High-Speed Ad Traders Profit by Arbitraging Your Eyeballs

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

People buy up all the houses, "meh"

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.

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.