Let us take you back to the 3rd year engineering lecture on control systems.
"If either the output or some part of the output is returned to the input side and utilized as part of the system input, then it is called feedback. Feedback plays an important role in order to improve the performance of the control system".
Before we break the current Ad Tech system into one such control system, we would like to you understand how fake apps are used to acquire audience inventory from the market either by running campaigns through them with leading publishers/networks or installing a behavior bot script onto these apps to generate traffic. If you haven't read this understanding from our previous blog post, read here.
Understanding Feedback Loop 1 : The sole purpose of feedback loop 1 is to fuel the second feedback loop for increasing the overall performance of the system. In Ad Tech, the feedback loop 1 can be fueled in 2 ways,
1. Fueled by Ad Detection Vendor : Several times, in order to to prove the traffic is invalid and doesn't stand for payment, fraud detection vendors have to share reports and validations on why a particular set of attributes qualify for invalid traffic. This feedback in terms of reports and validations makes today's invalid traffic valid tomorrow as merely few attributes have to be changed to over throw the current algorithms of the fraud detection vendor in place. And then you would often see ad tech vendors say, Oh look, your campaign is optimized, it's fraud free now.
2. Fueled by Re-targeting Campaigns/CRM :A better of way of building the first feedback loop for the Ad-Tech Vendor is to either acquire an advertiser's re-targeting planning or capture post acquisition data in name of optimization. In both the cases, the idea is to understand what qualifies for the good traffic. Acquiring CRM of advertisers is often used to fuel the acquisition DMP's of ad tech vendors.
Understanding Feedback Loop 2 : Once the feedback loop 1 is complete, the information is passed onto the feedback loop 2 to empower the entire semi owned network of sub publishers often dummy mobile applications. And this is how, your traffic gets optimized.
Where does the buck stop?
The cycle of digital advertisement fraud is vicious one, highly unorganized in the front but organized behind and morally disengaged. The red arrow depicts the flow of funds, and it definitely stops at the Ad Tech vendors. No wonder, the market is highly inflated.
What should the investors/advertisers look at?
1. FPPA (First Purchase per Acquisition) : No matter how sophisticated the invalid traffic creators get, the financial gain per acquisition for the advertisers will remain clean. A very easy KPI for investor/advertiser to understand the quality of user acquisition is to measure the performance of ad tech vendors over a ratio of total first purchases/total acquisitions over a period of 30 days.
2. Making the internal supply chain Independent : As the old Russian proverb, Trust but Verify. Advertisers should make sure, each of their systems are independent of each other i.e vendor for UA, vendor for Re-targeting and vendor for fraud detection. Instead of supplying each of the systems with feedback loops, the advertisers should stick to blocking the fraud publishers for further damage because invalid traffic can't be turned valid by mere optimization.
3. Say No to Network Effect : Ad Tech vendors are often heard saying the phrase "network effect". It sounds like the magic wand, which comes into play when the advertiser realizes the need of continuous investment into user acquisitions until an effect is created by which scale happens automatically. But in reality, user acquisition's don't scale. Brand and organic growth is build only by continuous effort in content building, noise and customer service.
Not everything that counts can be counted, and not everything that can be counted counts.