Advertising Spending

Don't Waste Your Ad Dollars

Facebook Deception

In 2015, Facebook was sued over claims that the company exaggerated "the level of attention being directed to its platform on the order of 60 to 80 percent"1. Facebook eventually admitted its 'average time users spent watching videos' metric had been faulty, which the company tried to spin as an honest mistake. Facebook's apology didn't ring true because at the time the platform was heavily promoting its 'pivot to video' initiative, trying to get content publishers to dump their written material in favor of producing more videos (Mark Zuckerberg's pitch was emphatic as usual: "the vast majority of the content that people consume online will be video"0; a claim he would repeat a few years later about the metaverse, stressing the urgency of its Meta transformation).

As noted in the book Subprime Attention Crisis: "one analyst noted that Facebook claimed to be able to reach 25 million more eighteen- to thirty-four-year-olds in the United States than should exist according to the U.S. census"2. Oops! Coincidently, the platform had just tweaked its News Feed algorithm to boost visual content to the detriment of everything else. The resulting lawsuits by advertisers over the inflated statistics allege that its viewership numbers may have been overestimated by almost 900%3. While we seem to be focusing on Facebook's misdeeds, the New York Times reminded us that as recently as 2013, Google was also peddling dubious ad delivery figures, as YouTube was found to be receiving more views from bots than actual people18.

Nobody Clicks On Ads Anymore

It may seem hard to fathom, but when banner ads first launched in 1994, they achieved a click-through rate of about 44%. Unsurprisingly, that percentage has been falling ever since. Consider the following statistics unearthed by researcher Tim Hwang:

One data set drawn from Google’s ad network suggests that the average click-through rate for a comparable display ad in 2018 was 0.46 percent4.

[Other estimates] range between 0.18 percent and 0.36 percent. [...] Recent attempts to measure click-through rates on Facebook ads reveal similar rates of less than 1 percent4.

On mobile devices, close to 50 percent of all click-throughs are not users signaling interest in an advertisement, but instead accidental 'fat finger' clicks—users unintentionally clicking on content while using a touch-screen device5.

One study estimated that 8 percent of internet users were responsible for 85 percent of all advertisement click-throughs online6.

In 2014, Google released a report suggesting that 56.1 percent of all ads displayed on the internet are never seen by a human7.

Wasted Ad Spending

Research has shown that most ad impressions are shown to existing customers, or users that would have clicked on the link even if it had not been promoted8. For example, Google the term 'Toyota' and chances are that an ad for Toyota will pop up at the top of the page, under sponsored results. If you click on the link, it will cost Toyota anywhere from 10 cents to roughly $1 (depending on whether competitors like Honda have bid up the keyword in Google's auction system to annoy their rival Toyota). However, if you click on the top generic search result just below the promoted content, Toyota doesn't have to pay anything even if it points to the same website. Most people clicking on the ad would have selected the first search result anyway, so Toyota is paying solely for 'brand' purposes (rather than paying for 'direct-response' traffic – even though those click-throughs are way more expensive than run-of-the-mill awareness campaigns that don't require conversions). As a result, online advertisement campaigns often have a negative return on investment.

Also worrisome is the prevalence of ad blockers. Three-quarters of North American users now proactively shield themselves from advertisement online according to a recent study9. According to another report, over 600 million devices worldwide have some type of ad blocker installed10, causing $21.8 billion in advertisements from being shown. Luckily, when ads are blocked, the advertisers don't have to pay out-of-pocket for that missed opportunity. However, there are several instances where that's not the case, and advertisers are handsomely overpaying for their "hidden" spots, in turn raising the costs of goods and services we purchase from companies that use online marketing (that covers nearly all companies in the world at this point).

Click Fraud

An eye-opening report estimates that 9% of digital advertising spending is lost to click fraud, representing a $19 billion cost to advertisers in 201820. Click farms are a growing concern in the industry. Using automated bots, or low-paid workers in foreign countries, to click on ads for the purposes of generating clicks. The goal is either to make ads seem more effective than they really are, or to bill advertisers more and increase revenues for the hosting website. While Google would never artificially juice its usage statistics on purpose, a rogue user clicking on all the 'mesothelioma' sponsored search results could make Google a small fortune (mesothelioma, the cancer caused by asbestos, is the most expensive keyword to purchase on the Google Adsense platform, because it is a favorite of attorneys trying to recruit claimants for their class action lawsuits against large health insurance companies).

Figures from Tim Hwang's book highlight the fact that advertisers are unwittingly being billed for ads that aren't working as intended:

A study conducted by Adobe in 2018 concluded that about 28 percent of website traffic showed “non-human signals,” indicating that it originated in automated scripts or in click farms11.

One estimate claims that $1 of every $3 spent on digital advertising is lost to click fraud12.

In 2017, Forrester Research concluded that the previous year, as much as 56 percent of all ad dollars spent on display advertising were lost to fraudulent or otherwise unviewable inventory13.

[Another study found that] fraud accounts for 22 percent of video spend, and 20 percent of nonmobile video traffic is driven by bots14.

Eighty-seven percent of all mobile devices on offer in the programmatic advertising markets in the United States in fall 2016 were fraudulent, meaning that they were either not real phones at all, or they were phones running automated scripts, unseen by any actual members of the public15.

Audience measurement is less reliable online than with more traditional and established mediums like TV, radio or print. Auditing ad effectiveness on the internet still relies on entities that have a vested interest in accepting inflated figures. That's why it's so easy to look the other way and gloss over the fraud. Advertisers may be duped into believing they are getting more than what they are paying for. For instance, The New York Times ran an experiment where they purchased Twitter followers from a company called Devumi.com19. They paid $225 for 25,000 followers. The Times reported in another story that Devumi "collected more than $1.2 million over three years by selling 196 million YouTube views"18. Apparently, the company is able to deliver hundreds of thousands – sometimes millions – of views in a matter of weeks, an impossible task if all these "viewers" were truly logit (Devumi denies those accusations).

Buyer Beware

Then there are rare instances of ad buyers getting bamboozled altogether, not just forced to pay inflated CPM rates. Consider these two examples, again courtesy of Tim Hwang's eye-opening book:

Methbot, a “professionalized” ad fraud scheme uncovered in 2016, generated between $3 million and $5 million per day at its height by impersonating inventory on nearly six thousand publications including The Economist, ESPN, Fortune, and Facebook16.

In 2017, the Financial Times discovered that fraudsters were pretending to sell Financial Times ad inventory on ten different ad exchanges17.

CPM Inflation

The day of reckoning may be coming. The bubble will eventually burst on these sky-high digital ad prices. Or maybe, everyone is happier not knowing the truth. Like the old adage in advertisement says: "Half my advertising spend is wasted; the trouble is, I don't know which half". Hint: start by looking at online spend!

Main Source

Original Sources

  1. Steven Perlberg, “Facebook Apologizes for Video Metric Miscalculation,” Wall Street Journal, Sept. 23, 2016

  2. Jason Kint (@jason_kint), “Oomph. Pivotal analyst just dropped report showing Facebook Ad Manager claims 25 million more 18–34 year olds than the US census,” Twitter, Sept. 5, 2017, 6:12 p.m.

  3. Kelsey Sutton, “Facebook Hid Inflated Video Ad Metrics Error for Over a Year, Advertisers Allege,” Adweek, October 17, 2018

  4. Social Advertising Benchmark Report,

  5. Google, “Better Click Quality on Display Ads Improves the User and Advertiser Experience,” Inside AdWords (blog), June 25, 2015

  6. Comscore and Starcom USA Release Updated ‘Natural Born Clickers’ Study Showing 50 Percent Drop in Number of U.S. Internet Users Who Click on Display Ads,” Comscore, Oct. 1, 2009

  7. Tom Blake, Chris Nosko, and Steven Tadelis, “Consumer Heterogeneity and Paid Search Effectiveness: A Large Scale Field Experiment” (NBER working paper, no. 20171, May 2014), abstract, 32.

  8. Alex Kantrowitz, “56% of Digital Ads Served Are Never Seen, Says Google,” AdAge, Dec. 3, 2014

  9. Duncan Stewart and Mark Casey, “Are Consumers ‘Adlergic’? A Look at Ad-Blocking Habits,” Deloitte

  10. 2017 Adblock Report,” Blockthrough, Feb. 1, 2017.

  11. Alexandra Bruell, “Fraudulent Web Traffic Continues to Plague Advertisers, Other Businesses,” Wall Street Journal, March 28, 2018

  12. George P. Slefo, “Report: For Every $3 Spent on Digital Ads, Fraud Takes $1,” AdAge, Oct. 22, 2015

  13. Susan Bidel et al., “Poor Quality Ads Cost US Marketers $7.4 Billion in 2016,” Forrester Research, March 30, 2017

  14. Ross Benes, “The State of Video Ad Fraud,” Digiday, Nov. 2, 2017

  15. Stuart Feil, “The Massive Scale of Mobile Ad Fraud,” Adweek, March 22, 2018

  16. Lucia Moses, “‘The Professionalization of Fraud’: Agencies Are Alarmed by ‘Methbot’ Scheme,” Digiday, Dec. 21, 2016

  17. Jessica Davies, “The FT Warns Advertisers After Discovering High Levels of Domain Spoofing,” Digiday, Sept. 27, 2017

  18. Michael H. Keller, “The Flourishing Business of Fake YouTube Views,” New York Times, Aug. 11, 2018,

  19. Ed Winstead, "Faked: The Headquarters. The Followers. The Influence?" New York Times, Jan. 27, 2018.

  20. Ad Fraud to Cost Advertisers $19 Billion in 2018, Representing 9% of Total Digital Advertising Spend,” Juniper Research, Sept. 26, 2017