Traffic Arbitrage Is Out Of Control

kenvaneveryThe Sell Sider” is a column written by the sell side of the digital media community.

Today's column is written by Ken Van Every, senior business development manager, publisher relations, DataXu.

The ad tech ecosystem is diluted with a massively inflated pool of low-quality impressions from bogus sites with little to no proprietary content or services.

Most display networks and exchanges have creative acceptance policies that prevent misleading creative and ads on landing pages. Content recommendation platforms and sponsored stories do not have these safeguards to prevent arbitrage, so sites often put even more ad units on landing pages than usual to maximize the revenue generated by a sourced user.

This is why bogus sites buy up most of the ad slots in content recommendation widgets and sponsored stories from the likes of Taboola, Outbrain, Facebook and countless mimics, such as RevContent, AdBlade, Gravity, content.ad, infolinks, MGID, ZergNet, Earnify and AdBistro, among others.

The Formula: Landing Page Ad Revenue - User Acquisition Cost = Net Profit

Bogus sites go live every day and can be profitable almost immediately. The path to making money is simple: Buy traffic through these platforms at a cost per click (CPC), which is less than the revenue generated from landing page video and banner ads.

These publishers test several different versions of ads with different combos of enticing thumbnails and tantalizing headlines to see which emerge as the best clickbait. Testing gives them predictable click-through rates (CTRs) for each ad, which can then be used to predict the CPC on each platform. The big issue is when they can also predict how much they’ll earn from their landing page on the revenue generated by display and video exchanges and supply-side platforms (SSPs) as well as other content recommendation widgets.

When both the user acquisition cost and landing page revenue are predictable, publishers can rapidly scale to frightening volumes of ad inventory. That inventory floods the programmatic marketplace and competes directly with inventory from legitimate publishers with organic traffic and hundreds of paid staff members, including writers and developers.

It’s not difficult to understand why these bogus sites keep popping up, when a user costs a 25¢ CPC and generates a $3 CPM when they hit the landing page. If the formula stops working or the CPC is too high on a certain platform, they simply try a more provocative ad to increase CTR, throw some more ad units on the landing page or break the post into a 35-page slideshow with each page containing a dozen display ads and an autoplay video ad. Fine-tune this formula and you’ve essentially built an industrial-sized cash printer.

The Solution: Industry Regulations Banning Ads On Outlinking Landing Pages

Banning ads on only outlinking landing pages slows abuse of these platforms yet still allows publishers to utilize them for internal recommendations without ad restrictions. For outlinks, ads can reappear after the user clicks to a new page on the site. Publishers can still use them to buy traffic, but the payoff isn’t as immediate. The intended business model of the content recommendation platform stays intact, but billions of ad impressions suddenly disappear from the marketplace, redistributing marketers’ investment to legitimate publishers and the users engaged with their content.

Publishers utilize these platforms not only because they make their sites stickier but also because they earn revenue from the outlinking clicks. What they may not realize is that the small amount of revenue generated from the outlinks is hurting them in the back end, due to how much arbitrage-driven scale exists in the programmatic marketplace. The CPMs they’re generating from their exchanges and SSPs are lower than they should be, thanks to the oversaturation of supply.

What’s The Problem?

If the content recommendation platforms are working, publishers are making money and ads are being served to humans, what’s the big deal?

The problem is the outright abuse of this loophole. Many publishers have made this their primary business model and generated millions of dollars under the radar without creating any proprietary content. They use generic WordPress templates to throw together a site and plaster it with slideshows, using content that they don’t own or have the rights to use.

To maximize the revenue from a new user, many sites have different user experiences when a user is referred from one of these platforms compared to when they visit organically. They have posts that organic users see condensed to a single page and have three to five ad units, while that same post when visited through Facebook, Taboola or Outbrain will be broken into several pages, each with a dozen ad units, including autoplay video ads. The name of the game is profiting off of that user’s single click to the site, and nothing else matters.

Most of the sites that are buying this traffic are faceless with generic “About” and “Contact Us” pages. They have hundreds of millions of monthly impressions but no presence on LinkedIn or Glassdoor. You’d think that if they have that many impressions, they’d have people working in ad sales, accounting and HR, but that isn’t the case.

Make no mistake, several mainstream household-name publishers have also exploited this loophole to launch their impression levels into the billions-per-month strata and higher. Enforcing the ad ban on landing pages would bring those levels closer to earth, but the financial pain should be softened a bit by higher CPMs generated by tightened supply. Those publishers will survive. The real impact will be felt by the hundreds of websites that spawn every day with the sole intention of buying traffic and monetizing it profitably, by any means necessary.

The Outcome

A ban on outlinking landing pages would lead to the programmatic inventory pool shrinking and CPMs rising, especially for video ads. Advertisers will get closer to getting what they pay for with audiences engaged in the content they’re marketing on. Ad tech revenue will stay with the platforms that provide a viable product for their clients instead of trying to generate cash while ignoring the health of the industry. Finally, revenue from advertising will flow to the content producers and services that we love, instead of being siphoned by parasites into the shadows.

Follow DataXu (@DataXu) and AdExchanger (@adexchanger) on Twitter.


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12 Comments

  1. Nice article however I'm not following your example. A $0.25 CPC acquisition cost translates to a $250 eCPM which is hugely negative margins if the publisher is making $3 CPM from the landing page. I think a more realistic example is a publisher making $10 CPM/RPM and buying traffic at a penny or sub-penny CPC.

    Reply
    • Author here. Valid point and I probably should've kicked that CPC decimal to the left but don't get hung up on that and let it take away from the point of the column. I'm admittedly stronger at identifying and blocking these sites than I am at math.

      Reply
  2. > "It’s not difficult to understand why these bogus sites keep popping up, when a user costs a 25¢ CPC and generates a $3 CPM when they hit the landing page".

    If it costs 25 cents to acquire a user and they make $3 per thousand views, wouldn't that cost them $250 to make $3?

    > "The Solution: Industry Regulations Banning Ads On Outlinking Landing Pages"

    How would this be enforced? The majority of news and media sites make money from advertising. Are you arguing they should be banned from running ads on ad networks?

    Reply
  3. Guy Peeters

    I dont understand. How does a user that costs you 25 cent and brings you 3 euro cpm, is making you money? If this user is only doing 1 pageview, than the numbers dont add up and you are actually losing money?

    Reply
  4. if a content marketer pays $.25 cpc, don't they have to make at least $250 cpm per user to make a profit?

    Reply
  5. The numbers quoted in the article aren't quite right as the other comments state, but the model itself is very real. The clicks are actually far cheaper from these low quality networks, usually around 0.5 to 5 cents each. The traffic also leads to several pageviews with sliders and image galleries, with each page on the site running a dozen ads that pay out $5 - $25 CPMs, especially with so much video now. That's basically a cash printing machine that takes less than a day to set up.

    Reply
    • I would assume this sort of affect would disappear in a good algo that accounts for normalized historical performance of the seller and URL, and the avg. time on page, right? Isn't that the point of DSPs?

      Reply
      • Sure, some DSPs are combating this through data and algorithms but that's all predicated on the data being good in the first place. Many SSPs don't even reveal the domain, or it may be misrepresented through fraud and arbitrage and is still useless. It's impossible to get the full context unless your tag actually runs on the site, but as a buyer that means winning the auction first.

        This is why there are so many "pre-bid" solutions out there that focus on exactly this kind of historical analysis, but until SSPs become fully transparent and much more technically savvy and reliable, this won't be solved. Most fraud is also just a business problem rather than technical - unless these ad companies really don't know who they're writing checks to.

        Fintech and banking in general has pretty much solved this, but when your revenue is based on impression volume then it becomes clear why this is such a persistent problem in adtech.

  6. This marketplace gets juiced when widgets find their way on to pages filled with high CTR bot traffic. It can create constant loops of fraudulent traffic. When a site you are buying has generic content...fits in a niche brand loving category...blew up in traffic overnight...and is primarily seeing traffic from referrals and display widgets...it's time to move on.

    Reply
  7. Siddhartha Purkayastha

    been there.done that! basically you buy traffic from facebook advertising,taboola,outbrain,etc,just as affiliates or companies drive paid traffic to their sites direct it to your site filled with ads(because in 2017 there is no such thing as free traffic in 2017),they are just build their audience base and monetize their content in same way your website publishes ads ad monetises by your service.What is illegitimate in it can you explain?

    Reply
  8. Bruce R

    the details matter here - as usual.

    1) let's not assume that everyone on the content recommendation platforms is a bad actor. buying traffic and having a site that leverages it, is not by definition bad, if the resulting visitors are good quality. otherwise, you would have to assume that the visitors to the originating site were bad, right?

    2) AFAIK, clickbait is defined as a headline that doesn't deliver on its promise. "Cure toenail fungus in one easy step" "This Famous celebrity found dead" etc clickbait is bad. no argument there.
    Though if a user hangs around for the 35 pages you mention, I would posit that the site can't be all that bad - at least from their perspective

    3) what exchanges have rules on having ads on landing pages? Do you mean they place limits on the number of ads (non zero)? how does one know its a landing page ? should the limit be 0, 1, 2, 3 or ? do we limit by type (banner, video)? do we limit by size?

    4) arbitrage is not bad. bad sites are bad. misleading creatives are bad. bad pages that are full of ads and you can't find the content are bad. sites that steal content are bad.

    5) Also, you just defined a good part of google's business model. try and search for information on google and see if google responds with ads and the answer taken (fair use of course) from another site. how should google modify its behavior?

    6) Define what a good slideshow, quiz, gallery, or comparison site should look like and act like to make your customers happy. how do you know its a good site?

    7) perhaps the measure of a good or bad site should include user satisfaction? time on site? pages per visit? what metrics that aren't colored by someone's perception of good/bad should used?

    8) how do we reward sites that play by your rules of no ads on landing pages? seems like there's only pain in the short term (and there may not be a long term).

    9) what size company is a legitimate sized company? 5? 10? 50? 100? 500? more?

    thanks for the thought and provoking article.

    Reply

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