
High-Speed Ad Traders Profit by Arbitraging Your Eyeballs - r0h1n
http://www.bloomberg.com/news/articles/2014-11-07/high-speed-ad-traders-profit-by-arbitraging-your-eyeballs
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raimundjoss
I think the analogy here with Wall St is apples and oranges. In Wall st, the
security traded is fungible. Here in the ad world, an ad view could be high
quality or lower quality. It could be a bot or a human looking to buy
something.

I am an engineer who spent 12 years in the ad tech industry. This problem is
especially acute in the online video ad side where dollars are exchanged based
on views and CPMs, not someone buying something online (this being more
accountable is less open to abuse). In my old job, we tested what % of traffic
are fraudulent. These traffic are daisy-chained from one ad buyer/seller to
the next. Inevitably it will hit someone unscrupulous. In aggregate we found
anywhere from 20% to 95% of the traffic we see for video ads to be fraudulent.

There are some very sophisticated bot farms out there that gets around
detection, mostly operated out in Eastern Europe and Asia. If you look at
Comscore 100 video sites, you can always tell who's gaming the system when
from one month to next, an unknown brand just jumped high in the top 100.

This is the reason Facebook had shut down Liverail that they spent $450M on.
Super high percentage of ad fraud.

~~~
shostack
Senior buy-side guy here. Viewability measurement has made a small dent in
things, but for the most part, my personal view is that a huge percentage of
display inventory (especially video) is very inflated. Pubs are chasing the
much higher video CPMs without a care for quality, and buyers seem to be
eating it up for some reason.

In my mind there's only two things that will really change this...better
viewability/inventory auditing and attribution technology.

The larger, more reputable inventory sources (Google, FB, etc.) have a VERY
vested interest in pushing quality and using whatever data they can bring to
the table to build that trust, and then use that trust as a moat against their
competition. Viewability providers likewise have an easy sell once they can
improve the accuracy and reliability of their offerings (they have a long ways
to go based on general sentiment in the industry). This will put pressure on
other pubs to up their game or be left out. Why bother with a crappy news site
that has 50%+ bot views that you're being billed for if FB or Google can prove
that their traffic quality is much higher, better targeted, and infinitely
higher reach?

On the buy side, the pressure will come in the form of attribution. Right now,
display performance, video in particular, is a super murky area in terms of
measuring success. What is the value of a view-through? Most advertisers
couldn't tell you. And the ones that can probably have a very fuzzy picture of
it that varies based on the attribution model they are using. However the
space has improved dramatically, and at the end of the day, performance
marketers will be able to do a much better job of telling whether traffic is
crap or not based on whether it backs out. Bots don't buy things (although
they do sometimes sign up for lead forms now). So if someone with a solid
analytics stack sees a ton of impressions and no sales through their various
attribution lenses, guess what? They'll stop buying those impressions. And the
more big buyers that get smart about attribution and stop buying based on
impression counts, the more pressure will be exerted on the sell-side to clean
up their game.

So while the problem is "self-correcting" in the sense that there is big money
with very vested interests in solving for this, unfortunately it is a big ship
to turn and will take time.

Articles that talk crap about the ad industry rarely get into the nuances
which is horribly infuriating and does a lot to give the industry a bad
reputation. Like any space, there are bad players. Legit players in this
industry want the bots and garbage out of the picture yesterday. They make our
jobs harder, and reduce our performance.

~~~
raimundjoss
Totally agree with this is why especially FB is winning. Especially in Mobile
where every user is pretty a logged in user on FB, Instagram, WhatsApp, etc.
Plus non-inferred actual demo data. Even Google can't touch FB...

Everyone else who's peddling non-logged impressions with BlueKai data, good
luck - first, Bluekai is only accruage 1/3 of the time. Second, majority of
those are bot views.

Attribution like you describe is notoriously hard to measure. As views get to
mobile, FB wins again since most apps use FB auth.

------
SixSigma
If these were concert or sports tickets the people doing it would be called
"scalpers".

The world is a curious place, full of contradiction and wonder. We only like
the free market for some activities.

~~~
ikeboy
Scalpers provide liquidity, like most arbitrageurs. If reselling tickets was
impossible and the price remained the same, then people who didn't manage to
get one would be out of luck; now, they can pay more and still get one.
Scalping is only possible when the market value of the ticket is more than the
price charged, which means the demand will outstrip the supply.

~~~
braythwayt
“Scalpers make Benefit X possible” says nothing about whether “Scalpers create
Harm Y.”

For example, you say "If reselling tickets was impossible and the price
remained the same, then people who didn't manage to get one would be out of
luck; now, they can pay more and still get one.”

But if there is a fixed supply of tickets, then there are a fixed number of
people getting tickets. All you are changing is _which_ people get the
tickets.

Yes, people with more money and less time to stand in line or whatever will
get a ticket. Yay! But people with less money can no longer stand in line and
get a ticket. Boo?

~~~
ikeboy
>But if there is a fixed supply of tickets, then there are a fixed number of
people getting tickets. All you are changing is which people get the tickets.

To be precise, you're allocating the tickets to those who value them the most,
under the objective criteria of "who's willing to pay the most for them"
(which may not be fair, but in the same way that capitalism favors those
capable of getting money).

>But people with less money can no longer stand in line and get a ticket. Boo?

Those people value their tickets less than the people who actually get them.
If you're only willing to pay X for a ticket, and someone else will pay Y>X,
then the situation where you get a ticket for X and they don't isn't Pareto
optimal; you'd prefer to sell your ticket for Y, and they'd prefer to buy your
ticket for Y. (This does assume something about utility of money, which isn't
strictly justified. To wit, I'm assuming that an unwillingness to pay more
than X<Y for something implies a willingness to sell it for Y after you've
gotten it. For X and Y sufficiently far apart, this should be true, but it
might not be if they're close. On the other hand, if they're close then the
harm here is very low.)

~~~
skybrian
Okay as far as it goes, but the problem with that sort of analysis is that
willingness to pay is only a good proxy for how much the ticket is valued for
people with similar incomes. If you have enough money, being thrifty is
optional. For someone barely breaking even, it's a requirement and there is a
much higher threshold for spending money.

Taken too seriously, the result of ignoring this issue is absurdities like
rich people caring more about anything they happen to spend money on than poor
people care about eating.

~~~
ikeboy
Guess what happens if a rich man and a poor man try to eat in a restaurant.

Generally society's answer is to have the government give necessities to the
poor, and otherwise let the rich buy what they want.

Edit: if you _really_ want to untangle the money abstraction, look at it like
this: person A has $X. They have $X because ultimately, other people gave them
$X because A provided value to them worth at least $X. If they had a job, they
got wages; if they sold a product, they got the sale; if it was A's ancestor's
money, A's ancestor provided >$X value to someone or someones. (This is an
abstraction, and obviously not always true; but we try to outlaw ways of
making money that don't provide value to anyone, like stealing, or colluding
with competitors. To the extent someone earned money illegitimately, that's a
problem with how they got the money, not how they used it; the solution is to
take away that money or prevent them from getting it, not prevent money from
being used altogether. Also ignoring rents, interest rate/inflation, etc.)

So A's desire to pay $X to get a ticket is actually cashing in on society's
"debt" to them of $X or the equivalent in happiness/utility. _That 's_ what
needs to be compared with someone else who's only willing to pay some fraction
of $X; the value they provided to society, that they're willing to give in
exchange for the ticket, is less.

Again, obviously the abstraction is imperfect, but that's the ultimate
justification for capitalism.

~~~
skybrian
You can pretty it up with economic reasoning but that's still an essentially
panglossian view of the world - a naive belief that fortunate people probably
deserve their good fortune and unfortunate people probably did something
wrong.

~~~
ikeboy
I had like three disclaimers in that comment.

But if you're going to criticize capitalism, maybe you could offer an
alternative that does better?

~~~
skybrian
I'm not criticizing capitalism. There are a lot of good things you can say
about capitalism. It results in some efficient organizations being created, a
lot of useful work getting done, and everyone having incentives to increase
productivity and reduce waste. It produces a lot of wealth. I don't think we
would do better without markets.

Like evolution, capitalism exists so we need to describe it and understand it.
It's definitely a force to be reckoned with.

It's not a system for approximating justice. It doesn't result in people
getting what they deserve, even approximately.

The problem isn't only the cheating but also the randomness, which basically
gives outsized rewards for being lucky enough to be in the right place at the
right time. Anyone watching the tech industry knows this.

If the people who end up with the money choose to spend it to pursue justice,
sometimes the world becomes a better place. But nothing in economic theory
guarantees it will happen. It's up to people to do it.

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aakilfernandes
Can any average Joe sign up for these exchanges and start trading? Would be
more than happy to lose a couple bucks playing around

~~~
lotu
Well you needs severs that can handle the 10,000+ QPS that they are going to
send you and you need to write code decide what you are and are not going to
bid on, and their is no trivial work to set this up so they are going to think
that you might spend lots of money in the future.

You could play with
[https://contributor.google.com](https://contributor.google.com) this works
though Google's exchange and the gist is they bid on your behalf for ads that
will get shown to you, you can then put arbitrary HTML in those ads. I saw one
guy that was learning Japanese so he used it to display vocabulary words in
place of ads. The major downside is it only works on ads that go to Google's
exchange which is kinda random on most sites because of stuff like the article
above. It ends up being a couple dollars a month to replace random ads on
websites.

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yummyfajitas
This article uses very odd language.

 _Traders buying and reselling at a higher rate “could be distorting the
markets and removing the efficiency that we’re supposed to see through real-
time bidding,” he said._

By definition successful arbitrage makes the market more efficient - it brings
prices closer together (making the cheaper exchange more expensive and the
more expensive one cheaper).

Furthermore, arbitragers in ad exchanges are causing more ads to be sold,
providing a valuable service to buyers and sellers.

Suppose there is a sell order on exchange X, a buy order on exchange Y, and
these orders are compatible. Unlike public equities markets (which have
RegNMS) this order may NOT be routed from X to Y. The result is inventory is
wasted or put to a lower value use.

If an arbitrageur notices this he can cause the transaction to occur which
would not otherwise occur.

~~~
krisdol
>By definition successful arbitrage makes the market more efficient - it
brings prices closer together (making the cheaper exchange more expensive and
the more expensive one cheaper).

Agreed. As header bidding and arbitrage proliferate, we also see ad tech
companies targeting the supply side of the equation: with services that help
publishers understand how well the header bidding product is performing, which
ads work and which dont, and how viewers engage with their site. As pubs are
getting more information into the ad selection process, losing exchanges will
have to adjust the quality or lower the prices of their ad supply.

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very_difficult
I have experience doing the exact thing described in this article, but not at
the level of sophistication described. I still made a decent amount of money
from it.

All of the exchanges (on the buy and sell side) know it's going on, and they
generally don't try to stop it provided that it doesn't become news. A large
number of well-known, venture-backed ad tech companies make money from this
and they're not incentivized to stop it.

It's rare that the companies actively encourage arbitrage, but some do.

~~~
hn_username
Could you elaborate on the mechanics of what's going on? Any insight is
appreciated. Thanks.

~~~
very_difficult
The general idea is:

1\. Get access to a DSP (either AppNexus, AOL, Doubleclick itself or a smaller
DSP--there are literally dozens). DSP stands for demand-side platform, but in
this case we're going to use them as a supply source.

2\. At the same time, get access to a demand source, either AOL, Google,
SpotXchange or someone similar. Someone that a reputable website publisher
would use to fill ad spaces on their website.

Both steps one and two can be difficult to obtain, as every major player is on
the lookout for fraudsters and arbitrageurs and doesn't more crappy, re-sold
demand/supply on their platforms.

3\. Place demand-source tags (AOL, Google, SpotXchange) in your DSP, so as
soon as you buy an impression, you sell at almost the exact same time.

You make a profit when you amount your from demand-source tags (net costs +
rev share) is higher than the cost of the ads you're buying (net costs +
fees).

Even though the article is from 2014, there a still ton of people still doing
this and making money, though the real money is running botnets and buying
botnet traffic (which I know how to do but have never done).

~~~
hn_username
Thanks for your reply. The ad-exchange-related jargon is foreign to me, but
your explanation makes sense. Basically, the arbitrageur buys ad space on a
website from a demand source (which essentially means buying a demand source
tag which secures the ad space on that website) and turns around and re-sells
that space which he/she just bought on a DSP. So, money is made when the cost
to buy the ad space from the demand source is less than it's re-sold for on
the DSP.

Is that about right? What information does the demand source tag include - is
that basically a placeholder indicating you bought space for an ad on a
website? I assume the arbitrageur's edge comes from finding traffic that can
be bought cheaply from the demand source and sold higher on the DSP?

~~~
very_difficult
The information the demand source tag includes things such as domain name, ad
size, among other things. Most of this information is publicly available--take
a look at the AppNexus public wiki for more information.

This is generally something that only online ad professionals can pull off,
but if you have enough of a bankroll, you can try it as well. It's a very
saturated space and the amount of knowledge that goes into it is much more
than what I'm able to include in a forum such as this. Good luck.

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JDiculous
This is from 2014, reposts should specify the year in the title

~~~
r0h1n
My bad there. I honestly didn't notice it till you just pointed it out!

~~~
jarnix
I tried to know more about these "two guys in Chinatown" but in vain, I really
would like to know more !

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davemel37
What really bothers me about articles like this is the complete lack of
understanding of what advertising actually is.

All Advertising is arbitrage, exploiting a market inefficiency between the
cost to reach an eyeball and the value of that eyeball.

Whats the difference between a high speed trader and a mortgage broker
advertising? Whats the difference betweem a retailer advertising to sell a
product they bought wholesale and a high frequency trader reselling an
impression in real time?

Im not saying we are not all better served by closing this information gap and
finding market efficiency, but lets not pretend that this is any more
unscrupulous than any other business that exploits information asymmetry...and
its definitely not the same as high frequency traders...especially because
these ad buyer may never have gotten the impression if the arbitrager didnt
bring it to a different exchange or support it with a different data set.

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ikeboy
(2014)

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aakilfernandes
> Arbitragers win the first auction and resell the ad, finding exchanges where
> it’s more valuable and pocketing the difference

I don't understand how this is possible. The original advertiser has to trust
that the first exchange is reporting accurate demographic info. How does the
exchange know the demographic info is accurate if anyone can buy the ads and
sell them on another exchange?

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dk8996
This is from 2014. Most of the DSPs are struggling now.

~~~
yolesaber
AppNexus is the only one doing relatively well, no? The rest are either
laughably small (and so is AN compared to Google and FB) or went public and
are tanking.

