Uber just sued one of its ad agencies, and it points to growing mistrust with mobile advertising

Key Points
  • Uber is suing mobile marketing agency Fetch Media for allegedly "squandering" tens of millions of dollars on its ads.
  • Uber claims in a lawsuit the ads were not viewable by people or were placed on websites that don't exist.
  • Uber's ad issues are indicative of wider industry problems with online advertising, which continue to grow as more companies by ads on the web and on mobile.
Dara Khosrowshahi
Drew Angerer | Getty Images

Uber is suing mobile marketing agency Fetch Media for allegedly "squandering" tens of millions of dollars on ads that never were seen or never existed.

The company filed the lawsuit against the Dentsu-owned agency in U.S. District Court in San Francisco on Monday.

(Fetch said in a statement to CNBC: "We are shocked by Uber's allegations which are unsubstantiated, completely without merit, and purposefully inflammatory so as to draw attention away from Uber's unprofessional behaviour and failure to pay suppliers.")

Here's what Uber is claiming and why it is indicative of a growing problem in the advertising industry.

Uber's issues with its mobile ads 

Uber claims it paid Fetch Media millions of dollars between late 2014 and early 2017 to buy mobile ads on behalf of the company. The total amount has been withheld, but the company said that just between 2016 and the first quarter of 2017, it paid Fetch more than $82.5 million.

It alleges Fetch Media spent the money on "nonviewable" ads, or ads that may have loaded on a webpage but were not seen by an actual person. Examples of nonviewable ads have included ads appearing lower on a website that a user never scrolled down to them or ads that are so small that they are indecipherable by the human eye. Uber also claims Fetch purchased nonexistent advertising, or bought ads on websites that didn't exist.

In a statement to CNBC, Uber said:

Fetch was running a wild west of online advertising fraud, allowing Uber ads on websites we wanted nothing to do with, and fraudulently claiming credit for app downloads that happened without a customer ever clicking on an ad.

The agency allegedly knew about these problems, but continued to spend the money as if nothing was wrong. Uber's contract required it to pay for an ad if someone installed the Uber app, they were a new customer and/or they took their first trip after seeing it. To show that these ads were working, Fetch provided data showing Uber increased its number of app installs. Fetch's metrics made the company appear so successful that Uber's advertising spend increased from less than $1 million a month in late 2015 to more than $6 million a month by late 2016.

However Uber claims the new customers would have come regardless if Fetch placed the ads or not because of the popularity of the company.

In response, Fetch had this statement:

Fetch terminated its agreement with Uber months ago after Uber stopped paying invoices for services provided by over fifty small business suppliers, engaged by Fetch to place Uber's mobile advertising. Following months of non-payment, Uber eventually raised unsubstantiated claims relating to ad-fraud as a reason not to pay its invoices, but there is no basis to these claims. Fetch not only delivered Uber's strategic goals, helping it acquire over 37 million new users since 2014, but also achieved an outstanding rating from the client throughout the two-year relationship.

Viewability and nonexistent ad issues

Whatever of the merits of this case, it does highlight a growing concern in digital advertising. As more companies advertise online, more are concerned that they're paying for ads that don't exist, or never get seen by anyone.

Advertising group Media Rating Council (MRC) currently sets the standard for an online viewable ad as 50 percent of the photo or text ad has to be seen for 1 second, or 2 seconds if it is video. Even with these minimal standards, advertising technology company Integral Ad Science estimates only 53 percent of online ads in the U.S. are viewable.

Because so much advertising online is bought automatically with technology — or "programatically" — it is very hard to verify if ads ran where they were supposed to run. Previously people could check and see if an ad was in a magazine or newspaper. But because there are so many websites online and so much advertising being bought each second, there's no way to check every purchase. The same issue is behind why several neo-Nazi and jihadist ads were seen running on Google-owned platforms back in March.

-- CNBC's Deirdre Bosa contributed to this report.