F’in Fraud

For all the crap that we occasionally dish on the CPA network space, one thing we hopefully have never intimated is that running a network is easy. While we have no shortage of people who enter the space with no experience only to find ways to make impressive money, once they make the plunge to running a network, everything changes, and all bets are off. The sheer operational headache of going from a one to one relations to a one to a one to many relationship should be enough to make people think twice. Layer on top of that one of the biggest, underappreciated challenges – cash flow and the float – and it’s a surprise that so many networks still exist or that people would actually want to do it.

Not long ago we wrote about the network business focusing primarily on the float issues. It came about after spending some time with a few industry veterans, all of whom couldn’t think of anything else they would rather be doing, but all of whom said that the fun is pretty much gone. Running a network was always a job; it was always work, but no one ever described it as a job, or work…until now. You might think being on the hook for hundreds of thousands of dollars per month and more is enough to make it a job and stressful, but the real source of the fun drain is only indirectly tied to money. It’s fraud.

Fraud is ruining the cpa space. It’s not just ruining it from a reputation standpoint or putting undue fiscal pressure on people and their relationships. Fraud is making the network business less about business and more about policing. The network space used to be about offers, about publishers, about relationships, and it seems to have transitioned to more enterprise level concerns of financing and policing – all of which goes counter to innovation and the heart of this business, performance.

Running a network used to be simple. You knew the publishers, and they owned the traffic. You could see it. You knew it. Dare we say you could trust it. Not that it made life perfect that way. Certain people always wanted to make more money than they could legitimately earn. They might pad a little bit or even do something slightly nefarious if they had the right to host and post by submitting leads for one type of offer to another similar offer without anyone’s consent, or you might send that lead to someone else’s offer if the one advertiser rejected it. For lack of a better term it was bad, but it wasn’t evil. You couldn’t justify it, but at least there was intent on behalf of the user.

The new world of fraud has any number of issues, but a few have come together to exponentially increase the danger. Unlike credit card fraud, sometimes people find this type of fraud less egregious. They might justify it as not truly bad because they aren’t really stealing. They aren’t doing identity theft and charging people. They might also use the excuse of the big blender in the sky – what’s a little more crap that no one will notice. The problem is that they are. They are charging people in their time, and as anyone who has had to deal with actual fraud will attest, they are costing our industry real dollars by continuously poisoning the well from which we drink. No intent traffic is a huge issue. In this world of fraud 2.0, people have figured out how to scale no intent traffic.

Low intent traffic and no intent traffic has always existed, but as a percentage of the whole it was relatively low. Not any more. No intent traffic as a percentage of the whole is on the rise and in certain networks cases for certain offers, it could easily be 50% of the traffic. Why? The very thing that makes our business possible – the connected web – has come to bite us. Real data is cheap. It’s not live data but real data. It fools validation companies and can even fool a scoring company. The validity of the data is not in question only the validity of the person entering it.

Thanks to 1) better information sharing, e.g., forums (making people aware), 2) easy access to cheap global labor, e.g., elance, and 3) liquidity for data (lead gen offers). Put it all together, and you have a formula for fraud. All it takes is some testing and a good handle on process, and what was a little fraud based on one person’s activity is now a complicated and ever increasing in sophistication ring of fraud. It has people not only scrambling but dealing with issues they would never have thought about before, like their old accounts getting sold. Who would have thought to need to worry about actively shutting down dormant accounts?

Today, networks truly are at a turning point. They can’t even consider operating without fraud protection software. Doing so is like going to a whore house without a condom. You will get f’d and in more ways than one. Equally depressing, people used to look forward to getting publisher signups. Today, they are a chore. They are a headache, almost depressing, and any real publisher is going to get ignored. Even the existing publishers who have been around for a while seem to f’ up. These emailers are all of the sudden adding "media buying" to their mix. Yeah. Right. Or, they get lazy, and then farm it out to someone. Who? Who knows. A first name or last name, and why not in their opinion. They have only so much inventory, might as well still generate the revenue.

As we said before, the network business today is becoming an enterprise software and process business. It now needs to think about robustness of systems at every step of the business – from signup to payments – thinking through that mix of automation and human intervention to insure validity not of offer data but of the users. There will be a big piece of the business that is not the business. Fraud is opening up a new industry within our industry, but not in a good way. It’s an added expense to a business with already strained margins. Overcome this, though, and we will start to see the moats around the businesses that enable scale and have us not being a one offer, one arbitrage way of life. What a nice life it was though.