Antitrust Law Daily Wrap Up, ADVERTISING NEWS: Senators query FTC Chairwoman about digital ad fraud, (Jul 12, 2016)

By John Curran,TRDaily

Senators Mark Warner (D-Va.) and Chuck Schumer (D-N.Y.) asked Federal Trade Commission Chairwoman Edith Ramirez, in a letter dated July 11, what steps the FTC is taking "to protect consumer data and mitigate fraud" in the digital advertising industry, in light of data that the senators said show "rampant fraud" in that market caused by "botnets" operated by hackers.

They also asked Ms. Ramirez what the FTC is doing to respond to reports of possible participation in that market by organized crime organizations.

The fraud problem described by the senators involves the use by hackers of botnets—consisting of computers on which hackers have installed malware, often unbeknownst to the owners of the computers—to manipulate the value of digital ads by increasing the instances in which the ads are "clicked," thus distorting the true data for how many clicks ads receive by actual consumers.

"Bots plague the digital advertising space by creating fake consumer traffic, artificially driving up the cost of advertising in the same way human fraudsters can manipulate the price of a stock by creating artificial trading volume," the senators said in their letter.

"Much like a stock, the value of an ad impression is highly contingent on measured demand," the senators said. They continued, "However, the problem with relying on ad ‘clicks’ or ‘views’ to measure that value is that recent studies have shown this data is frequently inaccurate. According to one study, between 88 and 98 percent of all ad-clicks on major advertising platforms such as Google, Yahoo, LinkedIn, and Facebook in a given seven day period were not executed by human beings, but rather by computer-automated programs."

"The ad fraud market has scaled to such an extent that it has attracted participation by organized crime, with a recent report indicating that by 2025 ad fraud could represent the second largest revenue source for organized crime groups after drug trafficking," the senators said.

In their letter, the senators estimated the size of the digital ad market at $60 billion and the cost of manipulation of that market at about $7.2 billion over the next year, and they said that "the cost of pervasive fraud in the digital advertising space will ultimately be paid by the American consumer in the form of higher prices for goods and services."

While the senators noted that the industry is taking its own steps to fight fraud in the digital ad market, they said "it remains to be seen whether voluntary, market-based oversight is sufficient to protect consumers and advertisers from digital advertising fraud."

They asked Chairwoman Ramirez for responses to a number of questions including any trend data the FTC has spotted that shows growth in any particular type of ad fraud; the projected economic impact of fraud on media owners and publishers; what steps the FTC is taking to protect consumer data and mitigate fraud in the digital ad industry; "what regulatory agency currently provides oversight of mobile advertising platforms"; "what steps can be taken to reform opaque advertising exchanges"; and what can be done to "align incentives" of ad tech companies with publishers, advertisers, and consumers.

They also asked how the FTC is coordinating with the private sector and with law enforcement agencies including the Department of Homeland Security and the Federal Bureau of Investigation to "formulate an appropriate response" to activities by organized crime organizations in the digital ad market.

News: Advertising FederalTradeCommissionNews