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Digital ad industry to gain $8.2bn by fixing supply chain

Fraudulent impressions, infringed content, and malvertising cost the US digital marketing, advertising, and media industry $8.2 billion annually. That money can be recouped if companies fix badly designed business processes and repair obvious flaws in the digital advertising supply chain, a study by the Interactive Advertising Bureau (IAB) and EY shows.

The report was conducted independently by EY and released by the IAB. Strategic advisory firm MediaLink collaborated with the IAB and EY to design the scope of this study. According to the research, more than half the money wasted in the digital advertising ecosystem derives from “non-human traffic” – fake advertising impressions that are neither generated by real advertisers nor received by actual consumers.

Eliminating these fraudulent impressions would save advertisers more than $4 billion annually.
“No other report in the market today captures the full range and scope of the illicit activities identified and quantified in this study,” said Sherrill Mane, Senior Vice President, Research, Analytics, and Measurement, IAB. “Its findings should mobilise the entire ecosystem to rally around collective solutions that will protect businesses and consumers.”

The study identified three primary supply chain costs. They are:
•    Invalid Traffic – As described above, ad fraud accounts for the largest portion of costs, at a total of $4.6 billion. Seventy-two percent of the loss associated with the web’s fraudulent traffic happens on desktops and 28 per cent on mobile.
•    Infringed Content – At $2.4 billion, infringed content – stolen video programming, music, and other editorial content that is illegally distributed on the web – represents the most significant share of lost revenue opportunity costs. Two billion dollars of that total is based on an estimate of approximately 21 million U.S. consumers’ willingness to spend $8 per month on what is currently classified as infringed content. The additional $456 million represents the loss of potential advertising dollars. The findings show that unless the industry takes significant steps, there is a likelihood that the number of people consuming stolen content on digital platforms will increase.
•    Malvertising-Related Activities – Combating malware-related activities, which can expose web users to unknown or potentially dangerous third parties, comes in at $1.1 billion, with $781 million of those losses being generated from ad blocking instigated due to security and malware concerns. Costs associated with investigating, remediating, and documenting direct incidents of malicious advertising total $204 million.

“To help the industry reclaim some of the $8.2 billion in costs, EY believes that improving some fundamental business practices is critical,” said Nick Terlizzi, Partner, Ernst & Young LLP and a member of its EY Media & Entertainment Advisory Services. “Some basics include knowing your supply chain partners and investigating new potential relationships using address information, tax IDs, and background checks.”

The report also features guidance in eliminating supply chain corruption in digital advertising, and encouraging industry-wide collaboration to build a trustworthy supply chain under the auspices of The Trustworthy Accountability Group (TAG) and other initiatives.
“TAG was established to fight corruption and criminal activity across the digital supply chain,” said Mike Zaneis, President and CEO, TAG. “The creation of an evergreen marketplace of trusted business partners will deliver billions of dollars of value to advertisers.”

“Fraud is a big business, not a cottage industry, so we applaud the IAB for their unwavering support and dedication to surfacing these dynamic issues to all constituencies within the advertising community,” said Wenda Harris Millard, President and COO, MediaLink. “We must remain wholly focused on bringing this conversation to the forefront and developing systematic ways of eradicating this activity, enabling both publishers and marketers alike to thrive in this new age.”

AppNexus, MediaMath, and Rocket Fuel Inc. are the premier sponsors of the report. Participating sponsors are Xaxis, PubMatic, and YuMe. Supporting sponsors include OpenX, Pulsepoint, and Videology.

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