IAB Report Reveals Flaws in Internet Supply Chain

Internet companies and digital rights activist organizations have spent considerable resources over many years promoting the idea that we should think of the Web as an extra-legal territory.  From Barlow’s  evangelical Declaration of the Independence of Cyberspace in 1996 to current debates over the relevance and meaning of an “open” Internet, one recurring theme that still holds sway among many people is the idea that these networks should operate beyond the boundaries of public or private regulation.  Digital rights proponents—many of them funded by Silicon Valley corporations—at times come rather close to describing the Internet as a religion—as though it runs on esoteric virtues like freedom, good intentions, and the human spirit rather than, y’know, money.

For better or worse, the Internet most of us use every day is one vast, complex media platform designed to attract advertising dollars, which means the major Silicon Valley firms and their shareholders have more than a vested interest in a sustainable digital adversing ecosystem.  As such, it’s worth noting that their own anti-regulatory rhetoric often used to lobby for a laissez faire approach to all things Web can potentially backfire and threaten the viability of their own existence, like unfettered deforestation in the Amazon.  (I mean the real Amazon).  And according to a new report released last week by the Interactive Advertising Bureau (IAB), conducted by EY, the digital advertising ecosystem in the U.S. is currently losing an estimated $8.2 billion a year in value due to “fraud and flaws in the Internet supply chain.”

Without working in digital media planning and buying, it’s tough to fully understand the advertising ecosystem, but this video created by IAB is a helpful overview that at least gives one a pretty good idea as to why it’s called an ecosystem.  Media buying and selling in a market with billions of pages in constant motion is naturally a complex universe of interdependent functions, which are necessarily automated and, therefore, not entirely transparent to all parties. Available online inventory is purchased through a semi-automated exchange where the available inventory of impressions is bought and sold, functioning much like any other commodities exchange.  At the most basic level, advertisers are paying for impressions, which are supposed to be based on real human traffic to the sites and pages where they have directed their ads. But because the system is complex, partly opaque, and because any site owner can serve ads to his page, there is tremendous opportunity to exploit imperfections in the system for profit.

As complex as the system may be, dishonest brokers have developed a variety of equally sophisticated methods for either siphoning ad dollars away from the intended market or for using the advertising ecosystem to deliver malware or conduct scams and theft. For instance, the IAB report estimates that Invalid Traffic is costing the industry $4.6 billion.  One example of Invalid Traffic would be an advertiser paying for ad impressions based on a volume of non-human traffic to a given site or page.  Serving ads to bots or generating false impressions via clickfarms are among the growing problems for the advertising industry. Additionally, this type of Invalid Traffic is interrelated with the two other corruptions in the supply chain identified by the IAB report—Malvertising+ and Infringed Content.

Infringed Content (e.g. piracy sites) is estimated by the report to be draining value from the advertising ecosystem to the tune of $2.5 billion. The lion’s share of that number represents a combined estimate of either paid-for content or ad-supported content that would be legally consumed if Infringed Content could instantly be made to disappear from the Web. I have written in earlier posts about advertisers losing brand value when their ads appear on sites dedicated to infringed content, but this report identifies specific ways in which Infringed Content is related to Invalid Traffic. For instance, a user who visits a pirate site is increasingly vulnerable to malware, which can then slave the user’s device to generate Invalid Traffic for ads in a variety of ways unbeknownst to the user.

Malvertising+ is estimated in the report to be costing the industry $1.1 billion in value and is described thus:  “Malvertising+ refers to the potential distribution of malware across a larger population of consumers by compromising a single advertisement or script than would be possible through compromising a single website or content source.”

In a nutshell, Malvertising+ includes various methods by which bad actors are using the advertising ecosystem to deliver malware that may either be used to generate fraudulent revenue via Invalid Traffic or to attack individual users with scams like ransomware, which installs a virus to seize control of a user’s system so the hacker can then charge a fee for its release.

Suffice to say the IAB report cites too many examples—and they’re fairly technical—to describe in this post, but to put that $8.2 billion in lost value in perspective, this article by TechCrunch, citing ZenithOptimedia, states that the projected U.S. ad spend for all Internet advertising—which includes more than the portion relevant to the report—in 2015 was expected to have been approximately $51 billion.  That means just about 16% of the total domestic spend on online advertising is being poured into what the IAB report calls an “untrustworthy supply chain.” Presumably, there is a tipping point at which advertisers can lose confidence in the digital advertising ecosystem, which seems to me the kind of outcome one might expect from an entirely unregulated Internet.

Because each of the various types of corruption identified in the report represents criminal activity, it seems likely that the remedies necessary to maintain confidence in the advertising supply chain will comprise some combination of both law-enforcement efforts and voluntary measures on the part of key players in the advertising ecosystem. And it is interesting that the second largest corrupting force identified in this report happens to be Infringed Content.  After all, the Internet industry—particularly Google—has spent such vast resources devaluing the relevance of copyright in the digital age and claiming that ISPs cannot “police the Internet” whenever the copyright holders have sought voluntary measures to mitigate mass infringement.  But if the ad buyers cannot have confidence in the market, then the ad sellers may suddenly find both the will and the ability to stifle the opportunity of pirates and thieves to leech off legitimate trade.

© 2015, David Newhoff. All rights reserved.

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