Marketers are expected to lose $23 billion this year in online ad spending because of ad fraud, a global economic study by CHEQ has revealed.
The military-grade cybersecurity company commissioned a report about the full scale of ad fraud, undertaken with economist Roberto Cavazos, a professor at the University of Baltimore, using the latest economic analysis, proprietary CHEQ data, and expert interviews. The report finds that while direct global economic costs of ad fraud are conservatively placed at $23 billion, indirect economic and social costs may increase the total to $30 billion.
The report finds that with marketers pouring billions into digital ads, up to 30% of ads are affected by fraud, affecting 21 trillion online ads each year. However, the study argues that not all instances cost the same, and in many cases, fraud disproportionately affects low level campaigns with cheaper CPM (cost per thousand). The study argues that a 7.5% composite rate of total ad spend lost to ad fraud reflects a mix of both lower end and higher-end ad campaigns, totaling losses of $23.7 billion in 2019. Left unchecked the level of fraud is expected to reach $26 billion by 2020, $29 billion by 2021 and $32 billion by 2022.
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The complexity of the online advertising ecosystem and lack of transparency has created a growing incentive for fraudsters to hijack the fast-growing $316 billion global digital advertising budget. The report finds that online advertising is uniquely susceptible to frauds, compared to other sectors, such as finance or health, due to lack of oversight or transparency, and failure to achieve high-profile prosecutions.
The cost of fraud could be placed even higher if indirect and opportunity costs could be calculated—this refers to the losses and opportunity costs on society as a result of systematic fraud. Such indirect costs include less trust, reduced innovation, and disinclination to spend on online advertising.
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Professor Roberto Cavazos said: “I have studied the economic costs of fraud in many sectors for decades, and I was left stunned by the scale of fraud in online advertising. The online advertising ecosystem has created a situation in which the interests of more than 20 parties are not aligned, while there is little regulation, connectedness or disincentive against fraud. It will require honest and robust methods to confront the realities and tackle this challenge.”
CHEQ founder and CEO Guy Tytunovich added: “Spending on online advertising has overtaken traditional media like TV, radio, outdoor, and print. This makes it wishful thinking to believe that fraudsters will not continue to be creative and innovative in targeting online adverting dollars. Every day we are seeing growing sophistication and frequency of attacks against online ad campaigns. The problem is exacerbated by the number of participants in a complex system, and the unique circumstances allowing bad actors to thrive.”
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