How does ad fraud impact businesses and advertisers?

In a world filled with countless ads competing for attention, it’s no surprise that many admen are turning to fraud. From empty promises to outright scams, ad fraud is creating a huge problem for brands and advertisers. And it’s only getting worse.

According to one study, about 20 percent of ad impressions served programmatically in the United States were fraudulent. And that number is only expected to grow. Ad Fraud can take many forms, from bots that click on ads, to false traffic generated by hijacked apps. Ad fraud can also include redirects and malware-infected ad networks that siphon off money without delivering any real results.

That being said, brands must be proactive in their efforts to protect themselves and their brand from false advertising. If not, the costs of ad fraud can add up quickly, resulting in revenue loss, damaged reputation, and decreased trust.

But what is ad fraud really? And what are its consequences? Here is a quick breakdown of ad fraud and how brands can guard against it.

How Much Is the Cost of Ad Fraud?

There is no doubt that the cost associated with ad fraud is no small change. According to the Statistica Research Department, ad fraud costs in the United States are believed to reach 81 billion dollars. Unfortunately, this cost isn’t just limited to the United States. In fact, because ad fraud is most prevalent on smart devices, false advertising has a global reach.

However, money is not the only cost associated with ad fraud. Brands can also suffer reputational damage, as well as lost trust and loyalty from customers. In other words, rebuilding customer relationships after being a victim of ad fraud is no small task. In fact, it can be more difficult to do than building them in the first place.

In light of these facts, what should you do with them? While digital media fosters an incredible opportunity for businesses to grow, it also puts your brand at risk of ad fraud. That being said, when choosing a marketing partner, you should ensure they have a reputation for security and trust.

The Big Short: “Figures don’t lie”

As far as fraudulent activity is concerned, this is not our first time facing this issue. In fact, in 2008, when the United States was hit with a subprime mortgage crisis, many people suffered significantly. After the stock market plunged dramatically, investors and consumers were left in a state of panic and seeking answers. The question is, how does all of this relate to protecting your brand?

Let’s quickly allude to “The Big Short” – a movie that details the events that led up to the mortgage crisis. “The Big Short”, directed by Adam McKay, follows a group of investors who replay the events of the mortgage crisis. In this movie, the characters are portrayed as financial geniuses who have a knack for understanding the economy.

One scene in particular, however, can closely relate to the unregulated world of online marketing. In this scene, Mark Baum and Vinnie Daniel visit Georgia Hale, an employee of the ratings agency Standard and Poor’s. Vinny opens by questioning why the rating agencies haven’t downgraded subprime bonds since the underlying loans are clearly deteriorating Georgia responds, ” Well, the delinquency rates do have people worried but they’re actually within our models.”

Mark and Vinnie proceed to ask Georgia if they’ve looked at the loan-level data. Georgia annoyingly responds, “Excuse me, sir. What do you think we do here all day?” To clarify the situation, Mark asks Georgia to recall a time when the banks didn’t receive the Triple-A percentage they wanted. In response, Georgia replies, “If we don’t give them the ratings, they’ll go to Moody’s, right down the block. If we don’t work with them, they’ll go to our competitors. It’s not our fault. It’s simply the way the world works. “

Vinnie and Mark are left speechless as both of them recognize the greed, and shadiness of the situation. Utilizing this scene, we can confidently conclude that like the unregulated world of subprime loans, ad fraud cannot be regulated. Thus, we must work to become more aware of the situation and recognize the attributes of fraudulent marketing. We must also ensure that all ad spend is being used efficiently and effectively.

What Is Ad Fraud?

Beginning in the mid to late 20th century, fraudulent marketing practices became more prevalent as digital advertising platforms emerged. In fact, in 1970, Campbell’s soup was approached by the FTC for deceptive advertising practices. The FTC, however, did not have the tools nor staff to regulate the growing digital ad market. As a result, fraudulent marketing practices continued to grow in prevalence over the years.

To better regulate the market, the National Advertising Review Board (NARB) was created in 1971. The NARB is a self-regulating body that works to ensure that all marketing campaigns comply with the FTC’s guidelines. They review ads and remove any false or misleading claims, as well as any other violations of FTC regulations.

In spite of the NARB’s efforts, however, it wasn’t enough to prevent marketing fraud on its own. In the late 20th century, ad fraud started to become a major problem. This was due to the rapid growth of digital advertising and fraudsters’ ability to exploit its global nature. This made consumers weary of the truthfulness of advertisements and put brands’ credibility at risk.

From half-truths to blatant lies, fraudsters were taking advantage of the lack of oversight in digital marketing. To combat this, consumers can bring legal action regarding false advertising under the Lanham Act. This act states that any “unfair or deceptive acts of commerce” are unlawful. If the false advertising is being perpetuated, those who are affected may sue for an injunction or monetary damages.

Alongside the Lanham Act, several states enforce the Uniform Deceptive Trade Practices Act. This act creates a standard by which states enforce false advertising laws. The Act applies to all goods and services, including digital marketing. In order to protect consumers from false advertising, digital marketers must be aware of all relevant laws and regulations. This includes developing a better understanding of the FTC’s endorsement and testimonial guidelines, and the provisions of the Lanham Act.

Additionally, it is crucial to note that while these acts are in place, not all fraudulent ads are found guilty. In fact, if the false claims are not damaging to consumers or competitors, they may escape legal consequences. Thus, it is important to take necessary precautions when promoting or purchasing a product or service online. It’s also crucial to understand just how much of the internet is fake.

How Much of the Internet Is Fake?

To answer the question above, I want to first establish what we mean by “fake.” The internet is a vast platform composed of billions of websites and pages, some of which contain false information. However, what about the engagement itself?

Sites like YouTube, Twitter, and Instagram have been known to use bots to simulate engagement on their platforms. These bots can be used to generate “likes” and comments. The purpose of these is to falsely inflate the number of followers or engagement around a page or video. This can lead to consumers being misled by seemingly high engagement when in reality, the level of interest is low.

That said, how much of the internet is fake? In general, it has been found that less than 60 percent of web traffic is generated by humans. So what does that mean for metrics? Unfortunately, this means that many of the metrics used to measure engagement are less reliable than we think. From fake people and businesses to fake content and clicks, the prevalence of fake interactions can be incredibly damaging. In fact, some of our most beloved social media platforms are rife with false information and false metrics.

Facebook, for example, has been accused of covering up significant overstatements of user engagement on the platform. In fact, in October, small advertisers filed suit against the social media giant. The company was accused of covering up significant overstatements of its watch time. According to Facebook, the user engagement metrics were overstated by 60 to 80 percent. The plaintiffs, however, suggest that it was more.

The problem with user engagement metrics is that they can be manipulated by bots and fake accounts. And this isn’t just limited to Facebook. Twitter, Instagram, and other social networks have also been impacted by false accounts and metrics. In fact, even the cell towers that measure mobile engagement miscalculate the amount of traffic they generate.

So how do we prevent user engagement metrics from being manipulated? The first step is to be extremely diligent when it comes to reviewing accounts and metrics. Next, you must accept that the media supply chain, in itself, is fraudulent.

A Fraudulent Media Supply Chain

Whether you’re a business owner, an adman, or a consumer, you have been subject to fraudulent media supply chain manipulations. To prevent these manipulations, brands, consumers, and admen must first accept and understand the reality of the situation.

In fact, Marc Pritchard, CEO of Procter and Gamble and world-renowned marketer, has a few choice words regarding the issue. “We have a media supply chain that is murky at best and fraudulent at worst. We need to clean it up and invest the time and money that we save into better advertising to drive growth…”

To further discuss his point, Pritchard criticized the industry for its lack of transparency, and the need to fix it. “Adopt one viewability standard. Implement accredited third-party measurement verification. Get transparent agency contracts and prevent ad fraud. Yet, for many reasons, we haven’t taken enough action to make a difference.”

To close, Pritchard stressed the disgust and frustration of the consumers, admen, and brands in the industry’s current state. “We’ve come to our senses. We realized there is no sustainable advantage in a complicated, non-transparent, inefficient, and fraudulent media supply chain.” That said, like in The Big Short, Pritchard identified the industry’s current “big short” and called for urgent action.

What is the action that Pritchard is calling for, you may ask? Certainly, we can’t all just log off our computers and stop using the Internet. Instead, we, as a collective group of industry stakeholders, must be proactive in spending our ad dollars responsibly. The question is, how would this work in practice?

Online Marketing vs TV Ads vs Radio Ads

To some of you, it may seem like the answer is obvious- quit digital/online marketing. However, I am not suggesting you cut digital ads. In fact, online marketing has generated immense value for businesses over the past two decades. Rather, I am suggesting that we need to be more mindful of where our ad spend is going.

Are you receiving qualified, profitable leads from your marketing efforts? Do the costs of running these ads outweigh potential profits? Is digital marketing really better than offline advertising such as TV ads and radio ads? These are all valid questions that need to be answered before making an informed decision.

And for those of you who think traditional marketing is dead, you may want to think again. In fact, studies suggest that 83 percent of Americans listened to the radio every week. And if you still don’t believe me, consider this: adults watch TV between 13 to 23 times longer on actual television compared to their computers or mobile devices. Not to mention the significant decrease in bots and fraudulent activity.

So while digital marketing is an effective way of reaching consumers, offline advertising still has a lot to offer. There’s a reason why large, successful companies still opt for offline marketing. It’s because it works. Not to mention the fact that many offline methods have lower costs compared to digital campaigns. So the next time your metrics start to drop, don’t forget the tried and true methods of offline marketing. You might be surprised at what it can do for your business.

And if you’re looking for a data-driven, trustworthy partner to help you get started, look no further. No longer do you need to worry about wasting time and resources on ineffective marketing methods. Book a call with Ryan Chute today to get the help you need in taking your business to the next level.