Adware and ad fraud are in basically the same business, and neither care very much how they make money as long as it keeps pouring in. But there are some major differences. To understand these differences let’s take a look at the separate entities.

Adware
Adware is any software application that shows advertisements while one of the components of the adware is running. The word is a contraction of advertising and software, and often just regarded as “advertising-supported freeware.”

With adware, consumers accept the well-known trade off of not having to pay for software in exchange for having to look at some advertisements in return. While this simple business model may appeal to many of us, there are definitely boundaries. We draw lines at the amount of advertisements, the moment and the way they are presented to us (consider for example,  in-game advertising), and the kind of advertisements. Pop-ups of an adult nature, for one,  may give those looking over your shoulder the wrong idea.

There are also some criteria that security vendors take into consideration when classifying adware:

This is why you will see (most) adware classified as potentially unwanted programs (PUPs), some as spyware, and others could even be classified as Trojans.

Ad fraud
Ad fraud is a type of fraud that lets advertisers pay for advertisements even though the number of impressions (the times that the advertisement has been seen) is enormously exaggerated. There are many different methods to achieve this:

The malware involved in this type of fraud is usually classified as a Trojan as the systems are remotely controlled and told to visit a site (to heighten the popularity) or click a URL (to register an impression). As you can imagine, hiring a botnet to do these tasks for you is a lot cheaper than owning and running large server-farms, although this happens as well. Ad fraudsters also sometimes pay people in low-income countries to do micro tasks for micro payment.

Both adware and ad fraud earn their money in the advertising business. But the means are different. While the main victims of adware are the users who may have knowingly installed advertising supported software, in the case of ad fraud the main victims are the advertisers,  even though unsuspecting users may be running click-bots or multi-purpose bots.