CPA Detective CEO, David Sendroff answered a few questions for us and explained the current state of fraud detection, the impact of new education guidelines, the benefits of being proactive and more.
Is there a particular area of your business where you have seen growth? Why?
We think multi-variate scoring is quickly becoming the standard. When you think about how prevalent fraud has been in our industry, you can understand why the adoption of fraud detection has been accelerating so rapidly.
The problem was that until very recently fraud continued to grow because advertisers did not have dynamic solutions available to them. Now the story has changed because there are already a few solutions out there that both generate a competitive edge and help manage risk.
We’ve noticed an increased interest in fraud detection from some particular verticals like Online Education where there is minimal validation and the payouts are significant. By our best estimates, we will see over 80 percent of the companies in our industry adopt traffic quality management solutions by the end of 2012.
Have there been any major changes or shift in your space that has impacted your business? How?
The new education guidelines effective July 1st seem to have a fairly large influence on advertisers who are quickly implementing changes.
Now when you combine that with the FTC’s renewed initiative to crack down on questionable tactics across verticals, it becomes clear why we have seen a corresponding increase in inquiries for anti-fraud and compliance intelligence services from performance marketers across the board.
We’ve been noticing an increase in awareness of just how vulnerable the current affiliate marketing model is to exploitation. The good news is that companies are becoming more strategically proactive at addressing the growing reputation risks and noticing the competitive advantage in identifying the quality of the individual leads.
My sense is that the industry is experiencing an increase in collaboration between companies in order to solve industry-wide integrity problems.
We’re part of a trend where the demand for high quality leads and the increasing pressure on advertisers to improve quality has led to the development of new, more robust tools that can help set a new standard for affiliate traffic. I’m very excited about what this could mean for the direction of our industry as a whole.
What are some of the challenges that the CPA space is currently facing?
Lack of authenticity. Online advertising is a $24 billion industry. Everyone doing legitimate business is impacted by fraud. Advertisers, end up paying for leads that are irrelevant or have been recycled from other campaigns. As a result, inefficiencies are introduced into the system.
How many other industries can tolerate as many as 30 percent of their orders being counterfeit and accept this risk on a regular basis?
Fraud is generated through various schemes. Elaborate fraud rings are recycling lead data to a number of similar campaigns without the consumer’s consent. To stay under the radar, they leverage widely available tools such as Firefox plug-ins to simulate legitimate traffic patterns by manipulating referring sources, IP addresses and other header information.
In time, a ripple effect is felt by everyone across the system. The abusive tactics result in high complaint rates and low conversions, which lead to a damaged reputation and a decrease in the value for each advertising dollar spent by the advertiser. As a result, legitimate publishers are not fairly compensated for their efforts.
Elimination of fraud sources creates more trust and transparency, which will expand the number and types of advertisers who use performance marketing.
The industry, as a whole, has been under-performing and is actually undervalued precisely because of a lack of effective quality control options.
Now performance marketing can finally generate true competitive value when compared side by side to advertisers’ other marketing options. If we can all correct the huge inefficiencies, we will keep the industry healthy and fit.
Are there new technologies (mobile, video, tracking, local coupons, location based services, etc) that you are looking to exploit in the near future?
Yes, absolutely. Our whole focus has been on developing a real-time traffic scoring technology to the level where you can tell in an instant whether each lead is fraudulent, while maintaining a high level of accuracy.
With the use of a real-time solution, advertisers can prevent fraudulent leads from entering the fulfillment process. These stop loss preventive measures allow anyone in the performance marketing channel to manage their reputation and avoid disputes with affiliates over the true lead count. Additionally, real-time solutions deter fraudsters from exploiting campaigns, which has the power to make a lasting positive impact on the whole industry.
We continuously deploy incremental improvements to our existing anti-fraud intelligence scoring system, while at the same time our R&D strategy focuses on long-term approaches to maximize detection rates and provide new client-centric data solutions.
In order to maintain the reliability of a score in a dynamic environment you need to keep adapting on the security front.
What are some of the biggest hurdles facing the overall performance marketing space over the next 12 months?
I think we need to be wary of complacency. We simply must set a new standard over the next 12-18 months. Without a proactive mentality focused on measuring quality in a rigorous way, the overall performance marketing space will experience a drag that ultimately pulls down the mileage we collectively get for our efforts. When quality increases are measurable by a scoring system, the value of a legitimate, quality lead increases.
Fraud is the 500-pound gorilla in the room. Complacency was a natural result of pioneering new profits in the frontier of a young performance space. The market has matured now. To retain a competitive edge, advertisers, ad agencies and networks, will no longer be able to afford to ignore the impact of fraud on their business. Every company risks losing out on the biggest business opportunities to their direct competitors if they don’t change now.