REPORT: AOL's $400 Million Video Ad Business Has Tons Of Bogus Inventory

AOL just paid $405 million for a video ad business in which up to 80% of ads are bogus, according to Mike Shields at Adweek:

Adap.tv has a particular problem with straight-up bogus ad impressions generated by bots for the purpose of taking from advertisers, say multiple sources with first-hand knowledge of the exchange. Some experts pin the amount of suspect inventory in Adap.tv’s exchange at anywhere from 30 to 80 percent.

Shields has produced a string of great stories about click fraud in the adtech world, so we should take his sources seriously. The report probably does not mean that literally 80% of all ad slots handled by Adap.tv are questionable. Rather, some inventory for some bids may pan out at that rate. (Adap.tv serves video ads on a real-time bidding auction basis, so inventory changes all the time.)

Surprisingly, this might not be Adap.tv's fault. We learned yesterday that even giants like Google, via YouTube, can be duped into selling display advertising to sketchy video ad inventory hijackers and malware purveyors.

And also, this might not hurt AOL in the long run — provided the company can purge click-fraud inventory from Adap.tv's system. The reason AOL bought Adap.tv in the first place is likely not to do with the current size and quality of its inventory and clients. Rather, it's because Adapt.tv offers both an exchange platform for publishers to offer video ad inventory, and a buying platform for advertisers who want to bid on space, in addition to an analytics and data management platform. In other words, Adap.tv has a full suite of both buy-side and sell-side adtech services. AOL probably wanted the tech more than the dollars currently attached to it.

But let's not dismiss click fraud in web advertising. Sooner or later, clients are going to get bored of paying for clicks that don't exist. There has been a string of stories about this, and the issue will not go away until individual companies take strong steps to verify inventory and traffic before offering it for sale:

• Chinese hackers have built a series of mobile ad exchanges that install malware on Android phones during the process of legit app downloads. Those exchanges function by offering inventory through legit ad exchanges that haven't vetted their inventory.
• Solve Media claims up to 14% of mobile traffic is botnets, in some cases.
• In Bangladesh, low-paid workers sit in dingy rooms generating thousands of fake likes on Facebook for Western brands.
• Even reputable companies can end up being among the top-ranked suppliers of fake traffic on the web.
• 500 ghost sites offering fake inventory cost advertisers up to $400 million a year, according to Media6Degrees.
• The "Chameleon" botnet controls 120,000 machines, generating $6 million in false ad clicks per month, according to Spider.io. DoubleVerify confirmed a similar cost in its study, too.

It is probably not the case that adtech stocks have fallen recently because investors are wary that revenues are based on low-quality inventory. But the industry will need to clean up its act. It's a matter of time before a major client goes public with its complaints about spending money on web and mobile ads that aren't seen by anyone except hackers' bots.