The end of ad fraud and the promise of the blockchain
Ad fraud is everybody’s problem.
Not too long ago, this publication reported that the “GooBook” duopoly might not be healthy for the industry. I agree. The current landscape is imperfectly competitive, squeezing independent developers and small agencies to the margins -- if not actually out of the game altogether. Inefficiencies in the market are to be expected; they are also potential opportunities. In the global digital advertising industry, the “inefficiencies” are accepted as the norm: brands are not getting the advertising they’re paying for, audiences are force-fed ads they do not want, and everyone is rolling along with it.
“Mei banfa,” we say in Chinese (没办法), which in this case best translates as fagettaboutit. But it’s impossible to forget about it for long, because the amount of waste is shocking. In 2017, ad fraud cost brands approximately $16.4B. Indeed, as much as 9% of display ads and 22% of video ads are fraudulent.
Every industry, every market, is imperfect in its own way. But in ours, ad fraud is more than an inefficiency; it corrodes the culture and has gnawed away at trust in the industry itself. The fact that ad fraud is so widespread as to be accepted as a ineluctable side-effect of “the digital age” is a sign that the disease is now endemic. Result? We’re all living with a pain we should be addressing rather than ignoring.
The duopolists are neither solely nor uniquely to blame for this state of affairs, but they have yet to prove themselves credible allies in the war of reform, or in the battle against fraud. What’s more - and this is from a technical perspective - neither Facebook nor Google have or permit the kind of transparency necessary for viable, sustainable solutions. (They didn’t create the opacity in which fraud thrives; but they benefit from it.) It would be incautious to suggest that either lacks the will to make the digital advertising ecosystem more virtuous; however, the technology is at hand to challenge these outmoded legacy systems, and to make it virtuous without them.
Digital advertising: The perfect blockchain application
Blockchain technology has captured global interest mainly because of its applications within financial markets; so far, Bitcoin is the most successful, best-known application of it -- and that fact is itself a double-edged sword.
But we are at the early stages of what promises to be a massive transformation in how we understand the ways and means of moving, storing, encrypting, and using data. These apply precisely to digital advertising -- to what’s wrong with it, and to how we can fix it.
So why is the application of blockchain technology to digital advertising potentially transformative? At the core of how blockchain works is a system of economic incentives generally referred to as the consensus protocol, or consensus mechanism. “Consensus” is the agreement among peers (or: of a subset of peers) in a non-centralised, peer-to-peer (P2P) distributed network that a transaction has taken place; incentives are the things that keep peers motivated to keep the encrypted distributed ledger both encrypted and distributed.
Bitcoin runs on a blockchain that uses what’s called a “proof-of-work” (or PoW) consensus mechanism. What that means is, for a transaction to be considered valid and added to the chain of blocks, the entity creating the new block must do some computational “work” to validate the newest block. That computational work is also referred to as “mining,” because sustaining the chain’s consensus protocol (cryptography + distribution) requires processing power (computer + electricity). Coins/tokens are “mined” by (paid out to) those whose processing power keeps the blockchain raft afloat, so to speak. I’m simplifying a lot of complex math and cryptography, here, of course; but the takeaway is that most public chains rely on a consensus protocol that (among other things) serves two key functions: it ensures the accuracy of the immutable encrypted ledger, and it ensures that at least some peers are compensated for their role in keeping the immutable encrypted ledger accurate, encrypted, and distributed.
What I propose is to create a unique consensus mechanism called Proof-of-Valid Traffic (PoVT) that rewards all participants in our open-source, blockchain-powered ecosystem -- rewards them both in tokens, and in real, old-fashion cash-savings. We can then look to create value by nourishing those industry best-practices which conspire with rather than thwart value-creation.
Hypothetical use case for blockchain-powered advertising: A $1M CPC spend
Let's imagine a scenario taken from the current digital space. The marketers for a big gaming company decide to run an in-app campaign to promote casual gaming to American females, aged 18 to 28. They will be running display ads.
In today’s world, there’s no way to ensure that the ads purchased from this spend are actually viewed by humans or by bots. Pick your metric - impressions, click-throughs, conversions - the advertiser has no way of ensuring the veracity of the traffic as measured by any service provider.
But there is an excellent proxy available to us: the advertiser’s satisfaction that every service-provider enlisted by them has done and delivered no less what the advertiser agreed to pay for. So, here’s how the media buy could work in a blockchain-powered digital advertising ecosystem. The advertiser sets up a smart contract for all the services the advertiser requires - analytics, anti-fraud, etc. - with all the usual terms and conditions. Contracting parties agree to the target-parameters, and off they go. When the terms of the contracts are fulfilled and payments are disbursed, and no disputes arise concerning whether the terms and conditions were fulfilled (i.e., whether the campaign objectives were realised as per the parameters set forth in and established by the smart contract), the traffic generated in the course of the campaign is deemed “valid.”
The reality is there is no way to ensure 100% of the traffic is 100% of the time 100% free of bots, or sophisticated invalid traffic (SIVT). The arms-race between fraudsters and fraud-catchers is unlikely to come to an end anytime soon. But in a marketplace where anti-fraud service providers are competing to deliver the best results, the odds of fraud being driven to near extinction are better than they are in the artificial environments we now have due to the force of the duopoly.
Blockchain technology as applicable to digital advertising and marketing is revolutionary in its implications. The future of digital advertising will see the fast-growing blockchain movement as a means to solving the longstanding issues with ad fraud.
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