How a Distributed Network Can Combat Ad Fraud

Ad Fraud

A lack of transparency is what contributes the most to fraud in the ad tech industry.

Currently, there's no way to police such a large industry. That's why advertisers pay intermediaries to verify transactions, sometimes verifying a single transaction 10 times, which is incredibly inefficient from both a cost and resources standpoint.

Online advertising is a murky and fraud-ridden business. But the blockchain could be poised to change all of that.

The internet delivers online advertising via a complex network of supply- and demand-side platforms. Ad exchanges sell advertising slots thousands of times a second to the highest bidder.

This generates gigabytes of highly valuable and often proprietary data. Different stakeholders hold on to this data and no one has a single, clear picture of an entire transaction. It is a fragmented industry in which the only way to operate has been to trust other participants.

But that trust model isn't working. Fraudulent traffic is eroding profits in an already low-margin industry, and also destroying trust among advertisers and audiences.

In many cases, advertisements don't reach their intended destinations. An ad that a company thought was going to ESPN or Vogue magazine might end up on a fake site with a spoofed domain, produced by an online fraud operation like Methbot .

The scammers then fake traffic to their sites, which advertisers think is real. Criminals running these kinds of networks can make between $3 million and $5 million per day. Such frauds go unnoticed because the advertisers can't verify who they're dealing with.

A combination of fraud models is costing advertisers dearly. A late 2015 report by the Internet Advertising Bureau (IAB) found that fraudulent traffic was sapping $8.2 billion annually in advertiser revenues.

No wonder IAB president Randall Rothenberg called on the industry to "repair the trust" at the annual IAB leadership meeting this year. But where does it begin to do that?

The ad industry faces two challenges: It must maintain real-time information flows that let advertisers and publishers buy and sell inventory at lightning speed. Yet it must also ensure the legitimacy of publishers and advertisers by verifying who they are and what they are doing.

Until now, these two requirements were at odds with each other. Verifying transactions typically takes time that a fast-moving network couldn't afford.

This is just the kind of problem that blockchain technology can solve. The blockchain serves a community of loosely-connected participants, providing each with transparency and security. It speeds the flow of information while keeping everyone honest.

Instead of relying on trust, the blockchain can verify the different participants in the system and their assets. The idea would be to bring together previously-stored information from all parts of the complex advertising supply chain, making it as visible as necessary and guaranteeing its integrity.

This could solve several problems facing the online advertising ecosystem. Advertisers worried about domain spoofing could encrypt their advertisements and ensure that they reached only a list of pre-approved intended destinations. The blockchain could then check to confirm that the destination matched the list.

Publishers could ensure that the advertisements reaching their pages were from legitimate sources rather than from malicious bidders using advertising networks to deliver malware. By providing complete visibility into an advertisement's origin, publishers could avoid infecting site visitors.

Ad tech companies are already tackling this problem. MadHive , which makes a blockchain-based solution for advertisers and publishers, is a founding member of AdLedger , a consortium of advertisers and publishers that plan to bring blockchain-based transparency to the industry. Other companies like AdEx and BitTeaser are taking their own approaches to the problem, but all of them are banking on blockchains to clean up the ad industry.

Stopping the industry's problems with fraud and introducing some accountability into the advertising ecosystem will help it to innovate in areas such as programmatic advertising. Companies may find it difficult to entrust their advertising dollars to algorithms with no accountability. If they can rely on a transparent network that validates programmatic decisions, they may be more encouraged to invest in this fast-moving sector of the online advertising space.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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