New Zealand advertisers have lost millions of dollars to ads that have never been seen – or not by human eyes - a marketing expert estimates.

Kris Hadley, founder of Kiwi media agency Together, told the Weekend Herald that ad fraud could be sapping the local market of between $600,000 and $1.6 million a year spent by NZ companies on online advertising.

He bases this estimate on Integral Ad Science (IAS) monitoring, which keeps tabs on how extensive ad fraud is in the local market.

On top of this, said Hadley, NZ companies could also face losses of up to $6.6m a year through paying inflated commissions to so-called tech experts.

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Hadley said these estimates were conservative.

Late last month, Fast Company published a report indicating that as much as US$50 billion ($74b) a year is lost globally to criminals engaged in ad fraud.

The report, based on a new study by Tel Aviv-based cybersecurity firm Cheq, said as much as 20c of every dollar spent on digital advertising was stolen through fraud.

This type of ad fraud largely involves so-called programmatic ads, which are purchased through tech platforms designed to connect human eyeballs to advertising.

Hadley said New Zealand's market for ads sold in this way was about $80m a year.

He said the biggest problem in the local market arose from "bad actors", who hid their activities and did not use tools such as IAS to ensure the quality of what they were selling on to local brands.

"We know bad actors exist, but at the moment no one is really coming out locally to raise the conversation," Hadley said.

"There's a lot to the digital ecosystem that can be opaque and you have group of people who don't know a lot about the industry and they really rely on their partners to guide them. And in any gap between knowledge and awareness, bad actors can take advantage."

When digital advertising platforms first appeared, they came with the promise of connecting viewers and advertising.

The argument seemed foolproof. Advertisers would pay only for ads that were seen by their targeted customers.

Businesses across the world bought into that promise, steadily shifting their ad spending across to digital. This was also the case in New Zealand, where overall spending on digital advertising is expected to hit $1 billion when the Interactive Bureau of Advertising for New Zealand releases its annual figures for 2018.

The problem is that less scrupulous players quickly learnt how to take advantage of the system. This has manifested in two main ways: first, through ad fraud and, second, through inflated commissions.

Ad fraud is largely international, with sophisticated criminals developing smart tools that mimic human traffic and siphon advertiser money to fake businesses around the world. This type of fraud has been so successful and low-risk that it is even attracting cybercriminals from other areas, such as the finance sector.

Given that New Zealand doesn't have the scale of other countries, this type of fraud has not terrified the local market in the way it has in the US, for example. But it does happen here, quietly slicing off a few cents here and few cents there.

Billions of dollars are lost to ad fraud on a global level every year. Photo/Getty Images.
Billions of dollars are lost to ad fraud on a global level every year. Photo/Getty Images.

The other problem that emerged with digital advertising came in the shape of inflated commissions.

Having learnt how easy and cheap it was to place ads, some unscrupulous operators set themselves up as digital experts and sold their skills to businesses.

Rumours of markups as high as 300 per cent on ad placements did little to dissuade advertisers from pouring money into these ventures. The reason was that marketers who had long paid traditional media fees were still getting a good deal for the level of reach they were getting in digital.

Hadley said the worst operators were careful to hide how much money theyu were slicing off for their commissions. And while the industry had become much more transparent in recent years, there were still examples of opaque business models in the local market.

"If you've got no idea how much your partner is making off your money, how the hell could that ever be a good idea?" he said.

"There are definitely still firms in New Zealand working that way. The wastage is potentially massive. It's a really scary space for people who just don't know enough to ask really the right questions."

John Baker, the managing director at media agency Lassoo, said the type of ad fraud seen in international markets simply was not so rampant here.

"There is certainly a risk of overstating its impact," he said.

He said the biggest risk of ad fraud or inflated margins now came from the industry's fringes and was most likely to affect smaller businesses, which could be hoodwinked with bold promises on the effectiveness of the advertising.

But this was not limited to digital advertising, and Baker pointed out that malpractice like this had always happened on the fringes of the media industry.

The veteran media man said that over the years he had heard numerous inflated promises across every media channel, from industry types trumpeting the effectiveness of their medium.

Invariably, he said, this tended to affect smaller businesses, which rely on what they are being told and don't always have recourse to expert, independent advice.

He said you did not see this type of behaviour from the bigger media agencies or established vendors that had too much to lose from getting caught.

Baker said the problem with digital today was that pretty much anyone could start selling digital ads. And if they found someone gullible enough, they could take advantage of them.

For the most part, though, marketers were very informed, asking the right questions and understood how digital marketing worked.

Spark, for example, has been very reactive in its approach to digital advertising. When the marketing team identifies a problem, they pull ads until the problem has been rectified - as seen when the telco recently pulled its ads from YouTube.

"We make decisions as to how and where Spark advertises to ensure that we're turning up in the right way for our customers, and reflecting our values as a business," Spark head of brand Sarah Williams told the Weekend Herald.

Williams also said she saw ad fraud as a "global issue" and that she was paying attention to it.

Gill Stewart, chief executive of New Zealand's Interactive Advertising Bureau, said the best way advertisers could ensure they were not being taken advantage of was by operating with a reputable partner with transparent buying and selling practices that let them see how media was being bought and sold.

Over the past two years, the IAB NZ – with its international equivalents – has also attempted to address the issue of ad fraud.

Asked what the IAB NZ was doing in the local market, Stewart pointed to initiatives such as ads.txt, which allows publishers to specify who is allowed to sell their advertising inventory.

"It gives buyers confidence they are buying a genuine ad impression on the target site," said Stewart.

But even though this initiative is only two years old, fraudsters have already found a workaround.

The Wall Street Journal reported this year that fraudsters had already tricked the system, diverting between US$70m and US$80m in global advertising.

Ad fraudsters use sophisticated means to emulate human behaviour. Photo/Getty Images.
Ad fraudsters use sophisticated means to emulate human behaviour. Photo/Getty Images.

Another answer often mooted for ad fraud – and many other digital problems – is artificial intelligence - in other words, building bots to fight bots. The problem with this approach, however, is that criminals are developing their bots in response to what crime fighters can do.

And since we're often told that artificial intelligence will not be able to replace the human capacity for creative thinking, we'll be stuck with the problem of ad fraud for as long as criminals remain creative.