The Death of Ads

Published December 5, 2019

When Google was founded, advertising was not in its business model. In fact, it didn't have a business model.

When Facebook was founded, etc.

When Twitter, etc.

When Amazon was founded, advertising was not in its business model ---

Real Fraud, Fake Customers

The amount of money being spent on online advertising today is countable: it's in the area of $107B in the US alone. The amount of money being stolen or just completely wasted? It's at least in the $16B-$30B range for 2019, but we'll note at the outset: no one knows the exact number.

To be clear: in today's automated system of online ad placements, programmatically controlled through digital bids and auctions, there is, according to the most technically advanced advertisers, absolutely no way to determine how much of their ad spend is never seen by a real human customer.

This is a far cry from the meme that online ads are so specifically targeted that vendors can virtually sell on a per-person basis, profiling down to gender, age, town, car type, political party, drugs bought, and books read.

In fact, the return on funds invested (ROI) in online ads is so poor today that companies are returning to the "carpet bombing" ad days of the 1960s, moving ad dollars back into TV and other mass media.

What will this mean for Google, Facebook, Twitter, and all of the thousands of thousands of websites that get their primary revenues from online advertising? It means they're facing a day of reckoning that no one seems quite aware of yet.

____

How did we get from the Mad Men business model of 1950s Madison Avenue to where we are today? Let's start with a look at the latter.

Below is an analysis prepared by PPCProtect.com on the issue.

How ad fraud and click fraud are affecting
millions of companies worldwide, as of 2019

Ad Fraud Statistics

• The ad fraud botnet "Chameleon"costs advertisers over $6 million a month (Spider.io, 2016)
• Marketers lost $7.2 billion to digital ad fraud in 2016 (WhiteOps, 2016)
• 1 in 5 ad-serving websites are visited exclusively by fraud bots (The Verge, 2017)
• For every $3 spent on digital ads, fraud takes $1 (Adage.com, 2015)
• Levels of fraud are not constant throughout the year. Fraud is invited whenever and wherever digital advertising demand outstrips supply. (WhiteOps, 2017)
• US brands will lose $6.5 billion to ad fraud in 2017 (Marketing Week, 2017)
• Display ads examined by Integral Ad Science found 8.3% of all impressions were fraudulent (Integral Ad Science, 2016)
• Ads with a CPM greater than $10 experience 39% higher bot fraud than lower-valued inventory (ANA, 2016)
• The industry with the most bot traffic is Finance with over 22% of traffic being registered as fake (Bloomberg, 2015)

Click Fraud Statistics

• Click fraud is currently growing at 50% per year (The Australian)
• Desktop click fraud has risen from 20% to 24% in 2017 (Pixalate, 2017)
• Nearly 20% of total digital ad spend was wasted in 2016 (CNBC, 2017)
• Smartphone click fraud increased 102% from January - April 2017 (Pixalate, 2017)
• 1 in 5 pay per clicks were fraudulent in January 2017 (Pixalate, 2017)
• 50 percent of ad impressions served on Internet Explorer were to non-human traffic (FraudLogix, 2016)
• Video click fraud was 26% higher in April 2017 (25.3%) than it was in January 2017 (20.1%) (Pixalate, 2017)
• The click fraud operation Methbot generates $3 to $5 million in fraudulent revenue every day (WhiteOps, 2016)

But wait - depending on your sophistication, how and where you buy, and how much you pay, things might be much, much worse than even these statistics suggest.

What if only 2% of all of the clicks you paid for on your favorite well-known ad site were from humans - instead of bots? Or, amazing as it sounds - what if none was?

It's impossible to appreciate the extent of this automated fraud program without first having a sense of the number and type of fake websites that exist today. And a good way to start is to appreciate that fake websites claiming to be news sites are often the most effective of these: they're easy to build, hard to detect, and play upon a public both hungry for various news feed, and poor at (or literally unable to) discerning the fraudulent.

Real Ads, Fake Sites

While there are thousands of such sites, here is a short list of the better-known, from Wikipedia.org:

Fake news websites

What is yet more interesting: often these fake sites are not designed to be seen by human eyes at all, which can be a real benefit to crooks in a bot-driven economy. For example:

"The laredotribune.com website also - at first glance - appears to be a regular news site for a city in south Texas. There are stories about local residents and President Trump's border wall with Mexico." - BBC.com

Here's a screenshot of the site:

Image copyright: Social Puncher. Image caption: An investigation by Social Puncher picked apart the content of the Laredo Tribune's website

According to the BBC, the "tells" for interpreting this as a fake website: there is no publication date, there are no people in charge, and it's a very slow load, since it is completely overloaded with ads. This site had about 3.7M page views over three months, according to the audit firm SimilarWeb. Keep in mind, Laredo, Texas, had about 260k.

The high "Laredo Tribune" visit figures, provided by bots, lead to high ad-sales payouts for the site's owner.

Real Money, Fake Results

If we start looking at the financial side of all this auto-fraud, we see some amazing numbers. Our members may have been doubting my assertion above that even seasoned professionals cannot figure out their ROI on digital advertising. Well, they can't.

In this chart by Bloomberg, we see that about 75% of brand professionals are unable to do this simplest calculation on the value of their ad spend ...

... Which is almost as frightening as the final figure, which shows that agency professionals consider about 60% of ad views purchased were never seen by a human being.

Almost 40% considered this single problem to be the greatest one they face.

A recent Bloomberg Businessweek study asked two traffic-fraud-detection firms to assess recent traffic to the website "MyTopFace"; they agreed on the condition that their names not be used.

According to PPCProtect, "One found that 94 percent of 30,000 visitors were bots; the other put the bot traffic at 74 percent."

What do you call it when 94% of your paid-for ad traffic is bots?

Where do all of these problems begin? With the fraudsters? With the fake sites, or the bot armies?

Well, what if you want to launch a new online, ad-supported site, but you're just getting started, so you have no visitors, and therefore no ads? What's a wealthy company to do?

Buy them, of course, without paying too much attention to whether or not they're human.

Here's how it works:

by Dorothy Gambrell

- Bloomberg

If we look at the question of overall click fraud, measured in the US markets alone, we get a picture to date based on 2017 figures that are compelling, frightening, and a bit misleading. Compelling for their size, frightening because of the size of funding lost to fraud, and misleading because the numbers are averaged, and therefore way too low for those who deal with cheap buys, and too high for those who deal directly with publishers.

From PPCProtect:

Which categories are most subject to bot presence, and in what percentages?

A bit surprisingly, Finance is first up, according to Bloomberg. But again, don't forget that within this top figure of 22% (est.), we have sites that may be near 100% bots-driven, and others that are lower.

- Bloomberg

How blatant is click fraud, and how easy is it for buyers to avoid? Most ad buyers, for example, would likely assume that, if they bought ads on Facebook targeting a particular geography and age group, that is what they'd get.

Apparently not.

In a recent test of exactly this kind of buy, targeted to Alberta, Canada, only 36% of the viewers were in the target geographical territory.

Here's the result:

- Cmo4hire.com

Summary

There is clearly an automated, programmable ecosystem of fake websites, fake buyers (bots), and fake clicks and views, all driven by real auctions for real advertiser budget. Indeed, it is the speed and promise of targeting that created this fantasy ad league, with some ad auction servers claiming billions of transactions per second for an unmonitored global network of sites.

What's to keep anyone from launching thousands of sites with key stories (probably fake) about Donald Trump, Kim Kardashian, or Foods That Will Kill You? Nothing at all. You can buy a fake audience of bots for very little money, moving into the millions of views, and get paid regularly.

What's to keep this parasitism from growing? Clearly, from the numbers above, nothing at all; it's nearly doubling each year now.

What happens when something can't continue to grow forever? It collapses.

What will happen when this global automated fraud program collapses?

Now, that's the interesting question. Certainly, it will include vendors moving ad buys to other media, websites going bankrupt, and the real publishers finding non-automated ways of attracting quality ad clients.

As for the rest - they'll be doomed to some form of electronic oblivion.

And what, today, is the current financial damage being done, and to whom? My best estimate is that it leans toward the $30B range, and may even be higher, for this year. Worse, the damage will have been asymmetrically sorted out to the smaller businesses trying to make it using online advertising. While they will take major hits, or even go out of business without ever understanding why, the larger firms will limit fraud by going straight to the publishers, or just write it off as a cost of doing business.

That's where and when the rest of us get to pay for this massive fraud.

Your comments are always welcome.

Sincerely,

Mark R. Anderson

Quotes of the Week

"I can think of nothing that has done more harm to the Internet than ad tech. It interferes with everything we try to do on the Web. It has cheapened and debased advertising and spawned criminal empires.... Nobody knows the exact number, but probably about 50 percent of what you're spending online is being stolen from you." - Bob Hoffman, veteran ad executive, industry critic, and author of the blog the Ad Contrarian; quoted on Bloomberg.com

"Click frauds happen in almost all networks. Ad networks keep fighting click fraud and fraudsters figure out new and ingenious ways to trick the network. Now, imagine the network does click fraud on its own. That's exactly what Facebook seems to be doing." - PPCProtect.com

"I've found Advertise.com selling every type of worthless traffic I am able to detect, and doing so persistently, for months and indeed, years." - Benjamin Edelman, a Harvard Business School professor who researches the digital economy; ibid.

A national security expert says we simply can't talk about Huawei the way we talk about other companies:

"She says the company is intertwined with and supported by the Chinese government in ways that most companies are not.

"[Huawei is a] state-championed company. The Chinese state has taken two Canadians hostage on behalf of Huawei. That's not a normal company, and I don't think we should be considering it as such." - Stephanie Carvin, an assistant professor at Carleton University in Ottawa, referring to Michael Spavor and Michael Kovrig, whose detention in China is widely speculated to be in retaliation for Canada's arrest of Huawei chief financial officer Meng Wanzhou - quoted on CBC.ca

Carvin says the universities are being put in an impossible situation:

"There's no good options here. It's either you're denying these universities money or we're making cheap IP [intellectual property] for the Chinese state. Pick your poison." ­- ibid.

Takeout Window

The Car Industry Pivot

About two years ago, SNS began warning members of the crisis coming to carmakers worldwide as a result of China's decision to make a local champion in the autonomous electric-car platform competition. In a winner-take-all global contest, we noted that nearly all of the Made in China 2025 technologies would be enabled, and therefore dragged along, with such a win.

Last week, Daimler announced the firing of 10,000 employees; Audi followed, with 9,600 firings - both for the purpose of repositioning for autonomous electric-vehicle design and production.

Watching Amex

We recently put American Express on our internal Watch List, based on a series of strange behaviors that seem to indicate an internal cash shortage - which, we know, sounds strange for this company.

We made the first internal call at the end of September, just before the stock fell off a small cliff a few days later.

Does it mean anything? The stock came back not long after that. But we think there's more to the story. Our members can wait and see ...

American Express Company Stock Chart

Our Favorite Googlers

Q: For 10 points, what's the difference between Larry Page / Sergey Brin and Sundar Pichai?

1. Sundar took over the entire company in one day this week, unannounced and likely unplanned;
2. Sergey pulled out of China due to China's illegal hacking of Google passwords, while Sundar got caught by employees preparing a secret product made for Chinese censorship;
3. Larry and Sergey led the idea of open discussion; Sundar just limited discussion group size;
4. Employees seem to love Larry and Sergey, and seem to protest Sundar regularly;
5. Sundar fired an employee for writing a well-documented, private message and is now being sued for it - nothing like this happened under the founders;
6. Sundar wants back into China.

If you don't think there's something "up" or weird about the two founders quitting overnight, you're not paying attention. Anyone have an answer?

Upgrades

The INVNT/IP Digest

(Inventing Nations vs. Nation-sponsored Theft of Intellectual Property)

This section highlights current stories regarding the global theft of Intellectual Property- or, Who's stealing from whom?

For more on the SNS INVNT/IP division, and how your company can get privileged access to our information, go to: http://www.invntip.com/.

China

China Leads in Emerging Technology Industries, US Defense Official Warns

China Needs to Obey the Law

US Officials Warn of Danger Posed by China's Huawei and ZTE

'China Is Stealing Our Stuff and They're Not Even Hiding It': US Tech Protection Task Force

Report: Swiss Drugmaker Roche Among Several Large Firms Targeted by Hackers

FBI Warns of Cyberthreat from China Threatening US Security: Report

Is China Actually Stealing American Jobs and Wealth?

Uber Suffers Setback in Defense Against Waymo's IP Infringement Case

Detroit Metro Airport Customs Officers Stop Chinese Citizen Visiting US to Collect Sensitive Data

Five Things to Know About China's Promised Crackdown on Intellectual-Property Theft

China Just Signaled It Could Reform Its Intellectual Property Laws

Russia

'60 Minutes' Posts Russian Hacking Details

Company Interest

Huawei Funds $56M in Academic Research in Canada. That Has Some Experts Concerned

WSJ: China's Huawei Makes Phones Without US Parts

General Interest

9 Ways Data Vampires Are Bleeding Your Sensitive Information

Uber Suffers Setback in Defense Against Waymo's IP Infringement Case

Ethermail

Re: FiRe 2019 in Review, Parts I and II
and Special Alert: Interfering with Governments

Mark,

So sorry to hear about Mark Hurd. He was an incredible leader, and the two of you were great on-stage.

Rick LeFaivre

[Past VP Advanced Technology, Apple
and Board Member
Pattern Computer Inc.
Sun Valley, ID]

Mark,

Thoroughly enjoyed the late Oct '19 [FiRe review] newsletter; Keep up the good work.

FYI, I'm throwing a copy/paste of the letter to my Outlook tasks with a due date of +10 yrs.... I plan to navigate through the myriad of changes, and re-enjoy this article in 2029.

Mike McCutcheon
[Partner - Deloitte RFA - Assurance & Internal Audit
Deloitte & Touche LLP
www.deloitte.com
Dallas, TX]

Mark,

Great FiRe conference as always -

In case you have not seen this book [The Great Firewall of China] I thought I would forward.

All the best,

Drew Senyei
[CEO and Chair, CausliT
Venture Capitalist and AI Entrepreneur
La Jolla, CA]

Mark,

You may be interested in the third and final article in a series about the EU's activities in cybersecurity. This one is entitled, "Why the EU is About to Seize the Global Lead on Cybersecurity."

Why the EU is About to Seize the Global Lead on Cybersecurity

Enjoy!

Cheers,

Jody

Jody R. Westby, Esq.
CEO, Global Cyber Risk LLC
Adjunct Professor, Georgia Institute of Technology, School of Computer Science
Washington, DC
www.globalcyberrisk.com

Mark,

First, thanks for your big picture view! Always an eye-opener! And looking back from a decade ahead, what a great way to consider the future tense. It seems the old expression "the road to Hell is paved with good intentions" might serve well here.

Unfortunately, the intention of capitalism, maximum profit at all costs, is just non-sustainable due to its non-holistic nature. Or, said another way, capitalism eats democracy until the concentrated fat of that "pork-barrel" imbalance crashes the system. Then there is our old tribal-warring instinct, in an era of nuclear potency, making an exchange far too potent to even consider, you would think. But "all options are on the table" for many of the loonie-tunes leaders today.

Add to this toxic cocktail, accelerating social inequity, which is expanding human suffering at an astounding rate, and thereby facilitating the rise of stress, frustration and terrorism. Add climate change to that, which has led to very serious national conflict and mass migration, both further exacerbating the horror to current conditions for life on Earth.

China may have put capitalism on steroids, but Wall Street and "big business" were more than willing to get in bed with China for a quick buck, at the expense of ^their own^ working class, along with exposing and facilitating "migration" of their IP. China is not doing anything new, same old capitalism, they are just "running the table," to coin the casino metaphor.

Sadly, climate change is coming on like a freight train. And, instead of biohacking, we should be focusing on the increasing viral threat for pandemics, with both the swine flu and human flu of 2019 being just one more wake-up call ignored. In the end, it appears we-miss-the-boat, and for good reason. The dominant priority of this creature is for self-aggrandizement, at the expense of a decent life for ^all^ children and their communities.

To roughly quote Ernst Mayr debating Carl Sagan on SETI: "Carl, you are not going to find it, look around - intelligence is lethal."

[sigh]

Patrick Hogan
[NASA Emeritus Earth Scientist
and former Director, NASA World Wind
https://worldwind.arc.nasa.gov/
Mountain View, CA]

Mark,

"The problem is not that China wants to dominate critical technologies. The problem is the means it's using to do so - intellectual property theft on a massive scale."

Good article, but this statement is not correct. That China wants to dominate critical technologies IS the problem. It doesn't matter whether they steal it, buy it or develop it themselves. China is a Stalinist dictatorship with national interests that are opposed to ours and it is investing heavily in the future. Meanwhile, America wastes its resources on wars without victory, letting its infrastructure decay and basic education deteriorate.

Bashing Huawei is a good start, but Huawei sells almost nothing in America. Rather, it has been a big customer for American companies, so unless there is a strategic follow-up in the form of a coherent industrial policy, European, Japanese and Korean telecom companies will benefit, but American tech companies will lose business and America's structural problems will be left unsolved.

I'm not at all a fan of Breitbart news, or Sean Spicer, but it's good to see a brief article that exposes to the general public, China's entire game plan to suck the blood out of the US.

Here's the link

Exclusive – Sean Spicer: Huawei, the Threat that Is Hiding in Plain Sight

John Petote
[Founder, Santa Barbara Angel Alliance,
SNS Ambassador for Angel Investing,
and Board Member, Pattern Computer Inc.
Santa Barbara, CA]