Online advertising is a murky and fraud-ridden
business. But the blockchain could be poised to change all of that.
The internet delivers online advertising
via a complex network of supply- and demand-side platforms. Ad exchanges sell advertising
slots thousands of times a second to the highest bidder.
This generates gigabytes of highly valuable
and often proprietary data. Different stakeholders hold on to this data and no
one has a single, clear picture of an entire transaction. It is a fragmented
industry in which the only way to operate has been to trust other participants.
But that trust model isn’t working. Fraudulent
traffic is eroding profits in an already low-margin industry, and also destroying
trust among advertisers and audiences.
In many cases, advertisements don’t reach
their intended destinations. An ad that a company thought was going to ESPN or Vogue magazine might end up on a fake
site with a spoofed domain, produced by an online fraud operation like Methbot.
The scammers then fake traffic to their
sites, which advertisers think is real. Criminals running these kinds of
networks can make between $3 million and $5 million per day. Such frauds go
unnoticed because the advertisers can’t verify who they’re dealing with.
A combination of fraud models is costing
advertisers dearly. A late 2015 report
by the Internet Advertising Bureau (IAB) found that fraudulent traffic was sapping
$8.2 billion annually in advertiser revenues.
No wonder IAB president Randall Rothenberg called
on the industry to “repair the trust” at the annual IAB leadership meeting
this year. But where does it begin to do that?
The ad industry faces two challenges: It
must maintain real-time information flows that let advertisers and publishers buy
and sell inventory at lightning speed. Yet it must also ensure the legitimacy of
publishers and advertisers by verifying who they are and what they are doing.
Until now, these two requirements were at
odds with each other. Verifying transactions typically takes time that a
fast-moving network couldn’t afford.
This is just the kind of problem that blockchain
technology can solve. The blockchain serves a community of loosely-connected
participants, providing each with transparency and security. It speeds the flow
of information while keeping everyone honest.
Instead of relying on trust, the blockchain
can verify the different participants in the system and their assets. The idea
would be to bring together previously-stored information from all parts of the
complex advertising supply chain, making it as visible as necessary and
guaranteeing its integrity.
This could solve several problems facing
the online advertising ecosystem. Advertisers worried about domain spoofing
could encrypt their advertisements and ensure that they reached only a list of
pre-approved intended destinations. The blockchain could then check to confirm that
the destination matched the list.
Publishers could ensure that the
advertisements reaching their pages were from legitimate sources rather than from
malicious bidders using advertising networks to deliver malware. By providing
complete visibility into an advertisement’s origin, publishers could avoid
infecting site visitors.
Ad tech companies are already tackling this
problem. MadHive, which makes a
blockchain-based solution for advertisers and publishers, is a founding member
of AdLedger, a consortium of advertisers and
publishers that plan to bring blockchain-based transparency to the industry.
Other companies like AdEx and BitTeaser are taking their own approaches to
the problem, but all of them are banking on blockchains to clean up the ad
Stopping the industry’s problems with fraud
and introducing some accountability into the advertising ecosystem will help it
to innovate in areas such as programmatic advertising. Companies may find it
difficult to entrust their advertising dollars to algorithms with no
accountability. If they can rely on a transparent network that validates
programmatic decisions, they may be more encouraged to invest in this
fast-moving sector of the online advertising space.