Deconstructing A Predatory Marketplace

Last week, I talked about a predatory ad market that was found in -- of all places -- in-game ads. And the predators are -- of all things -- the marketers of Keto Gummies. This week, I’d like to look at why this market exists, and why someone should do something about it.

First of all, let’s understand what we mean by “predatory.” In biological terms, predation is a zero-sum game. For a predator to win, someone has to lose.  On Wikipedia, it’s phrased a little differently: Predatory marketing campaigns may (also) rely on false or misleading messaging to coerce individuals into asymmetrical transactions. “

 “Asymmetrical” means the winner is the predator, the loser is the prey.

In the example of the gummy market, there are three winners -- predators -- and three losers, or prey. The winners are the marketers who are selling the gummies, the publishers who are receiving the ad revenue and the supply side platform that mediates the marketplace and take its cut.



The losers -- in ascending order of loss -- are the users of the games who must suffer through these crappy ads, the celebrities who have had their names and images illegally co-opted by the marketer, and the consumers who are duped into actually buying a bottle of these gummies.

You might argue the order of the last two, depending on what value you put on the brand of the celebrity. But in terms of sheer financial loss, consumer fraud is a significant issue, and one that gets worse every year.  In February, the Federal Trade Commission reported that U.S. consumers lost $8.8 billion to scams last year, many of which occurred online. The volume of scams is up 30% over 2021, and is 70% higher than it was in 2020.

So it’s not hard to see why this market is predatory. But is it fraudulent? Let’s apply a legal litmus test. Fraud is generally defined as “any form of dishonest or deceptive behavior that is intended to result in financial or personal gain for the fraudster, and does harm to the victim.”

Based on this, fraud does seem to apply. So why doesn’t anyone do anything?

For one, we’re talking about a lot of potential money here. Statista pegs it at $32.5 billion worldwide in 2023, with projected annual growth rate of 9.10% That kind of money provides a powerful incentive to publishers and supply-side platforms (SSPs) to look the other way.

I think it’s unreasonable expect the marketers of the gummies to police themselves. They have gone to great pains to move themselves away from the threat of legal litigation. These corporations are generally registered in jurisdictions like China or Cyprus, where legal enforcement of copyright or consumer protections are nonexistent. If someone like Oprah Winfrey has been unable to legally shut down the fraudulent use of her image and brand for two years, you can bet the average consumer who has been ripped off has no recourse. 

But perhaps one of the winners in this fraudulent ecosystem -- the SSPs - should consider cracking down on this predatory ecosystem.

In nature, predators are kept in check by something called a predator-prey relationship. If predators become too successful, they eliminate their prey and seal their own doom. But this relationship only works if there are no new sources of prey. If we’re talking about an ecosystem that constantly introduces new prey, nothing keeps predators in check.

Let’s look at the incentive for the game publishers to police the predators. True, allowing fraudulent ads does no favors for the users of their game. A largescale study by Gao, Zeng, Lu et al found that bad ads lead to a bad user experience.

But do game publishers really care? There is no real user loyalty to games, so churn and burn seems to be the standard operating procedure. This creates an environment particularly conducive to predators.

So what about the SSPs?

GeoEdge, an ad security solution that guards against malvertising, among other things, has just released its Q1 Ad Quality Report. In an interview, Yuval Shiboli, the company’s director of product market, said that while malicious ads are common across all channels, in-game advertising is particularly bad because of a lack of active policing: “The fraudsters are very selective in who they show their malicious ads, looking for users who are scam-worthy, meaning there is no security detection software in the environment.”

Quality of advertising is usually directly correlated with the pricing of the ad inventory. The cheaper the ad, the poorer the quality. In-game ads are relatively cheap, giving fraudulent predators an easy environment to thrive in. And this entire environment is created by the SSPs.

According to Shiboli, it’s a little surprising to learn who are the biggest culprits on the SSP side: “Everybody on both the sell side and buy side works with Google, and everyone assumes that its platforms are clean and safe. We’ve found the opposite is true, and that of all the SSP providers, Google is the least motivated to block bad ads.”

By allowing -- even encouraging -- a predatory marketplace to exist, Google and other SSPs are doing nothing less than aiding and abetting criminals. In the short term, this may add incrementally to their profits, but at what long-term price?

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