are spent, verified, and results measured. Mr. Pritchard added that P&G itself had undertaken a review of its contracts with agencies and media suppliers and did not have the problem as well controlled as it had thought. One step that P&G is taking is to require “any entity touching digital media” it buys to get accredited during 2017 by the Trustworthy Accountability Group, a joint initiative of the Association of National Advertisers, 4As, and IAB. These strong words, coming from the world’s biggest spender on media, drew widespread attention.
Digital ad fraud is occurring in part because of the complexity of the digital media supply chain and partly because of a lack of controls over some aspects of the buying and placement process. Advertisers do not deal directly, in many cases, with media suppliers and publishers. They purchase media through intermediaries that are often controlled by agency holding companies. These entities have proliferated and become more specialized in recent years, as digital media purchasing has become increasingly automated in what is known as “programmatic” buying. In essence, programmatic media purchases function like a stock exchange for advertising, with real time auctions and sales occurring for available impressions on a scale of nanoseconds. By one estimate from a consultant with whom Crowell & Moring LLP has worked, as much as 80 cents of every dollar is consumed by various intermediaries, with only 20 cents reaching the actual consumer.
In February 2017, Google proposed to settle a class action with internet advertising purchasers that alleged that it had allowed ads purchased through Google’s AdWords platform to be placed on dead or inactive websites. Under the preliminary deal, Google will pay $22 Million to a class consisting of an estimated 2.3 million advertisers.
Criminals have figured out ingenious ways to worm their way into the programmatic buying ecosystem. The most prevalent method, documented by White Ops, is to use “bots.” Bots are sophisticated invalid traffic produced by automated sources (typically home computers that have been infected by malware unknowingly downloaded by ordinary people), which is not detected by common whitelists and blacklists in the industry. Using networks of bots, called “botnets,” criminals can generate millions of invalid impressions that trigger a flow of payments from the advertiser to media supplier, and also to the intermediaries sourcing the invalid traffic. Other, more prosaic methods of online theft include creating fake websites that do nothing but host programmatically purchased ads and exist solely to receive unsuspecting clicks.
The phenomenon has also been blamed for the surge in so-called “fake news.” Because of loose controls on some programmatic exchanges, publishers of fake news have been able to participate in the media spending frenzy and secure ad placements from often famous, yet unsuspecting brands. Last year, for example, Kellogg’s was apparently unhappily surprised to find its ads on the notorious “alt-right” news website Breitbart, characterizing the placement as “inadvertent.” More recently, Google has come under fire both in the U.S. and U.K. for allowing mainstream advertising by Mercedes and Honda, among others, to appear on pre-roll YouTube video, alongside Jihadist content. Last week, AT&T, Verizon, and Enterprise Holdings announced that they would pull their ads from YouTube and other sites within Google’s ad network because of Google’s failure to control the placement of their ads alongside extremist content.
Solving these issues will be a moving target as criminals evolve to stay ahead of detection. In the meantime, advertisers can take measures to improve their contracts with media agencies in order to demand better measurement and transparency. Bot fraud, for example, is detectable with appropriate controls in place. Certain types of media and traffic are also subject to higher rates of fraud and may merit heightened scrutiny and monitoring by brands paying for it.