Fraud and theft in digital advertising are costing companies a massive $8.2 billion a year in the U.S., according to a recent report from the Internet Advertising Bureau that categorized the misdeeds into invalid traffic, "malvertising," and infringed content. That's a staggering number, given that the digital ad market was estimated to be somewhere in the neighborhood $49 billion to $51 billion in 2014.

On one hand, that would seem to spell trouble for the companies that make their money in the growing digital ad space, including heavyweights such as Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Facebook, and Twitter. With fraud reportedly so rampant, companies have ample reason to tread carefully in digital ads as long as there are still viable legacy media such as TV, radio, and print still reaching large audiences.

But on the other hand, it presents a significant opportunity for companies working to clean up this mess, finding ways to guard against fraud, theft, and other shady practices.


Google sits at the forefront of this work, and it recently unveiled a feature to combat one rampant, dishonest practice: the creation of fake Web traffic.

As the leader of the digital ad market, it has the most to lose in this game. Google in 2014 owned a massive 41.6% of the digital ad space, according to research firm eMarketer.

AdAge reported earlier this year that Google has a team of more than 100 employees working in an anti-fraud unit that is "locked in a war against an unknown quantity of cybercriminals who are actively siphoning billions of dollars out of the digital advertising industry, primarily via the creation of robotic traffic that appears human." The magazine got an unusual inside look at some of the work of the team finding and figuring out ways to beat fraudsters using things like bots to drive fake traffic.

More on that in a moment, but first let's take a quick look at the problems plaguing the digital ad industry today.

An evolving market with evolving problems
Businesses have many reasons to be skeptical about digital advertising. Some forms, such as the display ads that clutter your browser windows, haven't proved very effective -- unless you're gauging their ability to slow down your browsing or irritate readers. On top of that, ads have trended more and more toward serving as obstructions to enjoyable Web use than anything else. Ad blockers are compounding those problems.

Click-through rates have long been dismal and are not a very effective way of judging the effectiveness of many ads, since the goal is not always to get a user to click.

But those problems seem more like growing pains in a still-young industry with a long runway of growth ahead, as digital platforms continue to take advertising share from legacy media such as TV, magazines, newspapers, and radio.

Corruption in the market, on the other hand, is a serious concern, since it can undermine the faith companies have in digital advertising and can effectively stifle growth.

Where corruption is happening, and where Google is helping
The single biggest area of "corruption" outlined in the IAB report involves traffic to websites generated by bots. That alone costs companies some $4.6 billion, IAB says. The problem is evident: Machine visits to Web pages and ads register just the same as real visits, except no human actually ever sees the ad or the content being promoted.

Stolen content such as pirated video or unauthorized use of articles makes up the second largest area in the IAB report, at an estimated $2.4 billion, and "malvertising" -- ads that redirect you to sites you don't want to go to or download files you didn't want -- makes up the third-largest area at $1.1 billion

Earlier this month, Google unveiled a feature that will help fight on the largest front, working to curb traffic that's not authentic. The company says its DoubleClick Bid Manager can block the use of fraudulent domains masquerading as real sites, attracting real traffic.

In short, Google's technology can detect when a publisher fraudulently misrepresents domain information, and it can filter out that those sites from its inventory of available websites before advertisers can bid on it. According to an article in MediaPost, Google had found this activity sometimes accounted for up to 40% of the inventory on an ad exchange.

Always more work to do
The DoubleClick Bid Manager won't singlehandedly solve the fraud problem costing advertisers some $4.6 billion a year, but it is a significant step from the world's largest digital ad platform. More threats exist, and with so much money at stake, those bent on stealing or deceiving will continue to find ways to exploit cracks in the system.

The work by Google's anti-fraud team is unlikely to make many headlines around earnings time, but it is crucial work in building up trust with advertisers that will be crucial to the company -- and others -- as the digital ad market matures.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.