Fraudlogix, an innovative affiliate-fraud prevention company

Hagai Schechter is the CEO of Fraudlogix, an innovative affiliate-fraud prevention company with offices in Florida and Israel. The company is on the cutting edge of the industry, so we decided to hear his story and see what he thinks about how affiliate fraud is affecting the industry and the opportunity its downfall might present.

Q: So tell me about Fraudlogix. What do you do?

A: Well, we’re a relatively new company that’s run by a group of very committed people that have been in the online space for a long time (some before 2000). About a year and a half ago we started development of a patent-pending technology that detects affiliate-fraud attacks. The nice thing about the technology is that it’s completely transparent for the site user and it catches fraud attempts that data-verification and IP-based systems aren’t able to catch.

Q: What’s different about what Fraudlogix does compared to what Targus or any other lead-verification service does?

A: Targus and other lead-verification products are good for catching fraudsters that plug in completely bad data. For example, if a lead comes in as John Smith at 123 Main Street, then a lead-verification company will just run that data to see if a John Smith really lives at 123 Main Street. If he does, then that transaction doesn’t get flagged because the data “checks out.” But the problem is that today’s fraudsters are way more advanced than that and are “too good” to give you totally bad info, so they’ll just buy some random, cheap data for pennies a record and then have a roomful of people go to an advertiser’s site and plug that info in on an offer that pays $20 CPL. So that type of fraud will never get flagged with a data-verification service. And the difference with our system is that it does detect these attacks.

Q: I’m guessing that the inner-workings of the technology are “top secret,” but what information can you share?

A: Yes, we don’t discuss the details of how the technology works so that we don’t tip off the fraudsters. But what I can say is that above and beyond data-verification and profile recognition, the system uses what we call “Anonymous User Identification” (AUI) which allows us to see the digital footprints that the user leaves in cyberspace so we can see if the user is really who he/she says they are. That gives us the ability to see far beyond what we’ve been able to see before.

Q: So do you think it’s going to save the performance-marketing world as we know it?

A: Well, I’m not sure that it’s going to save the world, but I do think it’s going to make online advertisers sleep a little better.

Q: What do you say to those who are skeptical about your product?

A: One of our biggest challenges is convincing advertisers that we’re able to do something that hasn’t been done before to the same degree. Affiliate fraud has been something that most advertisers have almost given up on and just needs to be factored into the cost of doing business.

So when we tell advertisers that there’s a new solution to stop affiliate fraud, we get a lot of, “Really?” and “No way.” So that’s a bit tough. But we do offer a free month so advertisers can see for themselves if it works or not before paying a penny. Did that sound like a pitch?

Q: What effect do you think affiliate fraud has had on our industry so far?

A: I think we all have a pretty good sense of how it’s hurting the industry by advertisers getting “dinged” by fraudsters and by how most advertisers have to lower their CPA to account for the inevitable fraud they’ll incur. So that hurts current advertisers and affiliates. But I think very few people have given serious thought to how many potential advertisers affiliate fraud has kept from entering the space. I think the additional business that isn’t entering the space because of the fear of affiliate fraud is the real cost to the industry.

Q: How do you expect this to change the space?

A: I hope that whether through Fraudlogix or through any other company, product, etc., if big brand advertisers can get a sense of security and comfort with performance marketing, that would be a huge windfall of new money that enters the space and that would be good for everyone. After all, except for affiliate fraud, I don’t see why any advertiser wouldn’t want to pay on a performance basis only. I’m a huge believer in the affiliate-marketing space as a whole.

Q: How did you start this? Give us your background.

A: I’ve been in the industry since 1998, when I founded Options Media, which eventually became one of the top ESPs in the industry. We later sold the company and it effectively went public through the acquisition.

After leaving Options, I jumped back into the game and found myself in the advertiser role, which was completely new to me. Fraudsters quickly found their way to us via the networks that we ran our offer with and it was a do-or-die situation for us in fighting affiliate fraud. So long story short, we spent most of our time, investment and resources fighting affiliate fraud and developing the technology that is Fraudlogix today.