What is ad fraud? How to identify and solve ad fraud?

The billion-dollar ad fraud industry is on the rise, but do you know what it means? And how to combat it?

For fraudsters, the digital advertising ecosystem is gold and brimming with opportunities to make money: Annual digital ad spending in the U.S. surpassed $100 billion for the first time in 2018, and globally it’s $330 billion.

Shady criminals will work tirelessly to find new ways to steal and redirect companies' advertising budgets. Advertisers should be extremely vigilant to detect and prevent fraudulent activities that threaten their return on investment . Overall, fraudsters are currently making money.

In this article, we’ll take a look at what exactly ad fraud is, how serious the problem is, why it’s so difficult to combat, and how an IP proxy network can help you .

What is ad fraud?

Ad fraud can take many forms, but essentially it is an activity where a fraudster tricks an advertiser into paying for any of the following:

• Non-compliant ads : may involve ads being displayed on fraudulent websites, or clicks leading to the wrong website or failing to reach the intended audience .

In theory, today’s ad technology allows advertisers to precisely target the demographics of their choice. However, shady tactics employed by fraudsters can result in ads being displayed to completely different, unrelated audiences, while advertisers are charged for worthless impressions or clicks.

Fraudsters can steal huge amounts of money by using look-alike domains to pretend to be premium vendors. The infamous Methbot case stole $5 million per day from advertisers by spoofing domain names.

Ad injection also falls into this category: malicious browser extensions or malware replace ads that advertisers have paid for with other ads without the provider's permission or knowledge.

• Fake impressions : Impression fraud can take many forms, but usually fraudsters sell ad space on fake websites and set up bots to create large numbers of fake impressions. Advertisers who fail to detect this cunning behavior end up paying full price for their worthless CPM ads (ads that pay per impression).
• Fake Clicks : Click fraud affects the performance of PPC ads (pay-per-click ads). It is said that 1 to 2 out of 5 clicks are fraudulent. Click farms are used to increase the number of clicks an ad receives, and advertisers are forced to spend money on useless clicks that are nothing more than automated traffic that will never convert.

How rampant is ad fraud?

With an estimated 37% of click fraud in programmatic ad buys, and that number growing, big advertisers like Unilever and the Financial Times are cutting their digital ad spending to monitor and blacklist ad fraud.

In 2017, one in five advertising sites was said to be visited by fraud bots at any given time . Ad fraud is expected to become the second highest-grossing type of organized crime after drug trafficking in the next decade.

It’s impossible to say exactly how much ad spend is wasted due to fraud, but some organizations estimate that as much as $42 billion was lost in 2019. That’s a 21% increase from the $35 billion reported lost to fraud in 2018.

As the digital advertising industry continues to grow, ad fraud will follow. As ad fraud detection gets better at identifying fraudsters, black hats will be forced to become more sophisticated in order to survive. Therefore, the battle between the good guys and the bad guys is inevitable.

Who is most affected by ad fraud?

In addition to financial losses, advertisers may also face reputational damage. Clicking through to a branded ad that leads to a malware-infected site or has broken links will make consumers think twice before purchasing.

This problem doesn’t just affect advertisers. Providers could lose up to $1.27 billion in revenue due to ad fraud. Being identified as the source of non-compliant ads and fake clicks is very detrimental to the reputation of providers and ad networks .

Any company that advertises digitally is vulnerable to fraud. Industries with the largest ad spend and the highest AdWords keyword prices are hit hardest.

The industries with the highest risk of PPC ad fraud are finance, legal, business, gambling, and property services. Finance is also the industry with the most bot traffic, with 22% of registration traffic identified as fake .

What are the main challenges in detecting ad fraud?

Today, an already serious problem is only growing, and ad fraudsters are becoming more sophisticated. Those building fraud prevention and detection technology must continue to evolve to keep up.

A “hidden” ad may appear exactly the same to the ad network and advertiser, but it is different from all other users visiting the app or website. Fraudsters are experts at covering their tracks and knowing when they are being viewed.

When a normal user's IP is used to check an ad multiple times, a fraudster may block it and serve cloaked ads to it. This is why it is difficult to detect non-compliant ads without leveraging the power of tens of millions of IP addresses around the world .

The ad journey (the path that an ad takes between the advertiser and the user) can be hacked, making it impossible for either the advertiser or the provider to detect it. To outdo the fraudsters, advertisers need to appear exactly like regular users to avoid fraud . This is where IP proxy networks come in.

How can I use an IP proxy network to verify my ads and fight ad fraud?

There is a solution to the problem of verifying ad compliance at scale. Using a high-quality proxy network of real-person IPs is the most effective way to collect accurate data and detect substandard ads and affiliate links.

By cooperating with a good IP proxy network, the company can access the IPs of tens of millions of real users, that is, it can view and verify the identities of any tens of millions of ordinary consumers around the world .

This means they can check whether a particular ad is being shown to the right demographic, whether it is being shown in the target country or city, and whether the ad is being clicked through to the right website. If any shady activity is detected, advertisers will know they need to identify and block the ad network where the fraudster is operating .

Advertisers need to become smarter and smarter to avoid wasting ad budgets on placements, impressions and clicks that have no value. When fraud is discovered, ad spend decreases, and using an IP proxy network is foolproof! It allows advertisers to verify that ads and affiliate links are legal, free of malware, and display the right ads for the right demographics, locations and times.