Kerrisdale Capital’s Sahm Adrangi discusses ad fraud

We live in a digital age, and brands have adapted by implanting marketing strategies on websites all over the Internet. In the process of doing so, however, many brands have become victims of ad fraud, and have wasted millions of dollars as a result. I, Sahm Adrangi of Kerrisdale Capital, have dealt with ad fraud on a large scale as a short activist. In this article, I’ll discuss what ad fraud is and the different types of ad fraud that most often occur. Kerrisdale Capital has written reports that allege ad fraud at certain companies. I am the chief investment officer of Kerrisdale Capital.

The magnitude of ad fraud:

Just how big is the problem globally and how much do we lose in the world to ad fraud? It comes as a shock to analysts that the losses companies face globally as a result of ad fraud is estimated to range between $7Billion and $20Billion. Now just because it is harder to determine an exact figure in an industry where cash is liquid and ad networks have a “license to print money”, this does not mean it is acceptable in any way.

Explaining ad fraud

Let’s say you’re in charge of digital marketing for a big company. You invest a hefty part of your budget into online advertisements – but some of those advertisements wind up on fake websites without human viewers. Your data reports that there are views and clicks on these advertisements, but they’re not from potential buyers; they’re from bots and computers. These fake websites are designed by hackers, whose sole intentions are to make off with the money you’ve unknowingly invested in these fraudulent ads. You and your company have lost money, and aren’t going to gain it back because there are no potential buyers viewing the ad.

Common types of ad fraud

There are many different types of ad fraud, but the following are the most common:

Impression laundering: Essentially, this happen when advertisers pay a publisher to display an ad on their site. Instead, the ad is displayed on a fake website, but redirects make it seem to the advertiser that the ad is displayed on the intended site.

Invisible/hidden ads: These advertisements are hidden on the intended site, but impressions are still reported to the advertiser. There are a variety of complex techniques to make this happen.

Hijacking ads/clicks: Malware hijacks and displays an advertisement, or redirects the viewer to a different website upon clicking the ad. The attacker (rather than the publisher) gains the money that the ad brings in.

Bots traffic: This method of fraud is extremely hard to detect. Bots mimic humans by creating impressions on the ad through clicks and view; however, the money spent on the ad benefits the publisher (or the owner of the website) rather than the advertiser. Because there are only bots viewing the advertisements, there is no opportunity for the company to make money off of potential buyers.

How short activists gain

Not too long ago, I gave a presentation on ad fraud and how short activism plays a role. Companies like my own, Kerrisdale Capital, practice short activism by conducting and publishing research on the companies that we short, or anticipate to fail. Ad fraud is a detrimental problem for the advertising industry, but short activists do their part (and better their chances of making money) by exposing it to the world.

(See Sahm Adrangi on Linkedin)