THE 2015 ADVERTISING

APRIL 2016 DATAXU.COM

PROGRAMMATICQUALITY SERIES

FRAUDREPORT

© DataXu, Inc.ii

TABLE OF CONTENTS

I. A Note from DataXu's CEO

II. Introduction to Ad Fraud

III. Fraud by the Numbers: DataXu’s 2015 Findings

IV. DataXu’s Fraud Defense-In-Depth

V. What to Look For in a Guarantee

VI. The Evolution of Fraud: DataXu Predictions for 2016

© DataXu, Inc.ii

© DataXu, Inc.

2015 ADVERTISING FRAUD REPORT

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Trust… The trust of advertisers, that we always have their

best interest at heart. Trust from agencies that we are working

transparently and earnestly with them as true partners. The

trust of our ecosystem relationships in us and in our word.

Trust that the burgeoning investment in digital advertising,

and programmatic specifically, will live up to its promise to

transform the business of marketing. To us at DataXu, and to

me personally, this is the central issue we are working on

every day.

So when fraud becomes as pervasive and insidious as it has

become across the digital marketing ecosystem, it threatens

to undermine all that trust we work so hard to earn.

As a company focused solely on solving advertisers’ problems

using data science, we have no part in creating or catalyzing

fraud. To be clear, this is a media supply chain issue. But at

the same time, it affects how our entire ecosystem is perceived,

and impacts the central issue of whether a brand can even trust

their digital advertising investments, not to mention the loftier

goal of driving a better return on investment. So, we decided

someone had to step up.

When DataXu instituted its 97% Fraud-Free Guarantee at the

beginning of 2015, we began paying out credits to each and

every brand with whom we work when we find fraud above

a 3% level. As CEO, do I like paying money back out to

customers, particularly due to a problem we had nothing

to do with creating? Well… yes!

It has to do with building trust. By putting our dollars on the

line, it is not simply talk, or some program launched mostly

for PR benefit. We have real skin in the game and have

real economic incentive to proactively fix the root problem

throughout the supply chain. And I am proud to say that our

fraud and supply chain teams have been working tirelessly

these past 15 months to make this program an industry leader.

In this report, you'll see the massive strides we've made over

the course of a full year of our guarantee. We've saved our

customers more than $54 million over 12 months—dollars

that have real impact when not lining fraudsters' pockets.

The fact of the matter is that fraud is a thorny and ever-evolving

issue, and it’s not going to go away any time soon. Paying out

credits to clients is assurance to me that we’re doing our job

each and every day. We hope it earns that critical level of

trust from our brand and agency partners that we’re doing

the right thing.

In a marketplace that has often been accused of deception,

opacity and illicit behavior, I guess I look at it as brand

building. Or rather, trust building. And I’m happy to pay

for that.

Mike Baker

DataXu Co-Founder and CEO

I. A Note From DataXu's CEO

© DataXu, Inc.1

Much like any type of fraud, ad fraud is wrongful or criminal

deception intended to result in financial gain. In this case, the

target is the advertiser.

But why, precisely, is fraud so bad for advertisers? Ad fraud

causes a whole slew of undesirable issues and outcomes for

advertisers, agencies, publishers and technology partners

alike. Waste, distraction and noise are three of the most visible

industry challenges associated with fraud.

• Waste: Spend is occurring on ads that are not reaching

target consumers.

• Distraction: Advertisers have been forced to spend

more time on strategies to combat fraud than on

brand strategy.

• Noise: Fraudulent clicks and actions mean many

KPIs are misleading or even meaningless indications

of performance.

TYPES OF AD FRAUD

There are two varieties of fraud which appear frequently within

the marketing and advertising industry. Broadly speaking, ad

fraud can be categorized as either Bot Fraud or Site Fraud.

• Bot Fraud: Non-human traffic bots designed to generate

fake ad impressions. These impressions or ads have zero

chance of being seen by a human.

• Site Fraud: When the website owner or operator is

knowingly engaged in practices to create bogus ad

inventory or hide the true location of an ad. Site fraud

occurs when domain operators obtain inventory and

misrepresent it in the open markets to artificially

increase its value.

The breakdown of fraud between bot fraud and site fraud is

historically even. Once located, site fraud is typically easier

to eliminate. User-level bot fraud technology continues to

evolve rapidly and is therefore difficult to permanently block.

SUB-TYPES OF AD FRAUD

Additional sub-types of fraud exist within these two overarching

categories. Some of the most common fraud sub-types are:

• Fake Sites: Sites or pages that serve no value other

than creating bogus advertising inventory to be served

to bots/botnets.

• Retargeting Fraud: Bots which visit advertiser websites

to enter their retargeting pools, then visit fake sites to

generate higher retargeting CPMs. In other words, even

an advertiser’s own first-party data can be fraudulent.

• Site Laundering/Bait or Switch/URL Masking:

“Front sites” that appear to be legitimate content URLs,

but actually redirect the ads to low value URLs.

• Hidden or Stacked Ads: Stuffing an ad into a 1x1 pixel,

or placing multiple ads on top of each other.

• Multi-burns: A variant of ad stacking that simulates

completed views for video ads.

• Ad Injection: Leveraging malware to “inject” unapproved

ads onto any page a browser visits.

II. Introduction to Ad Fraud

© DataXu, Inc.

2015 ADVERTISING FRAUD REPORT

2© DataXu, Inc. 2

© DataXu, Inc.3

CPACPA14%

DECLINE IN CPAs DUE TO DATAXU

FRAUD REMOVAL

RATE

AVERAGEINDUSTRYFRAUD

UP TO 30%

FRAUD

ANNUALRATE OFDATAXU

2.84%

$150K

AVERAGE FRAUD SAVINGS PER DAYACROSS

CUSTOMERS

ALL DATAXU

CPMCPM$0.57

FRAUD SPEND

REDUCTION IN CPMAFTER ACCOUNTING FOR

WASTED

0

$50M

$100M

DOLLARS SAVEDIN 2015 DUE TO

$54MDATAXU’S FRAUD-FREE

GUARANTEE

© DataXu, Inc.3

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2015 ADVERTISING FRAUD REPORT

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III. Fraud by the Numbers: DataXu’s 2015 FindingsFaced by what seems to be an unstoppable eruption of fraud,

marketers have begun questioning how they can be expected to

have confidence in the marketplace, its suppliers and the value

of digital advertising—and rightfully so.

According to independent, MRC-accredited third-party

DoubleVerify1, fraud rates vary depending on supplier,

but can reach up to 30% or higher on exchanges.

WHERE IS FRAUD BEING FOUND?

Analysis of DataXu customer campaigns has exposed some

of the nuances of fraud behavior and in doing so, has helped

improve the company’s fraud-fighting technology over time.

As inventory fraud rates and the types of fraud change

continuously, it can be difficult for advertisers alone to respond

to the fraud environment. Factors such as advancements in

fraud technology, seasonality and economic fluctuations are all

elements that impact fraud rates.

In order to generate real traffic and quality metrics for

advertisers, DataXu has found that one of the most effective

techniques is in filtering out bots from retargeting audiences.

Though the majority of fraud typically happens on the publisher

side, it is important to note that even a brand’s own retargeting

pools are not safe from fraud. In initial DataXu pre-fraud-

protection testing, some retargeting pools contained over

50% fraud. Fraud-laden audiences need to be pruned at the

source—meaning from first-party data—to ensure investments

are generating ROI.

DRAMATIC 2015 FRAUD SAVINGS

In January of 2015, DataXu began monitoring fraud rates as

measured by a layered mix of fraud-protection solutions. For

customers who experience a fraud rate greater than 3% across

their monthly investment, DataXu automatically provides that

customer with a billing credit to ensure they are not stuck

paying for what has become an industry-wide problem. DataXu

calls this commitment our “97% Fraud-Free Guarantee.”

In order to quantify the effectiveness of DataXu's Fraud-Free

Guarantee, we analyzed actual 2015 savings for customers.

• DataXu saved customers $54 million in 2015 by

protecting them from fraudulent inventory/impressions1.

• The Fraud-Free Guarantee saved advertisers an average of

$150,000 per day across all DataXu customers in 2015.

• DataXu successfully limited 2015 fraud to a rate of

2.84%, compared with an industry average of up to 30%.

• Customers experienced a $0.57 reduction in CPMs

due to the fraud-protection offered by DataXu.

Range of InventoryFound to be Fraudulent

Publishers

Networks

Exchanges

4% 17%

2% 7%

6% 30%

© DataXu, Inc.5

FRAUD LEVELS BY MONTH

Though DataXu’s average 2015 fraud rate of 2.84% was

within DataXu’s less-than-3% customer guarantee, fluctuations

occurred month-to-month. The chart below shows the levels

of fraud DataXu ultimately experienced each month in 2015.

October had the lowest rate of fraud in 2015, while September

had the highest rate of fraud in 2015.

FRAUD RATES BY CHANNEL

It’s no surprise that fraud “follows the money.” As of early

2016, the highest rates of fraudulent activity continue to occur

within display and video1.

Though still relatively untapped by fraudsters, mobile’s growing

share of market will begin to attract waves of fraudulent activity

in the coming months. Video, which remains one step ahead

of mobile in terms of adoption by marketers, continues to be

difficult to control when it comes to fraud. The prevalence of

fraudulent video has grown in recent months, and may soon

near that of display.

FRAUD BY EXCHANGE

All exchanges experience fraud. There are some exchanges

that are more fraud-laden than others, but the reality is that

fraud does not discriminate. Not even the largest exchanges

are spared.

However, the fact that exchanges have fraud problems does

not mean that advertisers have to. DataXu’s fraud protection

technology identified sources of fraud within all of the industry’s

best-known exchanges. Without DataXu’s fraud protection

technology, these exchanges had up to 65% fraudulent

inventory, although the amount varied significantly by exchange;

some exchanges had only between 3-9% fraudulent inventory.

The Fraud by Exchange graph on page 6 shows the fraud per

exchange after applying DataXu’s fraud protection technology.

The numbers are significantly lower post-protection.

FRAUD-FREE PERFORMANCE

By removing fraudulent variables from the ad tech value

chain, true performance increases. Every dollar spent serving

ads to bots or buying fraudulent placements only increases

the advertising spend required to drive conversions from real

people. For DataXu customers, the removal of fraud led to a

14% decline in overall CPAs.

In 2015, a peer set of exchanges

including AppNexus, Google,

Index Exchange, PubMatic,

OpenX, PulsePoint and Rubicon

exhibited pre-protection fraud

rates of between 3%-65%.

0

1

2

3

4

5

6

Frau

d Ra

te (%

)

Jan

Feb

Mar Apr

May Jun Jul

Aug

Sep

Oct

Nov

Dec

2.84% Annual 2015 Rate

0

5

10

15

20

25

30

3531%

Display Mobile

Without DataXu Fraud Protection

Video Overall

2% 1%

12%

24%

2.84%3%0%

With DataXu Fraud Protection

Rates of Bot and Site Fraud by Channel

© DataXu, Inc.

2015 ADVERTISING FRAUD REPORT

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01020304050607080

50%

65%

41%

2%

13%9%

1%5%

2% 3% 2%1%1% 4%

EXCH 2EXCH 1 EXCH 3 EXCH 4 EXCH 5 EXCH 6 EXCH 7

Without DataXu Fraud Protection With DataXu Fraud Protection

Fraud by Exchange

In 2015, a peer set of exchanges including AppNexus, Google, Index Exchange, OpenX, PubMatic, PulsePoint and

Rubicon exhibited pre-protection fraud rates of between 3%-65%.

© DataXu, Inc. 6

© DataXu, Inc.7

“DataXu has been extremely transparent and has provided us with the tools to help combat fraud. Brand Safety and Viewability are top of mind for our customers but none of that matters unless you're reaching real people on real sites. We can rest assured that DataXu’s fraud guarantee is protecting our investment and is making sure our budget is going towards achieving our customers’ goals.”

Elliott Wilkerson, Director of Digital Media Buying, Russ Reid

© DataXu, Inc.7

© DataXu, Inc.

2015 ADVERTISING FRAUD REPORT

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As 2015 numbers indicate, DataXu has invested heavily in

its fraud prevention technology. DataXu employs a defense-

in-depth approach combining our proprietary technology and

third-party solutions to ensure customer investments are

managed in the safest, most productive way possible. DataXu’s

fraud prevention technology pre-screens all inventory across all

channels with five pre-bid fraud protection filters:

• Bot Fraud Filter

• Site Fraud Filter

• Suspicious Activity Prevention

• Malware Scan

• Content Blocking

WHY DEFENSE-IN-DEPTH?

There is no silver bullet to identify and protect against 100%

of ad fraud yet. This is why DataXu deploys five unique filters to

ensure investments are being spent on brand-safe sites and

are delivering genuine engagement.

In addition to DataXu’s own filtering technology, DataXu actively

works with suppliers to improve the overall quality of inventory

supply. DataXu monitors and assesses inventory suppliers for

unusual activity and works with them to identify and shut down

fraudulent sources. In February 2016 alone, DataXu manually

shut off 384 publishers for poor quality. This was in addition to

automatic fraud and/or brand safety filtering.

Beyond pre-bid fraud filters, DataXu partners with best-of-breed

industry solutions to monitor investments through its platform.

THE DATAXU 97% FRAUD-FREE GUARANTEE

DataXu believes that the most efficient way to prevent fraud

from entering our ecosystem is to take a proactive approach.

Neither marketers nor advertising tech providers can afford to

wait for the supply side (i.e. publishers, ad networks and data

providers) to act. That’s why DataXu guarantees that at least

97% of customer investments will be spent on real people, on

real publishers. If a customer experiences a fraud rate greater

than 3% across their monthly investment in DataXu’s exchange

media offerings, DataXu automatically provides that customer

with a billing credit.

The goal is to make combating fraud simple: the guarantee

applies worldwide, to all media types. Customers do not have

to do anything to qualify. And the protection is provided at no

additional cost.

WHY 97%?

The industry is locked in an arms race with fraudsters, and it

is not realistic to expect 100% fraud-free digital media, even

when running on a custom white-list of premium sites, or when

simply retargeting an advertiser’s own website visitors.

IV. DataXu’s Fraud Defense-In-Depth

Content Blocking

Malware Scan

Suspicious Activity Prevention

Site Fraud Filter

Bot Fraud Filter

© DataXu, Inc.9

V. What to Look For in a GuaranteeThe rapid growth of digital and programmatic has captured

the attention of fraudsters worldwide. Rampant ad fraud is an

unfortunate indicator of the success of our industry. But with

new quality offerings popping up every day from a range of

technology and publisher partners, it is important to note that

not all guarantees are created equal.

WHAT TO LOOK FOR IN AN ADVERTISING FRAUD GUARANTEE

ComprehensiveA guarantee should cover an advertiser’s entire programmatic

investment across all devices, channels and types of fraud

(i.e. both site and bot fraud). If a guarantee fully protects

advertisers against bot fraud, but does not account for site

fraud, advertisers remain at risk. Make sure to ask what types of

fraud are covered within any guarantee.

Independent The guarantee should be measured by an independent

third-party accredited by the Media Ratings Council.

ExperiencedChoosing a partner with relevant, long-standing experience

in combating fraud is essential in the race to keep up

with fraudsters.

Advertiser-AlignedBe wary of self-policing programmatic partners that represent

the sell-side as well as the demand-side. Conflicts of interest

in this business model make it hard for advertisers to know if

they are the number-one priority for some of their advertising

partners. Simply stated, go with an independent demand-side

platform (DSP) technology partnered with a third-party vendor.

Players shouldn’t referee their own games.

ADDITIONAL QUALITY MEASURES

While sometimes related, fraud, viewability and brand safety

are three distinct drivers of impression quality. Customized

solutions to combat and address all three of these issues are

imperative. Ask technology partners about their other quality

offerings beyond fraud protection.

Key Questions to Ask• What is included in the quality offering portfolio?

• What solutions are available when it comes to Fraud,

Viewability and Brand Safety?

• Do quality offerings run in conjunction with each other?

• What additional costs/add-ons will I need to pay for each

quality measure?

• Is measurement and verification validated by an

accredited, independent third-party?

• Do quality measures cover all inventory and

channel types?

© DataXu, Inc.

2015 ADVERTISING FRAUD REPORT

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“The DataXu and DoubleVerify partnership has proven that by effectively managing digital ad fraud, campaign performance benefits greatly. By applying the DoubleVerify deterministic fraud solution as part of DataXu’s pre-bid avoidance filter, and accompanying this with a rigorous end-to-end inventory quality management process, DataXu has shown how combining technology with human insight can defeat fraudsters.”

Mark Pearlstein, Chief Revenue Officer, DoubleVerify

© DataXu, Inc. 10

© DataXu, Inc.11

The industry has wised up considerably in the past year

when it comes to ad fraud and non-viewable impressions.

However, even senior brand and agency marketers find it

difficult to stay up-to-date on what has become a persistent

and agile antagonist.

DataXu’s inventory and quality experts are responsible for

securing many of the ad exchange and publisher partnerships

that enable DataXu to optimize quality media on behalf of its

clients. In 2016, the DataXu team sees fraud evolving in the

five primary ways outlined below.

TOP 5 2016 FRAUD PREDICTIONS

1. Fraud will become more pervasive in Mobile in 2016 and

will require marketers and their partners to adopt new

techniques to sufficiently prevent attacks.

2. Topics like fraud and viewability will be discussed

together from now on rather than separately—enabling

deeper discussions on the overall quality of media and the

actual efficiency of digital advertising.

3. Advertisers and media buyers will become even more

discerning when it comes to quality. They will move

beyond blatant fraud perpetrated in the form of bots or

hidden ads. Media buyers will expand their focus to publisher

techniques that water down the value of inventory, such as

impression arbitrage, rapid refresh rates, and below-the-fold

auto-play inventory.

4. With continued leadership from the IAB, the industry will

push forward with self-policing efforts against all forms

of fraud, continuing to build on the TAG registry and ongoing

efforts into the Payment ID system. At the same time, more

demand-side platforms (DSPs) will emerge with fraud

guarantees of their own in order to address the immediate

concerns of brand advertisers.

5. Fraudsters will be forced to find new places to monetize

their activities, as exchanges such as Yahoo!, OpenX and

LiveRail continue to crack down on fraud and clean up their

inventory pools. Fraudsters will soon need to get creative and

find new hunting grounds.

REFERENCES

1 All numbers based on DoubleVerify Benchmarks for

unprotected fraud rates in 2015.

VI. The Evolution of Fraud: DataXu Predictions for 2016

© DataXu, Inc.

2015 ADVERTISING FRAUD REPORT

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About the AuthorsCynthia Clevenger, Director of Product Marketing & Industry Solutions, DataXu

Cynthia is an advertising professional who has built a well-rounded career working within multiple functions of the

digital marketing landscape, all the way from agency to ad tech. As a leader in DataXu’s Go-To-Market organization,

Cynthia is responsible for developing solutions that help DataXu’s customers leverage the most advanced and

innovative programmatic technologies. Prior to DataXu, Cynthia held roles in digital media buying, account

management and marketing working with a number of notable brands including: Clorox, Adobe, Sunpower, Autodesk

and Charles Schwab. Cynthia is an active member of the San Francisco Bay Area advertising community and holds a

B.A. from Oregon State University.

Tal Baron, Product Manager, DataXu

Tal brings nearly ten years of marketing experience and a customer-centric approach to his role as Product Manager

at DataXu. He is focused on developing innovative products and solutions to maintain media quality within DataXu’s

ecosystem. Prior to joining DataXu, Tal held several positions within Client Services organizations gaining expertise

in fraud prevention, viewability, brand safety, social advertising, client strategy and campaign optimization. Tal’s

experience in Social Media Advertising, Event Marketing, and Sponsorship Marketing had provided him with well-

rounded and insightful perspectives on the digital marketing landscape.

Aaron Ledwith, Business Development Specialist, DataXu

Aaron is an inventory quality specialist and holds the key responsibility of curating all of DataXu’s inventory to

ensure it is of the highest standard. With a background in cultivating client relationships and building out

programmatic strategy, Aaron has transitioned his role at DataXu to focus on one of the key pillars of DataXu’s

offering. Aaron holds a B.A. in Communication Studies from Emerson College in Boston and focused his senior

thesis on Location-Based Advertising.

Merrily McGugan, Director of Corporate Marketing, DataXu

Merrily McGugan is Director of Corporate Marketing at DataXu. Prior to joining DataXu, Merrily held the role of

head of content at Pixability. Merrily previously held positions at Omnicom’s Communispace; Accenture – Sydney,

Australia; and Havas’ Arnold Worldwide on the award-winning truth™ and Jack Daniel’s Tennessee Whiskey accounts.

Merrily holds an A.B. with honors from Harvard University and is a recipient of the High Distinction Academic

Excellence Medal from The University of Sydney, Australia. Merrily is a MarketingLand.com columnist, is the author

of six highly acclaimed industry white papers and is the co-author of travel guidebooks Let’s Go Western Europe

2007 and Let’s Go Ireland 2007.

© DataXu, Inc. 12

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For more information about DataXu, visit www.dataxu.com.