How scammers are using your devices to steal money

Ad-fraud is one of the most profitable activities for organized crime today. The scammers are sophisticated, disciplined, and numerous, and they might be using your IoT devices to rip people off.

Over the past decade, there has been relatively little of this kind of cybercrime in Japan, but that's changing as the ad-fraud crime networks go global. Japan has to catch up and catch up fast. Unfortunately, Japan defenses have been rather poor.

Today we sit down and talk with someone who is fixing that. Satoko Ohtsuki is the founder and CEO of Phybbit, Japan's largest ad-fraud prevention network, and she's going to explain the biggest scam you've probably never heard of.

Of course, we talk about the different kinds of ad-fraud and what is being done to combat them, but we also talk about how she was pushed into entrepreneurship, and the challenges of raising money (and raising children) as a female founder in Japan.

It's a great discussion with one of the most interesting founders in Japan, and I think you will really enjoy it.

Show Notes

The global scale of ad-fraud How to bluff your way into starting a leading software company The main kinds of ad-fraud Google & Facebook's conflict of interest in solving ad fraud How scammers try to get around the fraud countermeasures Who exactly are the ad-fraud scammers and where are they located? How your devices and home electronics are helping the scammers The challenge of raising venture money as a woman in Japan Satoko’s advice for women raising money in Japan Balancing the demands of a growing startup and growing children How Japanese VCs stop Japanese startups from going global How the 2020 Olympics are affecting venture investment in Japan

Links from the Founder

Everything you wanted to know about Phybbit

Phybbit's 2019 Whitepaper on Ad Fraud

Check out Satoko's blog Follow Satoko on Twitter @satoko90 Friend her on Facebook

Leave a comment Transcript Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs.

I’m Tim Romero and thanks for joining me.

Today we are going to be talking about ad-fraud. Ad-fraud is a multi-billion-dollar problem that a lot of people don’t really want to see get solved.

You see, when you run an internet ad campaign or participate in an affiliate network, some of the clicks or installs you pay for are from real people interested in your product or service, but a lot of them are bots that are simply scamming money for the site owners.

In fact, a surprising number of ad-clicks are bots. Internet advertising is a $280 billion global business and it's estimated that somewhere between 25% and 50% of it is fraud.

Well today, we are going to sit down with someone who is doing something about that.

Satoko Ohtsuki founded Phybbit to combat ad fraud, and it has now become the largest ad fraud detection service in Japan.

Satoko and I talk about how Phybbit is using artificial intelligence to combat the seemly endless stream of online ad fraudsters, the challenges she faced raising money as a woman founder in Japan, and how you, yes you in particular, might be helping out the ad fraud scammers without even knowing it.

But you know, Satoko tells that story much better than I can, so let’s get right to the interview.

[pro_ad_display_adzone id="1411" info_text="Sponsored by" font_color="grey" ] Interview Tim: Cheers!

Satoko: Cheers!

Tim: So, I'm sitting here with Satoko Ohtsuki of Phybbit, so thanks for sitting down with me.

Satoko: Thank you too. Thank you for your time.

Tim: Phybbit makes Spider AF.

Satoko: Yes.

Tim: And the AF stands for 'Anti-Fraud'? 'Ad Fraud'?

Satoko: Ad Fraud.

Tim: Ad Fraud.

Satoko: So, let me introduce what is Ad Fraud first. Ad Fraud is exactly as it is written, it’s advertisement fraud. For example, if I was a blogger, I will put some advertisement spot inside of my blog and if you saw my blog and clicked us, I will get some, like 10 Yen or $1, or something like that. If I was a malicious actor, I will try to abuse it to steal the revenue, right?

Tim: Right, so Ad Fraud is basically people clicking on online banners and things but not real customers?

Satoko: Yeah.

Tim: Bots, things like that.

Satoko: Exactly, to steal revenue. This is Ad Fraud, and now, our service, Spider AF, Ad Fraud prevention tool.

Tim: Okay, and you guys released a white paper recently where you're saying that in Japan, a huge amount of traffic is ad fraud and it was almost like 20%, so does that mean like, in Japan, 20% of advertising clicks are bots and fakes, and scams?

Satoko: Of course, 20% is very big, but compared to global market has kind of the same amount of ad fraud or even more.

Tim: Okay. Well, we'll get to the details of how the fraud works and the different kind of scams later, but before we do that, tell me about your customers. So, are you selling to ad networks and affiliate networks, or are you selling to people running websites to make sure that they're not getting scammed by their advertisers?

Satoko: Our service is especially for ad networks and affiliate networks, yes, and also advertisers.

Tim: Okay, so it's both sides, it's the ad networks themselves and the people who buy ads, and what is your monetization model? How much does it cost? Is it like a monthly SaaS service?

Satoko: Yeah, monthly SaaS service based on the traffic.

Tim: So, like, about how much would it cost?

Satoko: For networks, from 200,000 Yen to 700,000 or something.

Tim: So, about $1,600 to around $6,000 for a network, per month?

Satoko: Yes. For advertisers, it's going to be a little bit cheaper.

Tim: And it's quite a range for individual sites, so I guess the idea is they save much more than that by reducing the ad fraud?

Satoko: Yeah, exactly.

Tim: Okay. Well, listen, before we get into the details of Ad Fraud and the different kinds of scams, let's back up a bit and talk about you.

Satoko: Me?

Tim: You. So, when you started Phybbit, you were getting your Master's in Atomic Physics at Tokyo Metropolitan University, right? And you actually started Phybbit while you were still in school?

Satoko: No, just when we finished university, I graduated in March, and then I started Phybbit in April.

Tim: And you started it with a lot of your friends in university, right?

Satoko: Yeah.

Tim: And a bunch of Physics majors?

Satoko: Not everyone is from Atomic Physics. Some people are from space area …some people are from several types of Physics.

Tim: And at first, you were just doing like, contract development for other companies?

Satoko: Yeah, because at the time, we never work in other companies or we didn't know what is a business card or email, right?

Tim: Well, and it's hard to get a job in Physics. I was a Physics major myself.

Satoko: Oh!

Tim: Yeah, yeah, undergraduate, but Physics is sort of like, it's almost like the Liberal Arts of the Sciences - you know a little bit about everything -

Satoko: Yeah, so most of my friends, they are still working in the university.

Tim: So, why did you and your fellow Physics majors decide to start a software company instead of doing Physics?

Satoko: It's a very funny story. It was 2011. At the time, the Japanese Government decided to start to make not so much budget for not only Physics, Scientists, or Mathematics - everything, so many friends, PhD friends, lost jobs because of that. While we were drinking alcohol and we had just joked and complained, but like, they cut it.

Tim: Well, yeah, Japan had always funded a lot of basic research. They funded fundamental research really, really heavily and they've cut back in the last 10 years.

Satoko: Yes, that's right. So, we complained about it, but some of our friends who already worked at the time, he said, "Okay, you guys could get money for what you want to do." Of course, we were drunk so we said "Okay, let's do it!" So now, we are here.

Tim: So, did you all have basic programming skills from university?

Satoko: Unfortunately, … usually, well, yeah, we have very basic programming skills, but not that much.

Tim: So, how did you get your first contract? If you have a bunch of very smart people with some basic like, hacking skills and some really solid Physics knowledge which is useless outside of the laboratory, how did you get your first contract?

[pro_ad_display_adzone id="1652" info_text="Sponsored by" font_color="grey” ]

Satoko: First contract is we need to make some iPad application for education for kids, I think.

Tim: But like the iPad programming environment, that must have been brand new to you guys, so did you just start studying again?

Satoko: Yeah, but please remember that 10 years ago, just iPhone came or Android came in Japanese market, so nobody can do anything.

Tim: That's true. It was new to everybody.

Satoko: Exactly, so that's why.

Tim: That is one thing I do think Physics teaches you: it teaches you how to learn continuously.

Satoko: Yeah, that's right, exactly.

Tim: And so, you're obviously successful that you have more and more contracts, so what made you decide to watch an ad fraud prevention tool?

Satoko: By chance.

Tim: By chance?

Satoko: Honestly, like three years ago, one of my friends, he gave me an advice: "Why don't you use it for ad fraud?" because ad fraud is also Big Data. Many people need such an automation tool.

Tim: What was the initial reaction? I mean, did people understand that ad fraud was a problem or did you have to go to the networks and the customers and educate them about ad fraud?

Satoko: In this case, everyone knew the problem. Not only that, at that time, we have some contract development with an advertisement company already, so we knew this problem as well.

Tim: Okay,