The digital ad sector has made some tangible progress in the war on fraudulent ad impressions, thanks to new detection methods and improved hygiene from many sell-side platforms. But one of the biggest exchanges has added rather than subtracted invalid impressions, and buyers are complaining. AppNexus, the industry's uber-exchange and one of the most promising ad tech platforms globally, has in recent months come to be seen as a major point of entry for invalid impressions in the programmatic space. Multiple sources on the demand-side tell the same story: AppNexus has over the past year or so allowed legions of new supply partners, many of a long-tail nature, into its ecosystem. Many are legitimate publishers. Others are bot-fueled "ghost sites," ad farms and other sellers of a dubious nature. Today, as much as 30 to 40% of the total impression volume flowing through AppNexus is impossible to verify. Not necessarily fraud, but not not-fraud. And, while smart buyers are able to avoid much of this stuff by vetting supply sources, working with anti-fraud vendors, and applying best practices, other less sophisticated buyers are still snatching up those ads like so many knock-off Louis Vuitton handbags. O'Kelley Acknowledges 'Trust' Issue

The good news for aggravated buyers is that AppNexus is aware it has a problem, and is working to solve it.

In an interview with AdExchanger, CEO Brian O'Kelley acknowledged the existence of "trust gaps" between buyers and sellers on his company's exchange. And he outlined plans to overcome the issue, including a new certification program that will essentially act as an AppNexus stamp of approval for verified ad space.

"In about August of last year we had this spidey sense that people were using our system in ways that we didn't feel good about," O'Kelley said. "We pulled the team together and looked at what our partners were doing, and we thought to ourselves, 'On one level it's great we're enabling people to do whatever they want. But if what they're doing ruins people's trust in the Internet and in marketing in general, why do we want to work here?'"

[Related story: Full Brian O'Kelley interview on fraud at AppNexus.]

To address the problem, the company is now developing an AppNexus "certified supply" program that will essentially delineate impressions deemed "valid" from those for which validity can't be verified. By creating a safe pool for above-board buyers, the company believes prices will plummet for the invalid stuff, creating a healthier ecosystem overall with price more directly linked to quality.

AppNexus's early tests of its certification concept have backed this up.

"About a third of the inventory sits in a gray area where we can't tell" if it's valid, O'Kelley said. "If we don't mark it valid, the CPM, based on our experiments, will go down by half to three quarters. As a seller, if you've got valid inventory there's a strong incentive to [label accurately]."

Indirect Supply

In the two years since the fraud issue reared its head – or, perhaps more accurately, its multiple hydra heads – some exchanges previously seen as enablers of invalid impressions have cleaned house. OpenX and Rubicon Project, to name two, have made big strides in screening for nonhuman and otherwise bogus traffic, shrinking fraud rates to below 5% of their total supply pool, according to buy-side sources. And others that have long emphasized inventory hygiene, such as Google's DoubleClick Ad Exchange and Casale Media, which now enjoy fraud rates below 1%.

With fraud rates falling for these platforms, why is AppNexus having such a problem?

The root of the company's challenge with fraud is that it specializes in indirect relationships with publishers. Many of its customers on the supply side are ad networks and sell-side platforms that funnel inventory into AppNexus from their own publisher partners, the identity of which may not be known to AppNexus.

But it also works directly with Facebook and other top tier properties. For media buyers at a brand, agency, ad network or demand-side platform, working with AppNexus may be as close as they can get to seeing "the whole Internet" on a single platform.

"There's a very broad range of traffic we see. Some of it is fantastic, it's the best inventory in the world. Some of it is mediocre at best," O'Kelley said. The challenge, he added, is "We don't physically see every user, meaning that we allow transactions both from major players like Google, and from small regional players."

This leads to a situation where AppNexus can't "see" user attributes directly – such as browser characteristics, URLs and viewability measures. Many suppliers spoof domains or purposely mislabel their inventory, for instance by submitting an ad farm website to AppNexus marketplace and representing it as ESPN.com, O'Kelley said.

"Where we're seeing explicit fraud in the ecosystem is from mislabeling of sites," O'Kelley said. "We were lied to in that [ESPN] case. But in a sense, we're part of the lie because we're passing it along to an upstream partner."

This ability for indirect inventory sources to spoof their domains makes screening for fraud much tougher for AppNexus than it is for those specializing in direct publisher relationships, such as Rubicon or Google.

And while smart buyers can circumvent the most obviously problematic inventory, plenty are still buying impressions that cannot be seen or are not "as advertised."

Supply Free-For-All

But the indirect nature of AppNexus's supply relationships does not tell the whole story. From the standpoint of some buyers, the rapid scaling of supply in AppNexus's trading environment has been a disaster.

In the last year AppNexus has dramatically ramped up the number of its inventory sources. One senior buy-side executive estimates it added 500 to 700 new partners in that time frame.

"AppNexus has taken on a lot of supply sources," another source said. "It's a hodge-podge of mid-tier and small-tier sellers, a lot of them international."

The onboarding of so many inventory partners at an accelerated rate brings some predictable problems. One of them is that human verification breaks down.

A senior executive at a programmatic platform company described seeing a large number of templated websites in the AppNexus platform that were all owned by the same company – a suspicious approach seemingly lifted straight from the Alphabird playbook.

In an odd twist, these sites did not even contain visible advertising, suggesting the ads placed on them – buried in iframes, perhaps – were nonviewable by design. But these properties had been approved and pitched by AppNexus as a "new premium network," this person said.

As a result buyers are playing "Whac-A-Mole" in the AppNexus supply, and some are clearly aggravated. "It's a stark contrast to those other players that are spending money on detection and screening," one said.

AppNexus claims, and large ad network and trading desks agree, that smart buyers can avoid the bad stuff on AppNexus by using anti-fraud technology and buying across a select segment of AppNexus inventory. In short, applying best practices. No one, including AppNexus's own DSP, buys across 100% of the AppNexus supply.

But the "dumb money" is dangerous to everyone.

"What ends up happening is the less sophisticated guys out there who don't have the mechanisms to use AppNexus as their DSP, they don't have the ability to know what's going on," said the source who identified the template site network. As a result, the perverse incentives fueling the fraud trend persist, to the detriment of buyer and seller alike. "It's very frustrating."

"Overall, yes, it has gotten worse," said another. "If you're not savvy about how you're using them as a platform then you could be opening yourself up to exposure."

Turning A Corner

None of the buyers AdExchanger spoke with accused AppNexus of willful negligence, and all say they are rooting for the company.

"AppNexus plays a very important role in our ecosystem, and we would like to see them put more controls in place to qualify the inventory they're putting in," said Andrew Pancer, chief operating officer at Dstillery.

It's hard to pinpoint the precise factors that may have fueled what might best be described as a culture of benign neglect with regard to the fraud issue. One source believes the company gave in to the imperative, common in the startup world, to accelerate scale and revenue at all costs. Another believes AppNexus focused too much on blocking ads from piracy sites as a solution to ad quality concerns, while neglecting the growing problem of fraud.

In any case, AppNexus's sense of urgency has clearly increased.

The company has staffed up in its human review team, hired a CTO who is focused on the fraud issue and recently acquired Alenty, a Paris-based viewability vendor. Today, using automated detection methods, AppNexus blocks about 600 million impressions of mislabeled inventory daily. O'Kelley said it's just a start. "I know we can do better. … There's a lot more we're working to do to root this out."

To wit: "We are in the process of rolling out tools to demand truth in advertising from our upstream partners," O'Kelley said. "Some of those partners are small sites you've never heard of, or networks. Some are the biggest players in the industry. We're going to move to a 'verify first, then trust' mentality, away from a 'trust then verify.'”

AppNexus's plan is to implement policy changes that will require ad network partners to clean up their own supply-vetting practices and business rules, with the ultimate goal of gaining as much visibility through those relationships as it has with direct-supply partners.

And by the end of Q4, AppNexus hopes to soft launch its certified supply program – a literal stamp of approval for valid impressions.

"Not all the supply we roll out will have that logo," O'Kelley said.

But, the creation of a certified inventory program begs a question: Why allow the unverifiable inventory to be transacted on at all? Why not block it?

O'Kelley responds, "We get supply in where we can't detect the source domain. It's not invalid technically, because it's not lying about the domain. But it's also not valid, because we can't comfortably auction it with a domain. If we dump it, we're penalizing somebody for something."

The right approach, O'Kelley said, is to simply tell buyers that an impression is not certified.

"If you're a bidder, we can just turn off noncertified and you'll never see it," he said. "And for our customers, you'll never buy it."