A Chinese tech deal shines a light on the $35B world of digital ad scams

Short-selling hedge fund alleges that YY Live is a multibillion-dollar fraud built on a clickfarm of bots.

November 30, 2020

Source: Kotaku

Earlier this year, short-selling hedge fund Muddy Waters released a report that accused China’s version of Starbucks (Luckin’ Coffee) of massive fraud.

The report was right — and it catalyzed a $5B market value wipeout of the coffee chain.

Muddy Waters — named after the Chinese proverb “muddy waters make it easy to catch fish” (and not the legendary blues musician) — is back and alleging a multibillion-dollar fraud related to click farms and fake views.

The target: Chinese live-streaming platform YY Live

Two weeks ago, Chinese search giant Baidu announced plans to buy YY Live (owned by social media firm Joyy) for $3.6B. Shortly afterward, Muddy Waters released a report making the following claims about YY:

  • 90% of its live-streaming revenue (predominantly virtual gifts) and usage numbers are fraudulent
  • Purchases and viewers are actually an army of bots

YY strongly contests these claims. But if they turn out to be true, the company will have a much larger problem on its hands.

Scams cost the digital ad industry $35B a year…

… that’s equal to ~10% of the industry’s annual revenue of $333B, according to research cited by The Economist.

Notable scams include:

  • Click farms (imagine hundreds of smartphones set up with fake accounts)
  • Malware (phone software that clicks on banner ads and does other fake interactions in the background without your knowledge)

Marketing pioneer John Wanamaker famously said of advertising, “half the money I spend is…wasted; I just don’t know which half.”

These scams make everything in the industry even more opaque.

You might even say… it muddies the waters.

Daily briefings, straight to your inbox

Business and tech news in 5 minutes or less

Join over 1 million people who read The Hustle


How'd Bezos build a billion dollar empire?

In 1994, Jeff Bezos discovered a shocking stat: Internet usage grew 2,300% per year.

Data shows where markets are headed.

And that’s why we built Trends — to show you up-and-coming market opportunities about to explode. Interested?

Join us, it's free.

Look, you came to this site because you saw something cool. But here’s the deal. This site is actually a daily email that covers the important news in business, tech, and culture.

So, if you like what you’re reading, give the email a try.

If you don’t like it, unsubscribe any time. Privacy policy.