Digital Ad Industry Loses $8.2B Via Fraud And Flaws In Supply Chain

The bad news is that the U.S. digital advertising industry is losing $8.2 billion a year due to fraudulent impressions, infringed content, and costs associated with malvertising, according to a new report commissioned by the Interactive Advertising Bureau (IAB) and conducted by Ernst & Young (EY), which MediaDailyNews reported on Tuesday.

It turns out that fraudulent or “non-human” traffic is the industry’s biggest scourge, representing around $4.6 billion in wasted ad spending a year. “Infringed content” -- or stolen video, music and editorial content distributed on the Web -- is costing media owners around $2.4 billion in lost revenue annually, the report said. 

The good news is that the money can be recouped if companies fix poorly designed business processes and repair flaws in the digital advertising supply chain, according to the study, titled “What Is An Untrustworthy Supply Chain Costing the Digital Advertising Industry?”

The report includes guidance for eliminating supply chain corruption in digital advertising, and encouraging industry-wide collaboration to build a trustworthy supply chain under the auspices of The Trustworthy Accountability Group (TAG), a consortium that includes founders the American Association of Advertising Agencies (4As), the Association of National Advertisers (ANA) and the IAB. TAG was formed a year ago to address criminal elements in the digital advertising supply chain. Specifically, it’s set up to address fraud, piracy and malware.

Fraud, piracy and malware and the loss of revenue it creates is “a cross-industry problem because marketers, agencies, ad networks and publishers are all being hurt by this activity and they’ve allowed it to infiltrate the supply chain. The solution has to include all the parties,” explained Mike Zaneis, president and CEO, TAG.

“The reality is that there will always be criminal threats to the supply chain. How do we build greater transparency and accountability?” Zaneis asked. For starters, that means knowing whom you’re doing business with. If you’re a marketer and interested in buying low-cost inventory at  cheap CPMs, “you’re part of the problem,” he noted. Low CPMs are often fraudulent impressions and they’re not human.

Last month, TAG launched a Verified by TAG program, a two-step authentication system where marketers and other players in the advertising ecosystem can register. TAG does background checks to determine whether the companies are legitimate and then follows the money trail to determine whether the payment system is legitimate.

By registering with TAG, marketers and others can receive a TAG seal, “Certified by TAG,” similar to the Good Housekeeping Seal of approval. To date, 30 companies have signed up for the program.

“We need to force the bad actors out of the supply chain,” Zaneis said. The first thing companies can do now is register with TAG, get verified and establish a compliance officer as a single point of reference, he said. Companies also need to monitor their own internal policies and controls, and share intelligence and their business process across the industry.

Strategic advisory firm MediaLink collaborated with the IAB and EY to design the scope of the study.

AppNexus, MediaMath, and Rocket Fuel Inc. were premier sponsors of the report. Participating sponsors included Xaxis, PubMatic, and YuMe. Supporting sponsors are OpenX, Pulsepoint, and Videology.

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