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.

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