Digital advertising has a serious problem: fraud. Widespread fraudulent practices are inflating measures of the traffic that digital ads attract, leading some advertisers to pay higher rates than they should.
Can blockchain fix it? A handful of blockchain startups believe so. They argue that a shared digital ledger to authenticate and safeguard advertising data, a transparent exchange for trading digital ads, and a special ad-focused browser that pays its users in tokens could each help fix that multibillion-dollar problem.
The industry standard for gauging how much an online ad is worth is the so-called CPM, short for cost per 1,000 views. Less honest players in the industry, however, seek to boost these numbers using bots and other methods that make specific digital ads or ad positioning opportunities appear as if they are getting more traffic than they really are, thus inflating their value.
Juniper Research put the cost of fraud at $14 billion in 2017, and predicts it will grow to $19 billion this year. Some 16% of global ad click-throughs are fraudulent, according to Juniper. Industry estimates of the number of fraudulent clickthroughs conflict, however, and that's part of the problem, too.
There are no standards in the industry for digital-ad data sharing, and there is no common exchange where transactions among advertisers, brokers and Web publishers can take place. It is hard to track data reliably.
Enter MetaX, a digital advertising startup based in Santa Monica, Calif.
“With so many discrepancies, it's hard to trust the numbers that everyone is sharing,” says Chief Executive Ken Brook. “Numbers are being deliberately modified or skewed…to get paid more.”
Fraud in digital advertising will total $19 billion this year, by one estimate.
MetaX is building up a userdriven registry of trusted advertisers and publishers it calls adChain, which verifies that the advertiser and publisher behind ads are legitimate. Members of adChain, which so far include Facebook Inc., Pandora Media Inc. and Hearst Corp., buy their memberships using a crypto-token called adToken. They also get to decide who belongs in the registry with them. Members put a stake down if they want to vote a member out, and the winner of the challenge takes the stake. Mr. Brook says that challenging new members is a way for the community to actively create trust.
“We encourage active voting… and participation in the curation process,” he says. “Just because you're in the registry doesn't guarantee you'll stay in the registry for long.” The current cost to entry is 1,500 tokens (current exchange rates would value this at about $30). MetaX hopes that with the community acting as gatekeepers to new applicants, it will create a high-quality list of reputable sites. There are currently about 50 members.
Mr. Brook hopes the system will encourage trust in ads in a similar way to the green “padlocks” that denote security for banking and e-commerce sites. It is still facing some growing pains, though, as members get used to the system. For example, members of the registry have suggested that wellknown sites like Spotify.com don't belong in the registry.
Others have submitted their own personal sites for membership in an effort to create publicity for their websites, while never intending to show ads. The CEO of MetaX says the company is working on a “constitution” that will make the rules clearer about what kind of sites belong in the registry.
Another blockchain startup that sees a big opportunity in fixing the digital advertising market is NYIAX, a New York-based company that has built an exchange for trading advertising contracts in partnership with Nasdaq.
“We wanted to create a language on top of [Nasdaq OMX's exchange technology] so that it can understand advertising as if it were a financial instrument,” says Carolina Abenante, the founder of NYIAX.
The exchange, which expects to go live in July, will have Web publishers and advertisers posting requests for contracts, bids, and the details of completed contracts and fund transfers — like a traditional financial exchange. By maintaining all of the details on the blockchain ledger, NYIAX says it can give full transparency to the counterparties trading through its system, verifying that ads appear in the positions promised and draw the traffic that they claim.
In addition to providing transparency, the exchange hopes to create a kind of futures market for advertising, giving publishers the opportunity to lock in the income from advertising ahead of time. It is similar to how an airline might purchase contracts to buy jet fuel ahead of time to guarantee the price they pay. Advertisers get the benefit of having publishers ready ahead of time, allowing for planning in their ad development.
Attempts by the blockchain startups at gaining a foothold in the well-established ad industry face two significant challenges — Facebook and Google. Together, the two ad giants captured 74% of the digital ad market in 2017, according to Pivotal Research Group. And both companies have been working on solving the problem of ad fraud. Google, for its part, has rolled out the Ads.txt industry initiative, an attempt to prevent counterfeit online ad space.
Still, a third blockchain-related startup, Brave, tries to address lack of trust in online ads as well. At the center of Brave's business plan is a special browser that blocks ads users don't want to see and rewards them for looking at ads that they do want to see. A blockchain application that is also part of the system will verify how much attention each ad receives and subsequently reward both the advertiser and the consumers who look at the ad.
The plan also calls for a cryptocurrency-like coin the company calls the Basic Attention Token, or BAT, to be used as payment between advertisers and publishers. Consumers who look at ads also will receive BATs, which they will be able to use on the Brave platform to buy games or gift cards, or donate to sites or other advertisers they like. While consumers won't be able to convert their BATs into cash, Web publishers will, through a third party. The company expects the system to be fully operational this summer.
|Can't Trust the Numbers|
Without changes in the way the industry operates, advertising fraud is expected to grow to more than 10% of digital spending.
BY HENRY WILLIAMS