Tech: Google’s refunds point to two of the biggest problems in ad tech (GOOGL, GOOG)

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Google is refunding advertisers whose campaigns were placed via DoubleClick Bid Manager on websites with fake traffic, The Wall Street Journal reports.

This ad fraud problem happened over the course of a few months this year, mainly in 2Q, and hundreds of marketers and ad agency partners have been informed by Google about the problem over the past few weeks.

Advertising executives aren’t fully satisfied by the refund because it only a covers a fraction of the total cost to place the ad. Google is offering to refund its "platform fee," which amounts to 7-10% of the advertiser’s total purchase. This is a service fee that Google charges to connect advertisers with ad tech providers that are plugged into DoubleClick Bid Manager. These other ad tech providers then work to place an advertiser’s campaign on the appropriate website.

This incident highlights two of the pressing issues in ad tech and programmatic advertising:

• Invalid traffic, or ad fraud. An estimated $6.5 billion in ad spending will be lost this year to fraud, down 10% from 2016, according to a report by the Association of National Advertisers and WhiteOps. This can happen in several ways, including pages that use bots (non-humans) to inflate impressions, or exchanges that "spoof" inventory low-quality websites with minimal traffic as premium ad space.
• Transparency and the "ad tech" tax. The complexity and opacity of the programmatic ad supply chain make it difficult for ad-buyers to track where their dollars are spent. In a hypothetical situation in which an advertiser places an $100 ad through DoubleClick, Google would keep 7-10% and relay the purchase through to its ad tech partners for them to place the ad on the right website, and whichever ad exchange or ad network is used would also take a cut from the remaining budget – this is known as the “ad tech tax.”

However, Google is working on a solution that should prevent this from happening again, and that should increase transparency and accountability in digital advertising. The company is investigating which of its partners are responsible for placing ads on websites with invalid traffic and is developing technology to automatically give advertisers full refunds in the event of ad fraud.

The company is reportedly in talks with 100-plus exchanges, ad networks, and publishers that are on DoubleClick Bid Manager, and asking whether they would be willing to offer full refunds if such incidents occur. Advertisers will then be able to filter out sources of inventory that don’t offer full refunds. This should provide a strong incentive for exchanges and networks to clean up and verify their advertising inventory.

Kevin Gallagher, research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on ad tech that:

• Forecasts US programmatic revenue through 2020.
• Highlights the factors driving consolidation, and identifies new acquirers and attractive targets.
• Explores the challenges ad tech companies face including the dominance of walled gardens, ad blocking and measurement.
• Outlines emerging technologies that will help propel ad growth in the next decade.

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