Is Blockchain a Solution to Digital Ad Fraud?

Fraud has been a problem with digital advertising for a long time. When the incentive structure for direct-response ads focused on click-through, it was not long before we started hearing about “click farms” in far off lands where anyone could buy clicks cheaply. If the incentives focused on social media “likes”, you could buy those cheaply too. However what started as a seemingly small distraction in the growing digital advertising ecosystem has become a huge problem. Earlier this year, Business Insider estimated that digital ad fraud was costing advertisers $16 Billion per year, double the estimate from the previous year. What’s more, the scams have become ever more sophisticated as the digital advertising supply chain has become more complex and opaque. Programmatic buying, with its algorithmically-driven ad networks, has inadvertently facilitated the fraud as armies of botnets hide inside the black boxes of the exchanges. As White Ops revealed last year with its discovery of the Methbot Operation, fraudsters continue to get more clever at covering their tracks, getting their bots to mimic human behaviors on websites, or creating phony versions of legitimate sites (“spoofing”) to skim off their ad revenue. Of course, publishers have sometimes contributed to the problem by buying traffic to make up for shortfalls in organic audience delivery previously promised to advertisers. The problem seems to have gotten big enough to merit the term “crisis” in 2017. In January, P&G’s Marc Pritchard famously excoriated the industry at an IAB conference and threatened to pull money from digital advertising if the fraud problem was not cleaned up soon. In March, it was reported that Chase had implemented a whitelisting program that reduced its digital ad footprint from 400,000 sites to 5000 sites; that there was no measurable change in Chase’s business results was taken as indication that the 395,000 long-tail websites that had previously gotten some Chase advertising were perhaps not delivering much audience value anyway. What Can Publishers Do About Ad Fraud? Various solutions have been proposed. White Ops has argued for the kind of whitelisting process that Chase apparently followed. The Transparency & Trust Forum is advocating for reciprocal contractual pledges among ecosystem participants. The IAB Tech Lab has recently launched its ads.txt project to make it easier for buyers and sellers to declare who is authorized to sell ad inventory – a step that hopefully would make it harder to spoof a legitimate website. Each of these represent earnest efforts to provide tools today to fight ad fraud. At the same time, each also seems inadequate to the enormity of the problem and the ingenuity of the criminals. Into this fraught situation comes a new blockchain-based approach proposed by an open-source L.A.-based startup called MetaX. Blockchain, of course, is the distributed ledger system that has been disrupting the finance sector for the past few years – most famously via Bitcoin. More recently, firms like IBM, Microsoft, and Accenture have been exploring the use of blockchain to improve inventory and logistics management. MetaX wants to apply blockchain technology to clean up the digital ad supply chain, and they recently have signed up the DMA as a partner in that effort. As MetaX CEO Ken Brook described it at the Advertising Research Foundation’s audience measurement conference in June, this approach will attempt to change the fundamental incentives that, in their view, lead to digital ad fraud. According to MetaX, the problem stems from the incentives of CPM-based ad buying. Buyers are incented to pay the lowest possible CPM for their ads, while sellers are incented to maximize impressions at the lowest possible cost. These misaligned incentives lead to mischief (poor viewability, bought traffic) and they invite fraudulent interlopers. As a solution, MetaX is building an adChain Registry on the public Ethereum blockchain that will store non-fraudulent domain names that are accredited by adToken holders. In the same way that Bitcoin owners have an incentive to protect the value of their crypto-currency by authenticating transactions, adToken holders will have an incentive to maximize the value (ie. legitimacy) of their adTokens. Based on game theory and behavioral economics, MetaX argues that this is a dynamic, scalable mechanism for incenting good behavior, and the indelible nature of encrypted blockchain transactions affords a robust way of auditing. “Don’t trust, verify” may be the implied tagline of this approach, but in theory it could create a virtuous circle that can eventually reverse the Hobbesian status quo. That is a tall order, of course. But it is wonderful to see some fresh thinking on the topic. It remains to be seen whether or not MetaX has the exact elements right for a comprehensive solution. The distributed “wisdom of crowds” approach seems to be scalable, but it needs to be simple enough to invite wide participation and robust enough to thwart hackers. MetaX’s implementation roadmap envisions full deployment by early 2019. Will that day come soon enough? Will others come forth with better alternatives? Perhaps, but in the meantime it is great to see blockchain being applied to this festering problem in digital advertising.

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Is Blockchain a Solution to Digital Ad Fraud?

Scott McDonald

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Scott McDonald