US cost impact of an untrustworthy digital ad supply chain

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The Interactive Advertising Bureau (IAB) recently commissioned our Media & Entertainment Advisory practice to perform a comprehensive study that estimated the cost impact of an untrustworthy digital advertising supply chain in the US.

The report, What Is an Untrustworthy Supply Chain Costing the Digital Advertising Industry?, estimates that fraudulent impressions, infringed content and malvertising cost the US digital marketing, advertising and media industry $8.2 billion annually.

According to the research, more than half the money wasted in the digital advertising ecosystem derives from “non-human traffic” – fake advertising impressions that are neither generated by real advertisers nor received by actual consumers.

The aim of the study was to better understand the impact of deliberate activities designed to exploit the current state of the supply chain for illicit gain. It was also supposed to unveil more about the repercussions of unintentional activities by businesses that have put digital advertising as a legitimate business in jeopardy.

The study identified three primary supply chain costs. They are:

  • Invalid traffic – As described above, ad fraud accounts for the largest portion of costs, at a total of $4.6 billion. Seventy-two percent of the loss associated with the web’s fraudulent traffic happens on desktops and 28 percent on mobile.   
  • Infringed content – At $2.4 billion, infringed content – stolen video programming, music and other editorial content that is illegally distributed on the web – represents the most significant share of lost revenue opportunity costs. Two billion dollars of that total is based on an estimate of approximately 21 million US consumers’ willingness to spend $8 per month on what is currently classified as infringed content. The additional $456 million represents the loss of potential advertising dollars. The findings show that unless the industry takes significant steps, there is a likelihood that the number of people consuming stolen content on digital platforms will increase. 
  • Malvertising-related activities – Combating malware-related activities, which can expose web users to unknown or potentially dangerous third parties, comes in at $1.1 billion, with $781 million of those losses being generated from ad blocking instigated due to security and malware concerns. Costs associated with investigating, remediating and documenting direct incidents of malicious advertising total $204 million.

“To help the industry reclaim some of the $8.2 billion in costs, we believe that improving some fundamental business practices is critical,” says Nick Terlizzi, EY Media & Entertainment Advisory Services. “Some basics include knowing your supply chain partners and investigating new potential relationships using address information, tax IDs and background checks.”