Tuesday, 10 July 2018

Don't burn the platform - social media, ad fraud and regulation

Look I know you don't like advertising (or at least lots of you say you don't) and get irritated by men in ill-fitting suits and bad shirts telling you that "the brand must be a hero" or some such nonsense, but can we stop shooting the messenger please? Advertising is not the reason why Google and Facebook dominate social media, advertising is not the reason why kids are fat (if indeed they are), and advertising is not some sort of sinister manipulative force responsible for all the evils of capitalism. Nope - advertising is just businesses talking to you.

Even the FT, what was once capitalism's leading journal, is at it:
The need to sell advertising is at the heart of the toxic behaviour of many of the social media companies. The online ad market is dominated by Facebook and Google, and appears to be fraught with bots and fraudulent clicks. Hence France, Germany and Australia are all conducting inquiries into online advertising.
First let's get one thing clear, online ad fraud is a problem and one that is more of a threat to the advertising business than to us as consumers (and because of this - it's a threat to Google and Facebook's revenue streams as well):

According to a 2016 report from The Association of National Advertisers (ANA) and WhiteOps, the loss from ad fraud was $7.2 billion in 2015—primarily from bots. To put that into perspective, total spend on display advertising, according to the 2015 report from the Interactive Advertising Bureau and PricewaterhouseCoopers, was only $12 billion, excluding Google and Facebook.
Note the last part of this - the largest part of online ad fraud takes place elsewhere than Google and Facebook (or for that matter Twitter, LinkedIn and so forth) because these are 'walled gardens' - closed platforms - that control what you and I see. That's not to say there's none of this stuff on Google and Facebook - online advertising (operationally and in terms of regulation) is still in its infancy with the technology options and the creativity of fraudsters running ahead of those policing the system. It's probably more important to focus on the shared interests of advertisers and consumers (neither of whom like fraud) rather than seek to break up, control or regulate the platforms.

One of the issues here is that regulatory regimes for advertising vary enormously and there is very little international cooperation - ICAS (the International Council on Advertising Standards) was set up in 2008 but only formalised with an independent secretariat in 2017 and, as yet, doesn't include China or Japan (the biggest source of on line ad fraud). Moreover, advertising standards regimes have historically been far more focused on advertising content - 'legal, decent and honest' - than on the sort of technological deception that is undermining online advertising effectiveness. This is made more difficult by the fact that much ad fraud is not illegal (or it's hard to prove ill intent):
One of the biggest reasons fraud is so rampant is simply that it’s not illegal. Unlike credit card fraud, nobody is going to jail for ad fraud, and it’s not exactly the sort of activity that elicits a crackdown from law enforcement, which means there is significantly less risk involved. And yet it’s extremely lucrative.

Imagine a bad actor is weighing their options. On one hand there is credit card fraud, which has modest rewards and very high risks. On the other is ad fraud, which is very lucrative and very low risk. It’s a no-brainer.
Partly this is because of online purchasing models (PPC and variants) but mostly it's because governments have focused attention on other online risks (terrorism, pornography, communication with minors) rather than on advertisers getting some of their payments scammed. As the FT observed governments are now conducting enquiries into ad fraud but this has got little or nothing to do with allegations of "toxic behaviour" levelled at social media companies. That makes for a cool headline, gets you (ironic) clicks but completely misses both the problem and the solution. Regulators and governments need to be working with the platforms rather than seeing them as the problem - they have as much interest in dealing with ad fraud as any government.

In calling (foolishly I believe) for a "publicly funded model" to compete with Facebook, the FT and Diane Coyle confuse two issues and in doing so suggest that Facebook, Google and other 'walled garden' platforms are at best turning a blind eye to fraud and at worst complicit in that deception. Coyle further confuses the issue by talking about using "competition powers" to 'break up' Google and Facebook - quite whose competition powers she wants to use escapes me - when the issue isn't competition but public confidence and the lack of effective legal recourse against fraudsters (after all the BBC, Coyle's much-loved institution, enjoys a de facto news monopoly in the UK).

And, to cap it all, the online market is international so requires international responses - setting up some sort of taxpayer-funded mini-Google in the UK simply isn't the answer. Perhaps a thoughtful government (this may already be happening) might consider using the WTO - or some other international body - as a means of looking at how to coordinate online advertising regulation? Google and Facebook are not angels but it is misleading to suggest that they are complicit in online fraud - more than anything they stand to lose out from fraud as advertisers look for different ways to engage online.


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