THE scheme was as lucrative as it was audacious. Eight years ago, a gang of eastern European fraudsters decided to target a small but fast-growing corner of the technology industry.
Their scam was brilliant in its simplicity: they would let loose a virus that would infect millions of PCs around the world. But instead of harvesting users’ credit card and bank details — the most popular form of online fraud — the six Estonians and one Russian trained their gaze on online advertising.
Until it was cracked by the FBI, in what was dubbed Operation Ghost Click, their conspiracy was an unqualified success.
The software disseminated by the gang embedded itself in about 4m computers in more than 100 countries. Once up and running, the infected PCs surreptitiously generated clicks on fake websites, and with every click, the scammers collected a tiny commission from online advertisers — typically only a few hundredths of a cent.
It may sound like petty crime, but it was anything but. The network of rogue robot surfers, called a botnet, generated $14m over four years until the gang was busted in 2011.
Scams of this kind threaten to shatter the credibility of the advertising industry, which has been feasting on the huge budgets for internet marketing.
It has been estimated that about a quarter of the clicks registered on online adverts do not come from human beings, but are instead generated by a fake audience of computers infected with malicious software, or malware. A colossal $6.3bn (£4.1bn) will be skimmed from the global advertising industry by robot-toting fraudsters this year, according to the US digital security consultancy White Ops.
The increasing prevalence of online fraud could force advertisers to change tack, after years of slashing spending on traditional media, such as print, and ploughing cash into online instead.
“For us it’s a real issue. Confidence in the industry will be shaken unless it gets hold of this problem,” said a senior marketing executive at one of Britain’s biggest advertisers.
That is not the only digital dilemma that advertising chiefs are being forced to confront. Consumers are beginning to tire of the invasive ads served up on their computers and smartphones by legitimate websites. Software that blocks ads has shot up the App Store rankings since Apple recently sanctioned its use.
The consumer uprising strikes at the heart of the economics of the internet. This rests on social media sites such as Facebook and publishers such as the Daily Mail offering free services or content in return for dishing up targeted adverts to users.
The twin threats posed by fraud and ad-blocking apps have decimated a number of companies listed in London. Blinkx, a spin-out from the software giant Autonomy, has seen its shares plunge by about 90% from their peak two years ago. Last week, Israel-based Adgorithms, which floated in June, lost more than half its value after warning of “severe disruption” in the industry. A similar fate has befallen Matomy Media, another Israeli ad tech company listed in London.
The problems stem from the complex way that advertising is now bought and sold. In Britain, spend–ing on digital display adverts soared by more than a quarter in the first half of the year to £1.3bn, according to a report by PwC last week.
About half of this pot was channeled through online advertising exchanges, which match buyers of advertising space with news websites, social media and other online publishers.
A transaction takes milliseconds to complete. When you click on a web link, a super-computer ana–lyses your browsing history and builds an anonymous profile of you, which is immediately offered on an ad exchange. Advertisers bid for your “eyeball”, based on your age, gender, interests, location and income. When the web page loads, an advert tailored to you appears on the screen.
Precise and scientific as well as faster than the blink of an eye, digital advertising promised to solve the age-old dilemma of how to guarantee that the billions spent by advertisers gets their message across to the intended targets. However, it appears that the system is every bit as wasteful as the boozy, intuitive approach of the past — exemplified by TV drama Mad Men.
Last year a Mercedes-Benz campaign promotion was found to have been viewed by more computers than humans, according to a report compiled for the car giant by Telemetry, a digital fraud detector. The suspicious impressions — industry jargon for when a page is loaded — came from a bot network controlled by two people based in Britain. They directed traffic to websites owned by them and pocketed online ad fees. Their websites soon disappeared. The two fraudsters vanished too, underlining the difficulty of bringing criminals to book.
“These individuals use PayPal and [similar] accounts that are easily opened up and shut down,” said Ari Levenfeld of Rocket Fuel, which buys ads on exchanges for big companies, including Mercedes.
“They are not routing millions of dollars into their bank accounts. It’s split up carefully, so that it’s hard to trace it back to an individual.”
Rocket Fuel said that improved monitoring techniques had resulted in fewer suspicious “eyeballs”, but fraudsters keep finding ways to stay one step ahead.
Anthony Rushton, co-founder of London-based Telemetry, said he had uncovered a new scam where display ads are purchased on exchanges, repackaged as more expensive video ads, then sold on at a hefty profit. The crooks use sophisticated techniques to doctor the codes embedded in online ads to fool verification filters.
Advertisers understandably view such developments with suspicion. “If I buy an impression and it is not viewed by a human, I should get my money back. It’s as simple as that. That’s what would happen if I bought a TV slot and my ad didn’t run,” said a British ad executive.
Keith Weed, chief marketing officer at Unilever, one of Britain’s biggest advertisers, believes the rise of the bots risks “undermining the trust we have in what we are paying for”.
Often companies pay the full price for a digital advert even if it appears for a split second or out of the direct view of the consumer.
This is a practice for which WPP boss Sir Martin Sorrell has castigated Facebook. The ad tycoon recently branded as “ludicrous” the three-second rule used by the social network to judge a user’s desire to watch a video ad.
The standards for measuring the effectiveness of online ads are “much lower” than for TV ads, and need to be substantially more rigorous, according to Sorrell.
The rise of the robots could, though, prove a boon for traditional publishers, whose advertising revenues have been crushed by internet newcomers over the past decade.
Advertisers are becoming much more discerning about where they place online adverts. They crave human viewers on reputable websites with cachet.
“We are trying to create a much more direct relationship with known publishers,” said Jakob Nielsen, head of UK digital at media buyer Group M. “The quality is higher and you avoid lots of fraud, which tends to happen on unknown websites and domains.”
Nielsen said, however, that companies cannot ignore ad exchanges because of the plethora of “valuable inventory” on offer.
If fraud could provide a feast for publishers, ad-blocking software could usher in a famine. Apple’s decision to allow the filtering technology on its mobile devices looks like an attempt to hammer Google’s YouTube site, which generates an estimated $4bn revenue a year.
Now publishers have begun to hit back against the ad blockers. The Washington Post newspaper, which is owned by Amazon founder Jeff Bezos, last month blocked readers who use ad filters from accessing its online content.
Trinity Mirror, Britain’s biggest local and regional news provider, is understood to be plotting a similar move.
There’s nothing like fighting fire with fire.