I present a new approach to deterring online advertising fraud by delaying payments -- differentially harming bad affiliates (who rightly worry they may get caught) without unduly harming good affiliates (who know they'll get paid, and who receive a bonus in compensation for the delay).
Last month I posted a new academic paper, Optimal Deterrence when Judgment-Proof Agents are Paid in Arrears - with an Application to Online Advertising Fraud, which introduces an alternative method of fraud prevention for certain online advertising systems. This page summarizes my proposed approach -- beginning with online advertising fraud generally, then presenting my approach along with initial data on merchants' and networks' current terms.
The problem of rogue affiliates in online advertising
For 4+ years, I have studied, documented, and endeavored to prevent online advertising fraud -- well-known scams like click fraud, but also lesser-noticed practices like affiliates attempting to claim commission on merchants' organic/type-in traffic and cookie-stuffing affiliates attempting to claim commission even when users decline to click on affiliates' links.
My basic technique has been nose-to-the-ground detective work -- testing spyware-infected computers, tracking what ads they show, and cross-checking those ads with merchants' and networks' prohibitions on unsavory advertising practices. My Automatic Spyware Tester helps me catch some of these practices more efficiently: Indeed, the automation can catch bad affiliates while I sleep! But it's still an arduous process to catch bad affiliates one by one.
How can merchants and networks avoid such time-intensive investigations? I see two basic strategies:
1) Develop a reputation for being tough on fraud. If would-be-rogue affiliates know they will be caught if they try to cheat a given merchant or network, then they are likely to focus their efforts elsewhere. Mindful of this framework, several of my clients have begun with an initial period of numerous, intensive detections. After cleaning their programs and developing a reputation for expunging fraud, they've been pleased to find that few further fraudsters target them.
2) Revise contracts so that fraud doesn't pay. Details below.
Assessing and correcting scammers' incentives
At present, when a merchant catches affiliate fraud, standard practice is to kick out the fraudster and refuse to pay its current-month's earnings. If the fraudster received payment in prior months, that's viewed as water under the bridge: Most merchants think there's nothing they can do to reclaim prior payments. But at least current-month payments can be withheld.
Consider the resulting incentives for a bad affiliate. "If I get caught, I get $0. If I don't get caught, I get a nice profit." Facing these incentives, a rule-breaking affiliate might as well attempt its scam: It has nothing to lose.
But suppose the merchant delays paying its affiliates. Good affiliates get paid after, say, three months. And bad affiliates? If a merchant has (say) a 0.5 chance of catching a bad affiliate in one month of monitoring, perhaps it has a 0.8 chance if it gives itself three times as long. Delaying payment thus offers two distinct benefits: 1) Delaying payment gives a merchant more time to detect a bad affliate as such. 2) Delaying payment increases the penalty a bad affiliate faces if it gets caught. Combine these effects with the costs bad affiliates inevitably incur (e.g. buying traffic from an adware or spyware vendor), and a suitable payment delay may let a merchant deter many bad affiliates from applying in the first place.
Certainly this approach brings complications. For example, if a merchant delays payment to good affiliates, it probably ought to pay them a bonus for their patience. (Otherwise, the delay would effectively reduce payment to good affiliates -- a change I don't mean to suggest.) Furthermore, it is particularly hard to deter bad affiliates with unusually high profit margins. Finally, in practice not all affiliates need to receive the same payment terms: Trusted affiliates could appropriately be paid more quickly than unknown newcomers.
The details of my approach are in my new paper, Optimal Deterrence when Judgment-Proof Agents are Paid in Arrears - with an Application to Online Advertising Fraud. As a function of market fundamentals (e.g. the proportion of bad affiliates, merchants' speed of detection, and the parties' relative impatience), I compute bounds on feasible payment delays, and I estimate the proportion of bad affiliates a merchant can deter with a given delay. This is an academic article, placing the problem of online advertising fraud within a broader context of unreliable small "agents" hired by larger "principals." But I intend this approach to be actionable, particularly for the affiliate program managers and affiliate network staff who could actually implement delayed payment. Feedback welcomed.
Online Advertising Payment Delays - In Practice
Online advertising systems offer a variety of payment delays. The table below summarizes payment terms for selected advertising systems.
Strikingly, some networks and merchants take as long as 60-90 days to pay commissions, while others pay in as little as a week. So it seems payors have broad discretion to implement the payment delay I envision.
I welcome additions. Please submit suggestions via the payment delay addition form.
|Marketing Program||Payment Frequency & Delay||Source||Notes|
|Amazon Associates||Monthly payment, paid approximately 60 days after the end of each month||Associates Operating Agreement, clause 6|
Monthly payment, paid on the 15th day of the next month.
Weekly payment, paid 7 days after the end of the week (for affiliates earning >$5000/week)
|Commission Junction||Monthly payment, paid on the 20th day of the next month||Publisher Service Agreement, clause 3(e)|
Monthly payment, paid 20 days after the end of the month
Weekly payments (for affiliates earning >$1000/week)
|Terms and Conditions, clause 4|
|Google AdSense||Monthly payment, paid approximately 30 days after the end of each month||AdSense FAQ||FAQ says a withholding for policy violations will reach back only to the time when an investigation began, but will not withhold funds for any period before the investigation began.|
|Hydra Network||Monthly payment, paid within 15 days of the end of the month||Terms, clause 5.1|
|LinkShare||Weekly payment||Announcement||LinkShare "Athena" requires heightened verification of affiliates, including legal name and tax ID.|
|NeverblueAds||Monthly payment, paid within 30 days of the end of each month||Terms of Service, clause 3.5|
Monthly payment, paid approximately 30 days after the end of each month
"Aggressive payment terms" ("receive [a] commission check every week") for "high-volume affiliates"
Monthly, delay unspecified
Weekly payment "may" be available if an affiliate pays an additional fee and meets an unspecified additional qualification threshold
|Affiliate Agreement||First payment delayed until at least 60 days after first sale.|
|Right Media Network||Monthly payment, paid within 60 days of the end of each month||secured intranet; payment terms FAQ|
|Yahoo Publisher Network||Monthly payment, paid 3-4 weeks after the end of the month||YPN Payment Options|
Thanks to Jim Lillig, Jeff Molander, and Wayne Porter for feedback and for submissions as to merchants' payment delays.
Posted: March 10, 2008. Sign up for notification of major updates and related work.