History of Ad Fraud: How it started and Its Impact on the Current Digital Ecosystem

To understand how to detect ad fraud, you need to understand how it started.


The History of Ad Fraud

When online ads were first introduced, they truly transformed the way businesses can market their products. Placing your ad on an online website, attracting visitors with your ad, and successfully completing an online transaction is still a reality in today's world. And this has been a prevalent practice since the first digital ad was placed on the internet. However, spending millions of dollars on various marketing campaigns online will also attract a large number of fraudsters who are looking to make a quick profit. While businesses were celebrating their sales resulting from online ads, at the same time, they were putting huge sums of money in the clutches of fraudsters.


Advertisement frauds and cybercrime are plaguing the digital ecosystem at large. Bots account for the majority of clicks in most digital ad campaigns these days, fuelled by a network of bots rather than genuine humans. As a result, businesses are spending their money on clicks that are not genuine.


But how did we arrive here? How could a brilliant money-making idea result in losses for businesses? Why are online ads more promising avenues for fraudsters but not marketers? To understand why ad fraud is a growing concern and why marketers must be vigilant in addressing it, you must first understand how it all started. It is critical to examine the history of Ad Fraud and how it cost advertisers throughout its history.


Introduction to Online Advertising

When digital advertisement started, brands used to place paid banner advertisements and sponsored articles on the internet. In fact, the first even digital banner appeared on the AT&T-owned website HotWired.com in 1994. Those campaigns were based on a CTR model, with extremely effective results in the initial periods. Paid ads created a sensation among prominent internet companies, and Pay per Click became a thing.


Goto.com was a search engine that promised to help businesses rank high in search results. Of course, this comes at the price of charging them for the same. Soon after, companies such as Google and Yahoo followed and established their own search engine to enter the digital marketing business. When pay per click was launched, publishers were only charged when a site visitor clicked on their ad. This was groundbreaking at the time, yet it also provided a golden opportunity for fraudsters.


The First Impact of Digital Ad Fraud

Just when pay-per-click (PPC) was gaining popularity in the dot-com era, the first impact of ad fraud was felt during the same period. There have been numerous reports of sophisticated internet ad fraud attempts. As a result, there were growing concerns about these attacks, which could endanger PPC's sustainability. At that time, there were limited methods to combat the possibility of these frauds, and this has become a lucrative business for fraudsters.


The truth is, that marketers and advertisers spend money on advertisements in order to drive visitors to their company. However, ad campaigns can produce the desired traffic and outcome and are yet labelled a failure. Why! Well, it was discovered that most of the visitors that come to their websites aren't real people. They are bots instead. This became a standard procedure for internet scammers to take advantage of the click campaign's feature and make a profit for themselves.


Despite various initiatives to fight digital ad fraud and click fraud on the internet, the business continues to lose billions of dollars every year. In fact, recent estimates put the total amount of money lost last year due to ad fraud at $59 billion. And all indicators point to an annual increase in digital frauds.


The Evolution of Internet Bots

Internet bots are merely software programs that run on computers and mostly cyberattack has something to do with bots at its core. Internet bots can perform automated tasks and cybercriminals frequently use these bots to perform illegal actions such as stealing data, hacking accounts, etc. While the first generation of bots mostly behaved like bots, we can see modern bots often hiding themselves pretending to mimic actual human beings.

This, as a result, makes it difficult to track them, and at the same time, equally important to combat them at the earliest. Businesses need to learn how to spot fake traffic.


Let's look at some of the major fraud attacks that disrupt the digital marketing channels on the internet, and the role of bots in committing those ad frauds.


Attack of the bots

Bots are developed such that they can mimic an actual user and could thus befool anyone, giving the impression of an actual visitor. The usage of bots has definitely become an issue on the internet and they accounted for around half of all web traffic. Bots started to appear in all types of internet advertising platforms and campaigns, resultantly draining money from valid sources, and putting it in the pocket of fraudsters.


Methbot (2015-2017)

Methbot was dubbed one of the largest ad fraud schemes ever formed, costing businesses half a million dollars each day. It is believed that the attack was active between 2015 and 2017. The bot was delivering 3-5 billion false bids and clicks each day. In this, fraudsters produced fake copies of popular websites with URLs that looked identical and placed video advertising on these fake websites. This was followed by a network of bots visiting these websites, and clicking on ads to inflate the prices. Resultantly, this fooled the advertisers by displaying exceptional reports, which in reality were irrelevant. At its peak, Methbot was paying its operators between three and five million dollars per day for losses to the ad business.


Advertisers lost an estimate of $16.4 billion to digital ad fraud in 2017.


Industry response to rising ad fraud

This acted as a wake-up call for advertisers to tackle the issue seriously. Many organisations and top executives have expressed their concerns while laying out their agenda on how to combat those. Companies like Procter & Gamble announced in 2017, that they will be cutting their ad spending by $200 in order to minimise the impact due to fraud. Moreover, other major organisations including Unilever stated their intention to combat these frauds.


In 2017, search engine giant, Google officially recognised the issue of ad fraud and started processing refunds to advertisers, who had been victims of malicious practices on their platform. Furthermore, Google has started issuing guidelines to limit the reach of bots. However, these are only the first steps in a conflict against scammers, who are always developing new tools and strategies to defraud businesses.


Fight against Modern Sophisticated Bots

Recent technological advancements have also resulted in more sophisticated programs and intelligent bots capable of imitating real-life human behaviour. For fraudsters, this is becoming a much easier operation, leaving little room for detection.

Because of advanced bots, detection methods based on traditional methodology are basically obsolete. As a result, new techniques and methodologies are required to overcome the increased threat to cybersecurity.


What’s Next?

Since its origin, several organisations and networks, including major players in marketing have been at the center of the ad fraud debate. Advertisers are still processing methods to fight the issue, which is unlikely to be fixed anytime soon. Furthermore, ad fraud costs genuine businesses billions of dollars each year. There has been increasing ad fraud in sponsored search and paid social, mobile apps, affiliate marketing, and so on.


Brands and marketers are now competing in a digital field that is vastly inflated because of the presence of these malevolent variables on the internet. Thus, they need to be extremely cautious when deciding their digital advertising budget. It is critical to examine your data thoroughly; and ensure that your efforts are yielding genuine results, not simply vanity numbers.

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