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.<p>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.<p>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.<p>This is the reason Facebook had shut down Liverail that they spent $450M on. Super high percentage of ad fraud.
If these were concert or sports tickets the people doing it would be called "scalpers".<p>The world is a curious place, full of contradiction and wonder. We only like the free market for some activities.
This article uses very odd language.<p><i>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.</i><p>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).<p>Furthermore, arbitragers in ad exchanges are causing more ads to be sold, providing a valuable service to buyers and sellers.<p>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.<p>If an arbitrageur notices this he can cause the transaction to occur which would not otherwise occur.
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.<p>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.<p>It's rare that the companies actively encourage arbitrage, but some do.
What really bothers me about articles like this is the complete lack of understanding of what advertising actually is.<p>All Advertising is arbitrage, exploiting a market inefficiency between the cost to reach an eyeball and the value of that eyeball.<p>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?<p>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.
> Arbitragers win the first auction and resell the ad, finding exchanges where it’s more valuable and pocketing the difference<p>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?