Yahoo's troubled advertising business

January 8, 2016

Between a sinking stock, an embattled CEO and restless investors demanding that the company be dismantled, these are not great days for Internet pioneer Yahoo.

Now add one more headache: The company's ad business, which brought in $1.15 billion in the second quarter of 2015, is rife with ad fraud, multiple sources told CNBC.

Executives at several media companies and media advisory firms with direct dealings with Yahoo's ad business said the company's programmatic video ad platform generates mostly fraudulent ad traffic, and otherwise does not work as promised. The platform is largely powered by BrightRoll, which was acquired by Yahoo in November 2014. 

To be fair, ad fraud is a widespread problem not limited to Yahoo. A report by Distil Networks in October claimed that advertising fraud would cost the industry about $18.5 billion a year. For perspective, the Interactive Advertising Bureau projected that U.S. digital ad revenue reached $27.5 billion during the first six months of 2015.

Ad fraud occurs when digital advertisements are not being seen by the viewers companies paid to get in front of. In addition to creating nonhuman "impressions" or page views through bot networks, other known ad fraud practices include placing 1 pixel-sized advertisements on trusted websites which are invisible to the human eye. Sometimes, advertisements don't appear on the media sites or places the paying company believes they are.

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