Fraud problem makes Facebook more attractive to online advertisers, say ad insiders

Digital marketers, weary of online scams, will start placing more ads on Facebook(s fb) rather than run the risk that their ads will be shown to robots instead of actual people.

That was one conclusion of an ad industry breakfast in Manhattan, titled Bagels and Bots, where executives last week explored the pervasiveness of botnets — networks of corrupted computers that provide an easy way for criminals and hackers to defraud big brands out of billions of dollars. Here are some new numbers, and the implications for advertisers.

Online ad exchanges a fertile ground for fraud

Scammers, who have been present since the early days of online advertising, are adept at finding new ways to cheat the ad industry. One of the latest tricks involves directing millions of bot visitors to “ghost sites” — which contain a thin scrip of “content” but few real readers — and then collecting money from marketers who pay good money to show ads to these fake visitors.

The result, according to Integral Ad Science, is an appalling rate of fraud across the industry:

Ad scam graph

Integral estimates the fraud costs $6 billion a year. Although the figure can’t be independently verified, Integral is hardly the only one to sound the fraud alarm. Other firms, including Dstillery and, have likewise published research about the ghost site scam, and various other scams — such as serving ads in the form of 1×1 pixels that can’t be seen by anyone.

The reason for the fraud is simple enough: it’s a low-risk way to make a lot of money for the masterminds, most of whom are in Eastern Europe and beyond the reach of the FBI. Here’s an Integral graphic that shows who’s involved:

ad scam screen shot

To drive home the point, Integral executives used special software to show how an infected laptop can, undetected by its owner, serve up a thousand ads an hour — ads that companies pay to serve, but that are seen by exactly no one.

Ghost ads make safe sites like Facebook an attractive alternative

To understand how the fraud is so rampant — and why advertisers can avoid it by buying from the likes of Facebook — it’s helpful to understand more about the ad exchanges where most of the fake ads come from in the first place.

These exchanges act as giant bazaars where big advertisers like Disney or Macy’s use automated programs to purchase web page real estate to show their ads. The huge reach of the exchanges is appealing to marketers who need to reach millions of people at once.

The downside, however, is that anyone can dump ad inventory into the exchanges, including the shady people who control the botnets and the ghost sites. In this sense, the exchanges, which take a cut of the sales, are like giant flea markets that contain merchants selling crappy and counterfeit goods; AOL(s aol) recently learned this the hard way, shelling out $405 million for, a video exchange reportedly stuffed with bots and fake ads ( denies the widely reported claim).

The exchanges have habitually shown themselves unable — or unwilling — to purge the scammy ad stock. As a result, the ad industry experts predicted, more advertisers will turn to platforms that have massive ad inventory but that can also offer guarantees against rip-offs. And there’s only a handful of them — with Facebook atop the list.

“FBX is fraud-free. The purity exchanges will win,” said one Gartner analyst, Andrew Frank, at the Integral event, referring to Facebook’s ad exchange where brands can bid in real-time to “retarget” users on Facebook based on their browsing history.

The Facebook exchange stands out from traditional exchanges because it’s more like a curated department store than a flea market; advertisers know where their products will appear and which customers might buy them. (Google’s AdX is similar in that, though it works across many web sites, the search giant polices for bad actors.)

“A difference with Facebook is that we have logged-in users; we have good authentication. Facebook as a whole takes fidelity very seriously – and FBX is part of this,” said a Facebook spokesman by email.

More power for Facebook, and calls for a “public hanging”

In the wake of Yahoo’s(s yhoo) steady decline in the display ad business, Facebook has emerged as the only real rival to Google’s(s goog) dominance of the online ad space. If the fraud fears persist, the two giants will likely consolidate their lead even more at the expense of the other exchanges (and, in Facebook’s case, will further squeeze out the smaller ad-tech companies that have helped it build its exchange.)

Meanwhile, in the background, the controversy over the scam sites has also left members of the ad industry pointing fingers over who to blame for the ad mess.

“Nothing will change until there’s a public hanging,” Frank, the Gartner analyst told the roundtable.

Such a hanging — perhaps in the form of civil lawsuits or even criminal charges — seems appropriate to hold accountable those who look the other way while obvious fraud is taking place.

That may not happen, however, since few people in the industry are willing to speak up about the fraud problem in the first place. The exchanges don’t want to talk about it because it makes them look bad; at the same time, many of the ad buyers burned by the scam are reluctant to tell their bosses or their clients, fearing they’ll be blamed.

This story was updated on Tuesday afternoon to note that denies the bot claims.