• by John Motavalli , Columnist, March 9, 2016

Despite scary headlines that speak of $8 billion in fraud and junk and “stolen” inventory, the programmatic industry appears to be cleaning up its act. Case in point, AppNexus, an industry leader, which said last summer that up to 65% of the transactions it sponsored were questionable — a remarkable admission for any media outlet. But AppNexus immediately began implementing a stringent verification process they dubbed IQ.

Put it in perspective. According to Pat McCarthy, SVP of marketing at AppNexus, the questionable traffic accounted for only 3% of advertiser spend on the AppNexus network. In other words, low-cost inventory is cheap, as little as three-cent CPMs as opposed to $200 CPMs for some AppNexus impressions. Those who buy inventory like this generally know it’s not as reliable as more expensive placements. That’s why it’s cheap. In the context of three-cent CPMs, for every nine impressions generated by a bot, say, maybe one or two is seen by a human. But it’s still cheap. So the impact of ad fraud may not have been quite as draconian as it appears. Still, according to an ANA study released this year, just under 70% of respondents cited higher bot fraud in programmatic buys as worrisome.

AppNexus works with top clients across the spectrum. It’s behind only Google and Facebook in terms of programmatic revenue. In a December report from the Interactive Advertising Bureau, which AppNexus co-sponsored, the IAB stated that programmatic companies needed to “fix badly designed business processes and repair obvious flaws in the digital supply chain,” and that’s just what AppNexus is doing.

Case in point, AppNexus’ relationship with Matomy Media Group, which its Web site proclaims is “one of the world’s leading digital performance-based advertising companies.” Since AppNexus applied its new media verification and screening tools, Matomy (MTMY), a Tel Aviv-based company that trades on the London and Tel Aviv stock exchanges, has seen its stock drop over 50% off its 52-week high. French advertising powerhouse Publicis, which had acquired a 25% percent stake in Matomy after its 2014 public offering, cannot be pleased. Publicis rival WPP PLC owns a minority stake in AppNexus.

What happened at AppNexus is part of a positive trend, some think.

“The industry needed tools to help understand how to identify fraud,” according to Pino Gatto, director, data and technology operations at Mediative in Canada. “Programmatic, although intended to provide simplistic ways in monetizing unsold inventory, has brought with it a number of fraudulent activities. The industry is becoming more transparent. Buyers are demanding transparency at every level. Transparency will be key in the fight against fraud.”

Gatto cites such “vendor technologies” as “Moat [Analytics] to help understand the amount of NHT (non-human traffic) being driven to your pages, among other things. Although, these tools don't identify exactly the IP or impression that was fraudulent, it can provide insights into identifying inventory that may require a second look. From the buyer perspective, programmatically, verification partners such as double-verify exist to help identify potential fraudulent activity as well.”

The problems with fraud reinforces the fact that no other medium has unlimited inventory like this. The upfront TV marketplace is over in a few days basically, as even in today’s multi-channel cable universe, the inventory is fairly limited. Casting a long net backwards, I recall the unique experience of a magazine publisher from the ’80s and early ’90s, who shall go unnamed because he’s now retired from media. He became so strapped for cash that industry legend had him printing issues only for advertisers, not subscribers. He’s running a hotel now in upstate New York. Let’s hope the fraudsters in programmatic have similar fates.