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Major fraud issues with mobile phone advertising: How is the mobile advertising market structured?

  • United Kingdom
  • Financial services disputes and investigations
  • Fraud and financial crime

30-11-2020

Mobile advertising overtook television advertising based on revenue in 2016[1], having been at almost zero in 2010[2]. It is therefore an essential consideration for most companies, particularly those with a strong online presence. More and more organisations are creating applications (or apps) for their prospective customers to download. The next step is to attract potential customers to download their apps and engage with the content.

Before entering into any advertising arrangements, companies should be clear about exactly what their instructions are and who will be carrying out the work on their behalf. This is rarely a simple consideration with mobile ads.

1.   What are mobile ads?

Mobile advertising refers to advertisements which appear on websites (generally those optimised for mobiles), or are embedded within other applications, such as the ‘pop-up’ adverts we all often see when using our mobile phones. Users will be redirected to the company’s own app or to an application store to download the app when clicking on an advert.

Many companies rely upon mobile advertising to gain new custom by people downloading their app, having been directed to the app purchase site through an advert. This is differentiated from ‘organic’ downloads of an app, where a user freely navigates to an online marketplace to download a company’s app based, for example, upon their existing knowledge of the company.  

2.   How are mobile ads placed?

The first step for companies wishing to place mobile advertisements will generally be to approach a media agency i.e. a company specialising in digital advertisements for mobiles. That is only the first layer, because the media agency will usually use the services of an ‘advertising network’ i.e. companies which purchase an inventory of ad placements, either directly from publishers or other networks. Agencies will be paid an agency fee, and will then gain a share of the networks’ fees, which will be on a ‘pay per click’ basis when users navigate via the advert.

This necessarily involves numerous parties; agencies are unlikely to use only one company within a network, and those networks will often sub-contract amongst themselves (many of which are based off-shore). Further, these sub-organisations tend to have total control and management over ad placement, and the relationship with the networks, such that the company wishing to place the ads has little input and control.

3.   What issues can arise?

The structure of the mobile advertising industry means that the company placing the ad will find it very difficult to understand which company has responsibility for its advertisements being published. The agency with which the company contracts might even be unaware of the publishers being used. This makes the industry ripe for complex disputes. This lack of transparency also creates significant opportunity for fraud, particularly when the end supplier is based in low regulation jurisdictions for cybercrime and other frauds.

One major problem area is the difficulty in establishing whether users have actually navigated to an app via an advert. In other words, whether they are a genuine ‘non-organic customer’. This potential of abuse arises from the manner in which networks are remunerated – pay per click. There are a number of known frauds being perpetrated in the industry due to the way in which the relationships operate and contracts are agreed.   

Coming Up Next

Our second article “What fraud? The types of fraud prevalent in the mobile advertising market” will be published next week.



[1]  eMarketer report

[2]  Forbes – 29 June 2020