Almost five trillion US dollars were spent on online retail last year, equaling around 20% of total retail sales worldwide. That figure is expected to surpass seven trillion by 2025. As the industry grows, fraud losses for e-commerce businesses will only increase — along with the projected cost of ad fraud in 2023 expected to reach a hundred billion dollars!
Managing the full spectrum of risk and fraud threats can be costly and time-consuming for many online retailers. While ad fraud remains one of the most pressing threats facing e-commerce businesses — from ad injection to cookie stuffing — its implications extend far beyond financial. The problem impacts the industry in several ways, crippling customer experience, eroding brand credibility, and, among others, corrupting the very efficacy of programmatic advertising models.
In this article, we explore some of the most concerning and costly effects of ad fraud on today's e-commerce businesses.
Fake Conversions
Clicks will register as conversions when users perform a defined action on the landing page — say fill out a form. The problem arises when the execution of such actions is mere hocus-pocus, resulting in the appearance of legitimate conversions but failing to generate any revenue or provide any useful data to the advertiser.
An e-commerce business looking to run ads to generate leads or sales may often end up with way fewer conversions than what their analytics dashboard records, thanks to fraudsters spamming the company's ads. These bots perform actions like adding products to a cart or filling out a form with nonsensical inputs just so they can be recorded as genuine conversions.
Other times, the same bots are employed to make actual conversions, only for the fraudsters to request chargeback directly from their issuing financial institution. The affected business is then left with either redelivering the item or issuing a refund.
While this latter fraud isn't restricted to when e-commerce runs ads — not to mention the enormous chargeback fees — it remains detrimental to the business nonetheless. The average conversion rate for the e-commerce industry is already a meager 2-3%; no business should have to suffer below that.
Skewed Marketing Metrics
Qualitative data guides the right and optimal course of action for any e-commerce business. We already see how fraudsters can compromise this by injecting fake conversions, but there is more to it.
IP spoofing allows fraudsters to fake massive traffic volumes by routing traffic from untargeted locations. Using click farms, they relay traffic while earning a small commission for each click. Each year, businesses lose $697 billion due to data skewed by invalid traffic. This upsets an e-commerce company's marketing metrics.
Skewed data fluctuates an ad's conversion rate — where rates on the first or second day may be normal while the remaining days show abnormally low conversions — rendering the data mostly useless to advertisers. In turn, this makes it more challenging to assess the legitimacy of traffic and leads. Worse still, these data expose advertisers to the risk of influencing critical business decisions that will likely backfire.
Higher Bounce Rates
Inflated bounce rates from bot traffic make it impossible to analyze the performance of e-commerce web pages. While a high bounce rate doesn't necessarily affect SEO rankings, it invites an e-commerce business to rethink the fundamentals of its operations — an exercise that is, in reality, unfounded.
Is the user experience buggy? Are we really targeting and reaching the right audience? Why are users leaving as soon as the landing page loads then? What are we missing? These are all valid questions — unfortunately (fortunately?) the "users" we're worried about are actually bots.
For an e-commerce business, a bounce rate of 20% to 45% is acceptable. Any higher, and the business isn't necessarily in trouble. Well, they are. It is, however, quite a different trouble. One that, if not addressed properly, could threaten their very existence.
Cart Abandonment
Even though shopping ads are a powerful tool for e-commerce businesses for increasing conversions, cart abandonment poses a threat. Research shows that roughly 70% of all online shopping carts end up abandoned. The reasons behind cart abandonment can be quite murky: high additional costs, sloppy UI, strange return policies, etc.
Other times, however, bots are the culprits. Fraudsters deploy automated programs to siphon that sweet, sweet CPC revenue from advertisers. To appear convincing to an ad server, the bots are programmed to load the cart with items, only to trigger a 'cart abandonment' event. Click an ad. Add to Cart. And off to the deep abyss of never checking out!
The implication of high abandoned cart rates ranges from higher retargeting costs to lower click-through rates.
Poor-Quality Leads
Another specter that lurks behind ad fraud is the acquisition of poor-quality leads. It is more than generous to tag such leads as "poor," as they are typically bots that are indifferent to a business's honest efforts to convert them. These hardly qualify as leads.
Unlike real humans, bots don't open follow-up email promotions and they certainly don't follow through a business's marketing funnel. Of course, this is much more of a nightmare for an e-commerce business given that it destroys any calculated chance of generating a profitable result from any ad campaign.
Marketing and sales teams would end up wasting valuable time and resources dealing with non-existent prospects. To begin with, acquiring these low-quality leads costs businesses money — up to hundreds of dollars per lead in certain sectors — that could have been invested into better products or marketing strategies.
Learn more: 6 Benefits of Deploying an Ad Fraud Prevention Tool
Brand Integrity
While the argument can be made that direct financial loss outweighs the damage to reputation, not many in the e-commerce industry will be convinced. Household names like Amazon got to where they are today by developing strong, reputable brand identities that consumers trust, and the same is true for smaller players.
No e-commerce business negligent about keeping their reputation intact will come out on top, as the very nature of online shopping demands trust. According to a survey, 46% of consumers are willing to pay more for brands they trust. The reputation of an e-commerce business can be ruined once it is associated with fraudulent or unethical activities.
Ad networks might try their best to evict partners that engage in shady, immoral activities. However, businesses running web ads may still end up alongside fake news, political and religious rhetoric, pirated content, or sexually explicit materials. Each business is responsible for protecting its brand image, particularly online retailers.
Conclusion
Ad fraud affects business, e-commerce or otherwise, in deeper layers than this article covers. It has been a persistent issue since the early days of the internet and is unlikely to disappear anytime soon. Many may not be aware that they are actively contributing to this industry, but the profits garnered by the perpetrators are a major factor sustaining this problem.
E-commerce businesses need to invest in ad fraud prevention solutions to protect their brand reputation and revenue streams. By learning about the threat posed by ad fraud and fighting back, companies are helping the advertising industry as a whole, thwarting malicious actors, and making the internet a safer place.
