7 ms·

High-Speed Ad Traders Profit by Arbitraging Your Eyeballs

74 points by r0h1n 10y ago

JDiculous 10y ago
This is from 2014, reposts should specify the year in the title
- r0h1n 10y ago
  My bad there. I honestly didn't notice it till you just pointed it out!
  - jarnix 10y ago
    I tried to know more about these "two guys in Chinatown" but in vain, I really would like to know more !
SixSigma 10y ago
If these were concert or sports tickets the people doing it would be called "scalpers". The world is a curious place, full of contradiction and wonder. We only like the free market for some activities.
- kardos 10y ago
  > We only like the free market for some activities. As we should... the free market is not a cure-all, it's good for some things, poor for others.
  - SixSigma 10y ago
    People buy up all the Bruce Springsteen tickets and try to charge 5x the face value - outrage People buy up all the houses, "meh"
    - praptak 10y ago
      It isn't "buy up all the houses". "Oppose new development so that the price of my house keeps raising" is more like it. And there is outrage. NIMBYs are perceived as selfish assholes.
    - braythwayt 10y ago
      > People buy up all the houses, “meh" Where do you live? Throughout North American there are people bemoaning the effects of gentrification on neighbourhoods. Whether you agree or disagree, there is clearly no “meh” going on.
- raverbashing 10y ago
  But as opposed to a ticket to a once a year concert you're just buying something that's in abundance (ad space) I can't feel too much sorry for the ones paying more in this case.
- ikeboy 10y ago
  Scalpers provide liquidity, like most arbitrageurs. If reselling tickets was impossible and the price remained the same, then people who didn't manage to get one would be out of luck; now, they can pay more and still get one. Scalping is only possible when the market value of the ticket is more than the price charged, which means the demand will outstrip the supply.
  - braythwayt 10y ago
    “Scalpers make Benefit X possible” says nothing about whether “Scalpers create Harm Y.” For example, you say "If reselling tickets was impossible and the price remained the same, then people who didn't manage to get one would be out of luck; now, they can pay more and still get one.” But if there is a fixed supply of tickets, then there are a fixed number of people getting tickets. All you are changing is which people get the tickets. Yes, people with more money and less time to stand in line or whatever will get a ticket. Yay! But people with less money can no longer stand in line and get a ticket. Boo?
    - ikeboy 10y ago
      >But if there is a fixed supply of tickets, then there are a fixed number of people getting tickets. All you are changing is which people get the tickets. To be precise, you're allocating the tickets to those who value them the most, under the objective criteria of "who's willing to pay the most for them" (which may not be fair, but in the same way that capitalism favors those capable of getting money). >But people with less money can no longer stand in line and get a ticket. Boo? Those people value their tickets less than the people who actually get them. If you're only willing to pay X for a ticket, and someone else will pay Y>X, then the situation where you get a ticket for X and they don't isn't Pareto optimal; you'd prefer to sell your ticket for Y, and they'd prefer to buy your ticket for Y. (This does assume something about utility of money, which isn't strictly justified. To wit, I'm assuming that an unwillingness to pay more than X<Y for something implies a willingness to sell it for Y after you've gotten it. For X and Y sufficiently far apart, this should be true, but it might not be if they're close. On the other hand, if they're close then the harm here is very low.)
ikeboy 10y ago
(2014)
yummyfajitas 10y ago
This article uses very odd language. 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.
- krisdol 10y ago
  >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). Agreed. As header bidding and arbitrage proliferate, we also see ad tech companies targeting the supply side of the equation: with services that help publishers understand how well the header bidding product is performing, which ads work and which dont, and how viewers engage with their site. As pubs are getting more information into the ad selection process, losing exchanges will have to adjust the quality or lower the prices of their ad supply.
very_difficult 10y ago
I have experience doing the exact thing described in this article, but not at the level of sophistication described. I still made a decent amount of money from it. All of the exchanges (on the buy and sell side) know it's going on, and they generally don't try to stop it provided that it doesn't become news. A large number of well-known, venture-backed ad tech companies make money from this and they're not incentivized to stop it. It's rare that the companies actively encourage arbitrage, but some do.
- hn_username 10y ago
  Could you elaborate on the mechanics of what's going on? Any insight is appreciated. Thanks.
  - very_difficult 10y ago
    The general idea is: 1. Get access to a DSP (either AppNexus, AOL, Doubleclick itself or a smaller DSP--there are literally dozens). DSP stands for demand-side platform, but in this case we're going to use them as a supply source. 2. At the same time, get access to a demand source, either AOL, Google, SpotXchange or someone similar. Someone that a reputable website publisher would use to fill ad spaces on their website. Both steps one and two can be difficult to obtain, as every major player is on the lookout for fraudsters and arbitrageurs and doesn't more crappy, re-sold demand/supply on their platforms. 3. Place demand-source tags (AOL, Google, SpotXchange) in your DSP, so as soon as you buy an impression, you sell at almost the exact same time. You make a profit when you amount your from demand-source tags (net costs + rev share) is higher than the cost of the ads you're buying (net costs + fees). Even though the article is from 2014, there a still ton of people still doing this and making money, though the real money is running botnets and buying botnet traffic (which I know how to do but have never done).
    - hn_username 10y ago
      Thanks for your reply. The ad-exchange-related jargon is foreign to me, but your explanation makes sense. Basically, the arbitrageur buys ad space on a website from a demand source (which essentially means buying a demand source tag which secures the ad space on that website) and turns around and re-sells that space which he/she just bought on a DSP. So, money is made when the cost to buy the ad space from the demand source is less than it's re-sold for on the DSP. Is that about right? What information does the demand source tag include - is that basically a placeholder indicating you bought space for an ad on a website? I assume the arbitrageur's edge comes from finding traffic that can be bought cheaply from the demand source and sold higher on the DSP?
raimundjoss 10y ago
I think the analogy here with Wall St is apples and oranges. In Wall st, the security traded is fungible. Here in the ad world, an ad view could be high quality or lower quality. It could be a bot or a human looking to buy something. 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.
- vosper 10y ago
  I worked in ad-tech for the past 4 years, this is a very accurate write up. I think exchanges have had their day - the quality of traffic is just too low, and due to their incentives the exchanges put all the burden for detecting fraud on their clients.
- jackgavigan 10y ago
  > I think the analogy here with Wall St is apples and oranges. The similarities lie in the real-time nature of trading systems in both sectors.
- deleted 10y ago
  [deleted]
- shostack 10y ago
  Senior buy-side guy here. Viewability measurement has made a small dent in things, but for the most part, my personal view is that a huge percentage of display inventory (especially video) is very inflated. Pubs are chasing the much higher video CPMs without a care for quality, and buyers seem to be eating it up for some reason. In my mind there's only two things that will really change this...better viewability/inventory auditing and attribution technology. The larger, more reputable inventory sources (Google, FB, etc.) have a VERY vested interest in pushing quality and using whatever data they can bring to the table to build that trust, and then use that trust as a moat against their competition. Viewability providers likewise have an easy sell once they can improve the accuracy and reliability of their offerings (they have a long ways to go based on general sentiment in the industry). This will put pressure on other pubs to up their game or be left out. Why bother with a crappy news site that has 50%+ bot views that you're being billed for if FB or Google can prove that their traffic quality is much higher, better targeted, and infinitely higher reach? On the buy side, the pressure will come in the form of attribution. Right now, display performance, video in particular, is a super murky area in terms of measuring success. What is the value of a view-through? Most advertisers couldn't tell you. And the ones that can probably have a very fuzzy picture of it that varies based on the attribution model they are using. However the space has improved dramatically, and at the end of the day, performance marketers will be able to do a much better job of telling whether traffic is crap or not based on whether it backs out. Bots don't buy things (although they do sometimes sign up for lead forms now). So if someone with a solid analytics stack sees a ton of impressions and no sales through their various attribution lenses, guess what? They'll stop buying those impressions. And the more big buyers that get smart about attribution and stop buying based on impression counts, the more pressure will be exerted on the sell-side to clean up their game. So while the problem is "self-correcting" in the sense that there is big money with very vested interests in solving for this, unfortunately it is a big ship to turn and will take time. Articles that talk crap about the ad industry rarely get into the nuances which is horribly infuriating and does a lot to give the industry a bad reputation. Like any space, there are bad players. Legit players in this industry want the bots and garbage out of the picture yesterday. They make our jobs harder, and reduce our performance.
aakilfernandes 10y ago
Can any average Joe sign up for these exchanges and start trading? Would be more than happy to lose a couple bucks playing around
- lotu 10y ago
  Well you needs severs that can handle the 10,000+ QPS that they are going to send you and you need to write code decide what you are and are not going to bid on, and their is no trivial work to set this up so they are going to think that you might spend lots of money in the future. You could play with https://contributor.google.com https://contributor.google.com this works though Google's exchange and the gist is they bid on your behalf for ads that will get shown to you, you can then put arbitrary HTML in those ads. I saw one guy that was learning Japanese so he used it to display vocabulary words in place of ads. The major downside is it only works on ads that go to Google's exchange which is kinda random on most sites because of stuff like the article above. It ends up being a couple dollars a month to replace random ads on websites.
aakilfernandes 10y ago
> Arbitragers win the first auction and resell the ad, finding exchanges where it’s more valuable and pocketing the difference I don't understand how this is possible. The original advertiser has to trust that the first exchange is reporting accurate demographic info. How does the exchange know the demographic info is accurate if anyone can buy the ads and sell them on another exchange?
davemel37 10y ago
What really bothers me about articles like this is the complete lack of understanding of what advertising actually is. All Advertising is arbitrage, exploiting a market inefficiency between the cost to reach an eyeball and the value of that eyeball. Whats the difference between a high speed trader and a mortgage broker advertising? Whats the difference betweem a retailer advertising to sell a product they bought wholesale and a high frequency trader reselling an impression in real time? Im not saying we are not all better served by closing this information gap and finding market efficiency, but lets not pretend that this is any more unscrupulous than any other business that exploits information asymmetry...and its definitely not the same as high frequency traders...especially because these ad buyer may never have gotten the impression if the arbitrager didnt bring it to a different exchange or support it with a different data set.
dk8996 10y ago
This is from 2014. Most of the DSPs are struggling now.
- yolesaber 10y ago
  AppNexus is the only one doing relatively well, no? The rest are either laughably small (and so is AN compared to Google and FB) or went public and are tanking.

74 points by r0h1n 10y ago

JDiculous 10y ago

This is from 2014, reposts should specify the year in the title

r0h1n 10y ago
My bad there. I honestly didn't notice it till you just pointed it out!
- jarnix 10y ago
  I tried to know more about these "two guys in Chinatown" but in vain, I really would like to know more !

SixSigma 10y ago

If these were concert or sports tickets the people doing it would be called "scalpers". The world is a curious place, full of contradiction and wonder. We only like the free market for some activities.

kardos 10y ago
> We only like the free market for some activities. As we should... the free market is not a cure-all, it's good for some things, poor for others.
- SixSigma 10y ago
  People buy up all the Bruce Springsteen tickets and try to charge 5x the face value - outrage People buy up all the houses, "meh"
  - praptak 10y ago
    It isn't "buy up all the houses". "Oppose new development so that the price of my house keeps raising" is more like it. And there is outrage. NIMBYs are perceived as selfish assholes.
  - braythwayt 10y ago
    > People buy up all the houses, “meh" Where do you live? Throughout North American there are people bemoaning the effects of gentrification on neighbourhoods. Whether you agree or disagree, there is clearly no “meh” going on.
raverbashing 10y ago
But as opposed to a ticket to a once a year concert you're just buying something that's in abundance (ad space) I can't feel too much sorry for the ones paying more in this case.
ikeboy 10y ago
Scalpers provide liquidity, like most arbitrageurs. If reselling tickets was impossible and the price remained the same, then people who didn't manage to get one would be out of luck; now, they can pay more and still get one. Scalping is only possible when the market value of the ticket is more than the price charged, which means the demand will outstrip the supply.
- braythwayt 10y ago
  “Scalpers make Benefit X possible” says nothing about whether “Scalpers create Harm Y.” For example, you say "If reselling tickets was impossible and the price remained the same, then people who didn't manage to get one would be out of luck; now, they can pay more and still get one.” But if there is a fixed supply of tickets, then there are a fixed number of people getting tickets. All you are changing is which people get the tickets. Yes, people with more money and less time to stand in line or whatever will get a ticket. Yay! But people with less money can no longer stand in line and get a ticket. Boo?
  - ikeboy 10y ago
    >But if there is a fixed supply of tickets, then there are a fixed number of people getting tickets. All you are changing is which people get the tickets. To be precise, you're allocating the tickets to those who value them the most, under the objective criteria of "who's willing to pay the most for them" (which may not be fair, but in the same way that capitalism favors those capable of getting money). >But people with less money can no longer stand in line and get a ticket. Boo? Those people value their tickets less than the people who actually get them. If you're only willing to pay X for a ticket, and someone else will pay Y>X, then the situation where you get a ticket for X and they don't isn't Pareto optimal; you'd prefer to sell your ticket for Y, and they'd prefer to buy your ticket for Y. (This does assume something about utility of money, which isn't strictly justified. To wit, I'm assuming that an unwillingness to pay more than X<Y for something implies a willingness to sell it for Y after you've gotten it. For X and Y sufficiently far apart, this should be true, but it might not be if they're close. On the other hand, if they're close then the harm here is very low.)

ikeboy 10y ago

(2014)

yummyfajitas 10y ago

This article uses very odd language. 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.

krisdol 10y ago
>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). Agreed. As header bidding and arbitrage proliferate, we also see ad tech companies targeting the supply side of the equation: with services that help publishers understand how well the header bidding product is performing, which ads work and which dont, and how viewers engage with their site. As pubs are getting more information into the ad selection process, losing exchanges will have to adjust the quality or lower the prices of their ad supply.

very_difficult 10y ago

I have experience doing the exact thing described in this article, but not at the level of sophistication described. I still made a decent amount of money from it. All of the exchanges (on the buy and sell side) know it's going on, and they generally don't try to stop it provided that it doesn't become news. A large number of well-known, venture-backed ad tech companies make money from this and they're not incentivized to stop it. It's rare that the companies actively encourage arbitrage, but some do.

hn_username 10y ago
Could you elaborate on the mechanics of what's going on? Any insight is appreciated. Thanks.
- very_difficult 10y ago
  The general idea is: 1. Get access to a DSP (either AppNexus, AOL, Doubleclick itself or a smaller DSP--there are literally dozens). DSP stands for demand-side platform, but in this case we're going to use them as a supply source. 2. At the same time, get access to a demand source, either AOL, Google, SpotXchange or someone similar. Someone that a reputable website publisher would use to fill ad spaces on their website. Both steps one and two can be difficult to obtain, as every major player is on the lookout for fraudsters and arbitrageurs and doesn't more crappy, re-sold demand/supply on their platforms. 3. Place demand-source tags (AOL, Google, SpotXchange) in your DSP, so as soon as you buy an impression, you sell at almost the exact same time. You make a profit when you amount your from demand-source tags (net costs + rev share) is higher than the cost of the ads you're buying (net costs + fees). Even though the article is from 2014, there a still ton of people still doing this and making money, though the real money is running botnets and buying botnet traffic (which I know how to do but have never done).
  - hn_username 10y ago
    Thanks for your reply. The ad-exchange-related jargon is foreign to me, but your explanation makes sense. Basically, the arbitrageur buys ad space on a website from a demand source (which essentially means buying a demand source tag which secures the ad space on that website) and turns around and re-sells that space which he/she just bought on a DSP. So, money is made when the cost to buy the ad space from the demand source is less than it's re-sold for on the DSP. Is that about right? What information does the demand source tag include - is that basically a placeholder indicating you bought space for an ad on a website? I assume the arbitrageur's edge comes from finding traffic that can be bought cheaply from the demand source and sold higher on the DSP?

raimundjoss 10y ago

I think the analogy here with Wall St is apples and oranges. In Wall st, the security traded is fungible. Here in the ad world, an ad view could be high quality or lower quality. It could be a bot or a human looking to buy something. 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.

vosper 10y ago
I worked in ad-tech for the past 4 years, this is a very accurate write up. I think exchanges have had their day - the quality of traffic is just too low, and due to their incentives the exchanges put all the burden for detecting fraud on their clients.
jackgavigan 10y ago
> I think the analogy here with Wall St is apples and oranges. The similarities lie in the real-time nature of trading systems in both sectors.
deleted 10y ago
[deleted]
shostack 10y ago
Senior buy-side guy here. Viewability measurement has made a small dent in things, but for the most part, my personal view is that a huge percentage of display inventory (especially video) is very inflated. Pubs are chasing the much higher video CPMs without a care for quality, and buyers seem to be eating it up for some reason. In my mind there's only two things that will really change this...better viewability/inventory auditing and attribution technology. The larger, more reputable inventory sources (Google, FB, etc.) have a VERY vested interest in pushing quality and using whatever data they can bring to the table to build that trust, and then use that trust as a moat against their competition. Viewability providers likewise have an easy sell once they can improve the accuracy and reliability of their offerings (they have a long ways to go based on general sentiment in the industry). This will put pressure on other pubs to up their game or be left out. Why bother with a crappy news site that has 50%+ bot views that you're being billed for if FB or Google can prove that their traffic quality is much higher, better targeted, and infinitely higher reach? On the buy side, the pressure will come in the form of attribution. Right now, display performance, video in particular, is a super murky area in terms of measuring success. What is the value of a view-through? Most advertisers couldn't tell you. And the ones that can probably have a very fuzzy picture of it that varies based on the attribution model they are using. However the space has improved dramatically, and at the end of the day, performance marketers will be able to do a much better job of telling whether traffic is crap or not based on whether it backs out. Bots don't buy things (although they do sometimes sign up for lead forms now). So if someone with a solid analytics stack sees a ton of impressions and no sales through their various attribution lenses, guess what? They'll stop buying those impressions. And the more big buyers that get smart about attribution and stop buying based on impression counts, the more pressure will be exerted on the sell-side to clean up their game. So while the problem is "self-correcting" in the sense that there is big money with very vested interests in solving for this, unfortunately it is a big ship to turn and will take time. Articles that talk crap about the ad industry rarely get into the nuances which is horribly infuriating and does a lot to give the industry a bad reputation. Like any space, there are bad players. Legit players in this industry want the bots and garbage out of the picture yesterday. They make our jobs harder, and reduce our performance.

aakilfernandes 10y ago

Can any average Joe sign up for these exchanges and start trading? Would be more than happy to lose a couple bucks playing around

lotu 10y ago
Well you needs severs that can handle the 10,000+ QPS that they are going to send you and you need to write code decide what you are and are not going to bid on, and their is no trivial work to set this up so they are going to think that you might spend lots of money in the future. You could play with https://contributor.google.com https://contributor.google.com this works though Google's exchange and the gist is they bid on your behalf for ads that will get shown to you, you can then put arbitrary HTML in those ads. I saw one guy that was learning Japanese so he used it to display vocabulary words in place of ads. The major downside is it only works on ads that go to Google's exchange which is kinda random on most sites because of stuff like the article above. It ends up being a couple dollars a month to replace random ads on websites.

aakilfernandes 10y ago

> Arbitragers win the first auction and resell the ad, finding exchanges where it’s more valuable and pocketing the difference I don't understand how this is possible. The original advertiser has to trust that the first exchange is reporting accurate demographic info. How does the exchange know the demographic info is accurate if anyone can buy the ads and sell them on another exchange?

davemel37 10y ago

What really bothers me about articles like this is the complete lack of understanding of what advertising actually is. All Advertising is arbitrage, exploiting a market inefficiency between the cost to reach an eyeball and the value of that eyeball. Whats the difference between a high speed trader and a mortgage broker advertising? Whats the difference betweem a retailer advertising to sell a product they bought wholesale and a high frequency trader reselling an impression in real time? Im not saying we are not all better served by closing this information gap and finding market efficiency, but lets not pretend that this is any more unscrupulous than any other business that exploits information asymmetry...and its definitely not the same as high frequency traders...especially because these ad buyer may never have gotten the impression if the arbitrager didnt bring it to a different exchange or support it with a different data set.

dk8996 10y ago

This is from 2014. Most of the DSPs are struggling now.

yolesaber 10y ago
AppNexus is the only one doing relatively well, no? The rest are either laughably small (and so is AN compared to Google and FB) or went public and are tanking.