Advertisers Rip a Page From Wall Street Playbook to Curb Fraud
Advertisers Rip a Page From Wall Street Playbook to Curb Fraud
(Bloomberg) -- An online advertisement for Lancome lipstick or a Lamborghini might not appear to have anything to do with the technology guts of modern financial markets. But with fraud rampant, some of Wall Street’s hottest buzzwords are being uttered on Madison Avenue.
About a fifth of digital ad spending -- an estimated $16 billion this year -- will wind up in the pockets of scammers, phony “publishers” who accept payments but then never display anything, according to ad verification company Adloox.
With help from Nasdaq Inc., which runs the famous Nasdaq Stock Market, a startup called NYIAX Inc. is trying to solve manipulation and transparency problems that are all too familiar in the financial sector.
To understand what it wants to do requires some knowledge of how ad sales work these days. When a brand or agency wants to get an ad placed, they can do it the old-fashioned way, reaching out over the phone or negotiating via email, but there’s also automated ad exchanges that pair up advertisers with publishers in tiny fractions of a second. It’s just like the modern stock market in that sense.
In 2016 about 47 percent of U.S. display ad spending went to these exchanges, called real-time bidding platforms or RTBs for short -- that’s up from 11 percent in 2011, according to research firm EMarketer.
“What makes ad fraud so attractive is how not very well prosecuted it is compared to other crimes,” said David Wells, a senior malware analyst at Integral Ad Science. “I think that within our lifetime it’s very hard to say ‘yes’ or ‘no’ if it can be completely solved.”
NYIAX is trying. It’s about to open a futures exchange that uses software similar to what powers Nasdaq exchanges. It’s equipped with an extra trendy feature: blockchain, the nearly immutable and public ledger that drives bitcoin and other digital currencies. This should strip away some of the anonymity that begets fraud on other digital platforms, helping NYIAX guarantee anyone offering ad space will follow through on their commitment, making it safer and more practical for publishers and advertisers to find one another.
“They’re real tired of the way things are running now,” NYIAX Chief Executive Officer Lou Severine said in an interview at the company’s New York headquarters. “It’s kind of like the perfect storm. We’re in the right place at the right time with the right technology.”
An ad man by training, Severine wore a dark, short-sleeved button-down shirt with a palm tree print. He’s never worked for an exchange or a financial firm, but that hasn’t hampered his enthusiasm for borrowing their technology. “We’re real interested to see how quickly this is adopted to our market,” he said.
The challenge for NYIAX will be convincing agencies and advertisers to shift away from giants like Google to use a startup, said Dave Morgan, CEO of Simulmedia, a marketing company. “The big issue is, is it a market that people will buy on?” he said. Blockchain “is an important technology. I think the success is not about the technology, but the success is about how the technology is applied.”
Closely held NYIAX has about 40 companies signed on as test users, and plans to officially launch the business by October. Severine declined to comment on its value or the terms of its licensing agreement with Nasdaq.
Nasdaq, for its part, likes the idea of branching beyond its main businesses of facilitating trades, selling data and listing companies. It already sells exchange technology to other financial-market operators, in locales as far flung as Chile, Turkey, Hong Kong and Australia. The relationship with NYIAX is the first time it’s ever dipped a toe into a brand new industry.
“This is a really vibrant space,” said Nasdaq CEO Adena Friedman. “It’s a really interesting parallel universe.”
NYIAX is starting with facilitating digital ad sales, with an eye to move into other areas such as radio and television, and even other kinds of markets, Severine said.
“Anywhere where there’s an advertising contract that’s traded, in the near future we’ll be doing that,” he said. “And we look every single day at other markets.”
To contact the reporters on this story: Annie Massa in New York at amassa12@bloomberg.net, Charlotte Chilton in New York at cchilton4@bloomberg.net.
To contact the editors responsible for this story: Nick Baker at nbaker7@bloomberg.net, Crayton Harrison