PHD China White Paper: Are You Spending Your Money On Fraud? by PHD China

Source: E-Marker 2017/ CNNIC 2017.06 Report/CNRS 2012-2017

The shift to digital is the key driver in the China advertising market Netizen population continues to increase and consumers are spending longer online (148 mins per day in 2012 vs 202 mins per day in 2017). Unsurprisingly, digital has become the main battleground for more established advertisers. According to E-Marketer, digital now accounts for more than 54% of total ad spending in 2016, and is estimated to reach 70%+ in 2020.

China Netizen size& Daily digital time spending Daily time spent: 202 Mins

800 750

Daily time spent: 148 Mins

700 650

39.9%

50.3%

42.1% 44.1%

45.8%

46.9%

47.9%

51.7% 53.2%

54.3%

60.0%

Marketing spending distribution by channel 2020Y(e)

2016Y

50.0%

48.8%

40.0%

600

30.0%

550

20.0%

500

Internet

54%

71%

10.0%

450 400

0.0% 2012.06 2012.12 2013.06 2013.12 2014.06 2014.12 2015.06 2015.12 2016.06 2016.12 2017.06

Netizen'Million

Internet Penetration

Internet

OOH

Newspaper

Radio

Magazine

Howeverâ&#x20AC;Ś

Are advertising budgets well spent? For many brands, the answer is

At least 14% of digital advertising impressions are very likely to be invalid Source: RTBAsia Ad Verification Service/Data base: 2016 Nov-2017 Aug

For nearly 40% of monitored campaigns, the invalid rate is 20%+ , while only 6% of monitored campaigns managed to have IVT (Invalid Traffic) rate within 10% Campaign IVT Rate Distribution

14%

7% 10%

IVT%: >=40%

21%

IVT%: 30%-40% IVT%: 20%-30%

of total traffic is suspicious

56%

IVT%: 10%-20% IVT%: <=10%

MMA China released ‘IVT Standard V.1.0’ in May 2017 MMA also stated that sophisticated IVT required advanced analysis and multi-party involvement to better identify fraud. Obviously this will not control IVT damage in the short term. As such, consistent IVT is hurting brands and marketers need to know how best to limit losses.

PHD and RTBAsia decided to co-release this paper to share PHD’s learnings from past campaigns. What is IVT and what patterns exist?

Ad-fraud actually includes 2 types: Tag Fraud and IVT Tag-fraud techniques are relatively basic and can be avoided by ad-serving, which is under-represented in the China digital advertising market. This white paper focuses on IVT with RTBAsia’s expertise on non-human impression diagnosis

Tag-fraud: misusage of ad tag and ad placement - Add tags to other campaigns to fake up impressions and clicks - Deliver campaigns in non-target spots or low quality spots while clients pay for high quality spots

IVT: Using 3rd Party Hackers/ RoBots to fake impression number - Fraud mechanism is more complicated with high technologies involved

Current solution Avoided by ad-serving

This white paper’s focus

Non-human IVT includes ‘Good Bots’ and ‘Bad Bots’ Good Bots Web

Web

Bad Bots Web

Domain name resolution request

Data center

DNS server

Spider Crawler Mostly conducted by business intelligence companies to collect webpage information. Website or Apps with price information are mostly targeted, such as Ctrip, JD, T-mall

Bots Simulation

Redirect users to traffic producers’ target page User device

Trojan

Fake device ID Fake cookie

Bad Bots simulate human behavior and generate huge impressions or clicks. Unscrupulous publisher and content producers are the key parties behind this type of IVT

Source: RTBAsia Ad Verification Service/Data base:2016 Nov-2017 Aug

For ‘Good Bots’, the key objective is information collection. Social and travel websites are mostly hit by such IVT Media Type

Terminal

IVT Rate%

Camera APP

Mobile APP

12%

Life APP

Mobile APP

12%

Tool APP

Mobile APP

17%

Mobile

11%

18%

Mobile

35%

30%

Mobile

36%

72%

Mobile

13%

17%

Female Vertical Social Travel Video

Social media platforms: social platform records huge consumer data and has been an important part of brand communication. Any negative incidence can be quickly spread and make huge damage to brand equity. Hence social listening is widely used for brand performance monitor, PR monitor as well as consumer research. Travel platforms: travel websites contain huge amount of price information and such information changes constantly. Hotels, airlines need price and package information to make quick adjustment

Bad Bot IVT is a commercial behavior Impact of business profit & risk are the 2 key dangers • Every business is looking into profit optimization. When IVT producers have choices on different cost efficiency, time efficiency, return scenarios, they tend to choose the better one • Like all creators of fake goods, IVT producers don’t want to be caught. Once caught, they could face revenue loss, possible legal action and compensation claims, particularly from VIP clients. Hence, risk control is another important factor to consider

Profit optimization

Risk control (mainly for publishers)

• IVT production cost& time efficiency

• VIP clients: risky to lose or offend

• Return maximization

• Sophisticated clients: high chance to be found

Source: RTBAsia Ad Verification Service/Data base:2016 Nov-2017 Aug

Display vs. Online Video: Display is more severely hit

OV IVT Rate

Display IVT Rate

14%

30%

• Charged by CPM • Mostly publishers can ensure high traffic

• •

2 reasons that display has higher IVT rate: higher reward for display IVT and insufficient inventory to push publishers to go for IVT

Charged by CPC Mostly traffic is not stable

•

CPM VS. CPC: Unlike video ads, display ads are mostly charged by click. 1 fake click generates much higher return than 1 fake impression

•

Insufficient inventory: 1) in general video publishers has higher traffic to ensure inventory while for non-OV publishers’ traffic, particularly for vertical apps, the traffic is quite often not sufficient. 2) when CTR becomes a KPI, publishers are forced to deliver the KPI

Buying type: 39% of RTB is suspicious IVT, significantly higher than Regular Buy and PDB (Programmatic Direct Buy) 2 reasons behind higher IVT in RTB campaigns: Source: RTBAsia Ad Verification Service/Data base:2016 Nov-2017 Aug

39%

•

Publishers tend to screen some IVT for high price inventory, i.e. Regular buy and PDB: regular buy and PDB are mostly purchased by big advertisers. Publishers are less willing to take risk on losing VIP clients

•

RTB inventory are mostly long tail traffic and publishers do not deal with advertisers directly. There are SSP, DSP in the middle. Each party has a role in the deal and no one has motivation to control IVT except DSP. However, for DSP, mostly their priority is to deliver impression on target while IVT control is secondary

•

Even for Regular buy and PDB, still huge amount of IVT still exists. When publishers do not have sufficient inventory, IVT becomes a convenient solution

Avg. IVT% =

14% 16% 12%

PDB

Regular buy

RTB

Programmatic buy

Top publishers have more quality traffic and slightly lower IVT rate but one publisherâ&#x20AC;&#x2122;s IVT rate is up to 20% Take video publishers as example - Top OV publishers have lower IVT rate

Source: RTBAsia Ad Verification Service/Data base:2016 Nov-2017 Aug

IVT Rate% of OV publishers 20.1% 18.2%

14.4% 12.4%

Publisher_1

12.9%

12.0%

Publisher_2

11.6%

Publisher_3

Publisher_4

Publisher_5

Top 7 publishers

Publisher_6

Publisher_7 Publisher_N

With higher traffic, top publishers have more sufficient inventory to sell and relatively lower motivation to generate fake traffic

We estimated an IVT rate of 12% in the Top 3 OV platforms, primarily because: 1. Sometimes inventory is not sufficient 2. Content producers fake impressions to increase their video view number to share higher revenue 3. In hot drama buy campaigns, the impression delivery is not satisfactory and publishers have to fake impressions to achieve delivery rate

ISP (Internet Service Provider): Higher IVT rate is observed in traffic from small ISPs From cost efficiency consideration, small ISPs are more popular among IVT producers:

IVT rate% Source: RTBAsia Ad Verification Service/Data base:2016 Nov-2017 Aug

35%

• Relatively the cost of obtaining IP addresses from small ISPs is lower. For IVT producers, it is more cost efficient to get IP addresses from smaller ISPs

30% 25% 20% 15%

10% 5% 0% China Telecom

China Unicom

China Mobile

DRPeng

China Railcom

Others

Apart from the cost factor, small ISPs have limited IP resources, hence it is common that for small ISPs, 1 IP address is shared by many households, i.e. many devices. One of RTBAsia’s algorithms to justify IVT is to see number of impressions in short period and hence it is likely to put small ISP IP in suspicious IP list

Source: RTBAsia Ad Verification Service/Data base:2016 Nov-2017 Aug

Is IVT more likely to happen during the night? Not exactly There has been a myth that middle-of-the-night traffic is mostly IVT. The answer is yes and no • IVT producers are becoming more sophisticated. The current IVT distribution by hour is generally in line with the total traffic by hour and therefore better disguised. • However, as Audiences tend to be less online during the night-time, we still see a higher IVT rate in the early morning hours. Hence if a brand sees high traffic at night-time, excluding sports spots in match seasons, the brand should be cautious and conduct an in-depth investigation IVT

13.73%

17.69% 17.18% 16.69%

1,200,000,000

1,000,000,000

14.00% 13.80% 13.86%

800,000,000

13.65%

13.56% 13.75% 13.38% 13.70% 13.71%

14.28%

13.82% 15.16%

13.02% 12.93% 13.21%

15.57%

450,000,000

13.02%

400,000,000 350,000,000

13.31% 300,000,000

14.73% 600,000,000

500,000,000

250,000,000

14.04%

200,000,000 400,000,000

150,000,000 100,000,000

200,000,000

50,000,000 0

IVT

IVT%

Be cautious with certain regions in China Some regions have significantly high IVT rates, particularly in Beijing

Source: RTBAsia Ad Verification Service/Data base:2016 Nov-2017 Aug

38%

24% 24%

22%

20% 19% 19%

17% 17% 16% 16%

15% 15% 14%

13% 13% 13% 13% 13% 12%

12% 12% 12% 12% 11% 11%

10% 10% 10% 10% 9%

IVT battle is going to be a long one… However, it is still possible to reduce the IVT rate

6% of campaigns can still control IVT Rate to under 10%

• Earlier we already see that 6% out of the monitored campaigns successfully managed to control IVT rate lower than 10% • According to RTBAsia, top brands’ IVT rate in general is decreasing although out of the total monitored traffic pushed by publishers, IVT rate is still increasing.

While we wait for the industry to align on an IVT standard and MMA SDK implementation, we recommend 3 steps to help brand minimize IVT damage

Step 1: Start tracking • Media transparency requires all stakeholders’ commitment, particularly from advertisers • Advertisers need to set up a high bar to push the industry towards high transparency. 3rd party tracking is the first step • 3rd party tracking can’t solve IVT problem, however it is the starting point to collect data and prepare for the next step diagnosis

No Tracking, no Spending

In the 2017 MMA Forum, held in Shanghai on Aug. 25, 2017, marketers gathered together and collectively announced their determination of anti-fraud. "No tracking, no spending” is widely acknowledged and the industry needs to involve authorized 3rd party tracking vendors to push towards high transparency

Step 2: Be sophisticated, watchful and well armed • Arthur Conan Doyle said, any unusual phenomena would provide some clues. • Marketers should consider all the clues to identify suspicious traffic – this means we need high granularity of data to uncover unusual patterns and identify possible IVT. Such process and knowledge should be constantly upgraded as our IVT enemies are upgrading

3rd party tracking vendors are no longer just audience tracking vendors

IVT producers evolving as well Before

Now Beginning • Impression, click counting as well as audience profiling

• GIVT screening • Device ID, cookie monitor, suspicious IP database, analysis by different angles • AI algorithm to identify suspicious IVT

• Extensive exposures in short time period • Random IVT distribution by hour

Now

• Human behavior simulation • IVT distribution by hour is in line with total traffic distribution by hour

Step 3: Set up a comprehensive diagnosis system such as introducing e-commerce in-site conversion indexes

Click doesn’t equal visit

Take display ads as example, clicks should not be a KPI : • Click is no longer a good index to evaluate whether the campaign really engages with consumers. Reliance on clicks only motivates publishers to produce fake clicks and waste brands’ budgets • Furthermore, clicks do not necessarily generate traffic to a landing page. Quite often, audiences mis-click campaigns and close the browser before landing pages are loaded and open

Click

Visit • 4 steps to improve display efficiency: - Develop clear campaign objectives - Set up solid result-based index to monitor, such as landing page bounce rate, session duration, conversion rate - Closely monitor display effectiveness by spot - Reallocate spending away from suspicious platforms © PHD China 2017. All Rights Reserved

Notes This White Paper is co-released by PHD and RTBAsia PHD is known globally as an innovator in communications planning and buying across broadcast, print, digital, mobile, social and emerging media. The network currently holds the title of Global Media Agency of the Year with AdWeek and Media Network of the Year with Campaign and the Cristal Awards. PHD has over 4,000 staff working in over 80 offices worldwide. Built on a culture of thought leadership, innovation and creativeity, with a philosophy of ‘Finding a Better Way’, PHD is today one of the world’s fastest growing media and communication agency networks, placing 1st in RECMA’s 2016 global new business performance league table. RTBAsia is a leading ad verification service provider in China. Founded in 2012, the company offers Anti-Fraud, Ad Viewability and Brand Safety services for brand advertisers and advertising technology companies. Data source: The white paper is based on 555 campaigns across 4 categories, monitored by RTBAsia during Nov. 2016-Aug. 2017 Brief introduction of RTBAsia IVT verification methodology:

Instead of relying on cookie or ID system, which is vulnerable to sophisticated fraud activities, RTBAsia uses the following method to identify audiences and traffic source: IP+X • IP: IP address, which is constantly available in digital advertising • X: Optional parameters that may not always be available in digital advertising, e.g. : mobile device ID ( IDFA / Android ID / IMEI / MAC Address ) This approach will ensure ALL digital advertising campaign quality is measurable, regardless of publishers’ participation level. • In most challenging scenario of media buying, IP address is always available for analyze. • More data will lead to higher accuracy.

Are You Spending Your Money On Fraud? Questions? Please get in touch with: Tracy Yu - Tracy.Yu@phdmedia.com Mark Bowling - Mark.Bowling@phdmedia.com