Bot Protection

Quantifying Online Retailers’ Bad Bot Problem

Quantifying Online Retailers Bad Bot Problem

Bad bots present a security risk to e-commerce businesses. (I know, mind blown.) Whether through carding, credential stuffing or account takeover attacks, cybercriminals use bad bots to steal credit card numbers, logins, or other information and commit automated fraud against online retailers.

In order to solve the bad bot problem, you have to be able to fully understand it — and that starts with quantifying it. New findings from Aberdeen Research do just that. The aptly titled report, Quantifying the Impact of Bad Bots on E-commerce Merchant Profitability, uncovers the extent to which bad bots negatively affect the profitability of online retailers.

Establishing a baseline for e-commerce profitability

Aberdeen began its analysis by baselining the historical profitability of e-commerce brands over the most recent five-quarter financial reporting period. They found that the gross margins for e-commerce merchants ranged from 37.4% to 41.4% from Q2 2020 to Q2 2021.

Next, Aberdeen looked at Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) as the measure of online retailers’ profitability in this time period. They found that EBITDA was between 11.5% and 13.9%.

Taking the difference between Gross Margin and EBITDA, Aberdeen arrived at the operational costs of each e-commerce merchant’s platform. These ranged between 24% and 30% of top-line revenue.

The quantifiable impact of bad bots

Aberdeen considered two ways that online retailers are negatively affected by bad bot traffic:

  • E-commerce platform costs - Total bad bot traffic results in higher costs, such as the overprovisioning of website infrastructure. It also leads to wasted expenditures on website marketing, including funds used for search engine optimization, skewed website analytics that lead to erroneous conclusions and follow-on actions, and digital ad fraud.
  • E-commerce funnel costs - Bad bot traffic at checkout corresponds to attacks that have reached the stage of making fraudulent purchases, which is reflected in declined transactions, chargebacks, and the cost of making decisions about which transactions are legitimate, which often involves both people and technology.

Analyzing both e-commerce platform costs and e-commerce funnel costs, Aberdeen found that 75-80% of e-commerce operational costs — including the cost of website infrastructure, website marketing, and checkout fraud — are negatively impacted by malicious bots. That equates to between 18 and 23% of net revenue. For a retailer with $100M of net revenue, we’re talking about between $18M and $23M amount. Huge and material!

How bots affect e-commerce KPIs

E-commerce merchants often focus on four common KPIs: bounce rate, add to cart rate, cart abandonment rate, and conversion rate. They also considered the number of website visitors and average order value. Something that negatively impacts one or more of these six fundamental factors will therefore also reduce top-line revenue — and bad bots fit the bill.

If you suffer a major bot attack, it can damage your brand reputation and consumer trust. This means fewer shoppers visiting your site, which will in turn, negatively affect all of the common KPIs. In addition, there are direct ties to add to cart rate, cart abandonment rate and conversion rate.

  • Denial of inventory attacks can inflate your add to cart rate and skew your analytics. Hoarding bots add an item thousands of times to a shopping cart over the course of a few days until the item’s inventory is depleted, but they never actually buy. This may lead you to make decisions based on inaccurate data.
  • In an effort to weed out bad bots, many online retailers have turned to CAPTCHAs or multifactor authentication (MFA). Both of these tools add friction to the buying process, drive cart abandonment rates, and reduce conversions. To add insult to injury, CAPTCHA-solving bots have become more widespread, rendering these challenges ineffective.
  • During hype sales, bots buy up limited edition inventory and resell it for a higher price on third-party sites. This often means that your real human customers are unable to buy the products they want, leaving them with a negative experience and forcing them to shop elsewhere.

By improving one or more of the KPIs and fundamental factors listed above, online retailers have the potential to optimize their top-line revenue. So, it makes sense to invest in managing the bad bot problem.

Choosing the right bot management technology

Aberdeen found that advanced bot detection and mitigation technology can reduce the negative impact of bad bots by more than 50% at times of peak bad bot traffic. This positively impacts the key e-commerce KPIs, preserving and protecting e-commerce profitability.

The key is to adopt the right bot management technology, or mitigation costs can quickly spiral out of control. Some bot solutions, particularly those offered through a CDN provider, are priced in two tiers. The basic option may seem appealing, but add-on service fees for tuning, adding rule sets and integrations, and otherwise managing the system will add up.

If add-on services are offered to increase the accuracy of detection, that indicates that the product’s basic level isn’t enough — and signals that you should look elsewhere for a solution that will meet your needs from the get-go. A platform that can learn and adapt in real time will evolve to meet your needs rather than require additional services as time goes on.

How to increase e-commerce profitability

Adopting the right bot management platform will have a lasting impact on your e-commerce business. Look for a solution that:

  • Blocks bots in a frictionless way that contributes to a positive customer experience
  • Leverages machine learning to shift the burden of proof as to whether a visitor is a bot or not onto the software, freeing your team to work on more strategic initiatives
  • Uses behavioral analysis to accurately detect and mitigate bots without add-on services

Solutions that manage bots in a holistic way enable you to detect bots in real time and keep your buyers on the path to purchase, without requiring additional resources from your team or vendor. This means that you can focus on strategic initiatives that provide value to your customers, instead of worrying about automated fraud.

Forrester Report

PerimeterX Named a Leader in the Forrester Wave™: Bot Management, Q2 2022

Download Report
© PerimeterX, Inc. All rights reserved.