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In The Digital Advertising Industry, Fraud Is A Symptom Of A Larger Problem

July 21, 2016

Sens. Mark Warner (D-Va.) and Chuck Schumer (D-NY) announced last week their intention to step up pressure on the Federal Trade Commission (FTC) to combat ad fraud.

In a letter addressed to the agency, they drew a parallel between the advertising industry and pre-2008 Wall Street and vowed not to let digital fraud go too far before it’s too late. Their argument echoed a piece recently published in CNBC, which declared “The Subprime Advertising Crisis Is Here.”

Is this a fair analogy? Perhaps not in the same way that the senators suggest. Digital advertising fraud is a serious problem, but is entirely different in nature, scale and consequence than what Wall Street did in the years leading up to the worst economic crisis in generations.

What the two industries do have in common is not a set of similar fraudulent practices. What unites Wall Street and digital advertising is a culture that prizes short-term profit maximization without regard for underlying value creation.

The senators doubt whether the industry's efforts to self-correct are enough: "It remains to be seen whether voluntary, market-based oversight is sufficient to protect consumers and advertisers from digital advertising fraud," they wrote.

Of course, the voluntary oversight is not sufficient. Fraud remains rampant today, and many users have taken to ad blocking because the industry failed to guard them against malware and other forms of invasive ad experiences.

Fraud persists because the digital advertising business model measures success the wrong way. Billing on a per-impression or per-click basis has set up a broken system in which a campaign can be called successful even when it compromises the security and experience of the users it is trying to reach. As long as users click and the publishers and agencies get paid, the marketer goes home and calls it a job well done. It’s this system that fraudsters exploit.

Much like the financial industry, short-termism and nearsightedness triumph over the long-term health of the digital advertising industry. Advertisers are not incentivized to combat fraud or secure the user experience in a way that preserves trust; any more than stock traders are bound by a responsibility to sustainable economic growth.

So, in this respect, the analogy holds: Ad fraud is not different from Wall Street greed. Ad fraud is a symptom of the deeper problem of how online content is monetized. That problem can’t be legislated out of existence and will not come from harsher enforcement. The buy side needs to redefine its model for success. The entire model for ad-supported content needs to be rethought from the ground up, with the consumer prioritized first.

Enforcement from the Federal Trade Commission isn’t going to bring about that change on its own. The forces that will bring about change are already at work: pressure from users in the form of ad blocking, pressure from the buy side for proof of viewability and real engagement, and pressure from publishers for ads that don’t compromise the user experience. Together, these forces are leading the charge for better ads measured for real impact, not clicks.

This post originally appeared on AdExchanger: https://adexchanger.com/data-driven-thinking/digital-advertising-industry-fraud-symptom-larger-problem/