The Cost Of Ad Fraud: Cleaner Inventory Means Higher CPMs

Data-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Mitchell Reichgut, founder and CEO at Jun Group.

Fraudulent ads have long plagued digital advertising, and the industry is finally making serious headway against them. About $5.8 billion in fraud-related losses is projected this year, down from $7.1 billion in 2015, according to White Ops and the ANA. Malicious ads, which forcefully redirect to another page for malicious purposes, fell from 0.39% in Q1 to 0.25% in Q2. These shifts show that fraud is successfully being weeded out.

As we continue to identify and eliminate ad fraud, real quality inventory becomes easier to identify. As a result, the remaining inventory will cost more because ad fraud creates a false suppression of prices by filling the market with fake supply.

Simply put, quality publishers are getting lower CPMs because they’re up against competition that doesn’t exist. As our ability to rid the market of fraudulent inventory becomes more sophisticated, these CPMs will naturally increase with the higher demand.

We can see this with the rise of influencer marketing, where a new kind of fraud has developed. Influencer bots – accounts that mimic engagement – will cost the ad industry $1.3 billion in 2019. These bots inflate influencers’ prices by making it seem like they have more followers and engagement than they do.

It is easy to fake being an influencer by buying followers, likes and comments. Influencer fraud erodes trust in this newer ad market. It also lowers the efficiency of the overall buy. The reality is that real engagement effectively costs more, even if advertisers and their agents aren’t aware. As this type of fraud is eliminated over time, CPMs will continue to increase as demand for quality influencer impressions rises.

The same logic exists in the music streaming world. Recent estimates say streaming fraud takes as much as $300 million a year out of the pockets of artists and labels. Fraudulent streaming is an umbrella term for any illegitimate plays of music. They often take the form of “stream farms,” where banks of devices constantly play a song or artist to boost the total play count. Streaming fraud skews chart position, redistributes market share and distorts royalty payouts to the artists.

The more the industry continues to crack down on fraudulent streams, the higher each stream’s royalty payout will be because more fake streams have been weeded out. The remaining valid streams will then cost the music platforms more money, in the same way that remaining ad inventory leads to higher CPMs when more fraud gets eliminated.

Ad fraud has troubled our industry for decades; there will always be those who attempt to game the system. As our ability to identify and eliminate fraudulent inventory gets more sophisticated, we will see CPMs rise across the board. While that may make marketers’ wallets groan, they are paying for a higher-quality product and, in the long run, it will save the industry billions.

Follow Jun Group (@JunGroup) and AdExchanger (@adexchanger) on Twitter.

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1 Comment

  1. Despite digital ad fraud being one of the most pertinent problems in the performance marketing industry, businesses and advertisers often don’t take drastic measures to tackle it.