POV on Ad Blocking

Nobel Laureate Economists Kenneth Arrow and George Stigler state the case for how advertising has helped grow the economy and:  “keeps the price low and facilitates the entry of new products and new firms to market”. As Randall Rothenberg writes in his article Ad Blocking: The unnecessary Internet Apocalypse “Advertising represents $350 billion of the US gross national product and consumers depend on it to help make $9 trillion of annual spending decisions”. 

This begs the question that as much as advertising might be pilloried in some circles it is undeniable that it is a bedrock of the global economy. Digital and mobile advertising is an increasingly pivotal part of this, isn’t it too important to be brought down by ad blocking technology?

The reason that this has resurfaced is that Apple recently announced that iOS 9 will be supporting ad blocking apps within its Safari browser and most recently also in-app. Although ad blocking is nothing new, it definitely raises a debate around the possible impact on online advertising and content providers.

What are ad blockers? 

Ad blockers are apps or browser plugins which detect and block known piece of code/requests which serve an ad. An example would be the blocking of URLs which contain google.adsense or a filter which blockers any request containing “ad” or “banner.gif”. The ad will not create any discrepancies/overcharging in client reporting, because it has not been served. Paid search ads are served within the browser using the same method, so they can also be blocked. 

How much impact could this have? 

As mentioned, Ad Blocking has been around on desktop for some time now, usually by installing a plugin within your browser. According to a study by Adobe, as of June this year 198M users (globally) use an Ad blocker, representing a 41% YoY growth. Paul Vogel, an Analyst at Barclay’s PLC predicts by the end of the year only 9% of desktop users will be using an ad blocker. Up until now, it has been difficult to install an Ad blocker on a mobile devices due to the operating systems not authorising the install. This is why the recent announcement has made headlines.

The danger for publishers, content providers, app developers and indeed anyone who relies on online advertising revenue is that they will have less opportunities to monetise their content. The danger for brands is they will potentially find it more difficult to target audiences online or could drive customers or potential customers to utilise ad blocking to improve their experience online.  The danger for consumers is if this goes too far they will either need to pay for content or will see a lot of their favourite content removed as it becomes impossible for the creator to support and fund the creation.

The exact scale of the effects of Ad Blocking will be determined over the coming months and years but we don’t believe it is an imminent threat.

There are 7 key reasons why we don’t think it will have a great impact:

  1. Publishers will block content or charge a subscription model to protect their livelihood.  The NY Post are already implementing this where people who have ad blocking software are redirected to a subscription page. Some consumers may be annoyed with ads but it will be interesting how many continue to use it when they can’t access You Tube, Facebook, Google or their favourite news/entertainment sites
  2. Publishers have more control in app. Although Apple have come out saying they will allow in app ad blocking, the major players will control their ecosystem so that ads are either shown or some sort of subscription model is introduced. They have much more power in their own ecosystem and if people want to use their apps they will need to pay for the privilege.
  3. The risk of ad blocking technology and consumers switching off adds will incentivise Publishers to improve their user experience online. They will continue to push more engaging content like native or non-intrusive high engagement formats. There could be push back on brands to make sure they are producing content that is in line with this philosophy and therefore push UX and CX up the agenda.
  4. A high proportion of the people who block these ads are probably the same people who would never be swayed by an advertising message in the first place. In the same way some people will always forward through the ads on their DVR or flick straight past the ads when reading a magazine or newspaper. This will mean that potentially brands have less wastage as they are targeting less people who are not receptive to online messages.
  5. The Internet is largely free for a reason and that is advertising. If you take this away it will not only affect the big behemoths like Google and Facebook but it will also impact on the app developers, the small niche sites, the influencers and bloggers. A certain amount of ambivalence to ads from a minority is fine but if it ever does get to the stage where it isn’t profitable these content creators and Internet stars will shut up shop and a lot of the great content and entertainment that people are taking for granted will be gone. The only replacement would be a subscription or micropayments model but as we have seen across multiple markets this just doesn’t work at scale outside of a few very high end sites and properties.
  6. 30% of global ad spend is categorised under the digital umbrella totalling more than $170 billion (Source: -Worldwide Ad Spending: eMarketer’s Updated Estimates for 2015). This is only going to increase as more consumers shift to digital consumption. The key digital power brands are not going to let a minority of consumers jeopardise billions of dollars of revenue so additional work arounds will be found if needed.
  7. Many of the ad blockers are already charging large Internet corporations a “white list tax” that will enable them to circumvent ad blocking. They are also collecting data so they can sell it to publishers and brands to deliver so called ‘better more relevant experiences’ for consumers. This will invariably dilute the product and possibly represent data opportunities in the future for brands.

What should we do?

This is a story that has resurfaced due to the Apple announcements. It is not new news, but it is something we should monitor to see if it effects our ability to reach audiences online, if any particular formats or channels see a greater impact, and if it creates any inflation in price or supply and demand fluctuations.

It is worth remembering that Apple have not created ad blocking technology, they are just allowing the software to be used. People will still need to install it, and set it up. It won’t be pre-loaded on phones/tablets or built into the OS.  We will be monitoring the uptake of these apps to see if they generate any significant scale as this will give an indication of potential impact.

The key learning we should take from this is users are getting fed up with poor user experience and irrelevant advertising. This means we should continue to choose the best content and user experience when communicating with consumers, and we should be cognisant of the device, environment and role that channel plays in their user journey.  We should be using data and analytics in a responsible manner so that we are being more targeted and more relevant with connection with consumers thus improving the experience and giving them less reasons to adopt ad blocking technology.

Quality content, native advertising and engaging ad formats will continue to be key. As will understanding the consumer, what they want, at what point of their journey they want it, and to deliver it in a way that adds value to them. Data and analytics will help underpin this as long as we take the insights and use them in a way that improves both experience and relevance.

Ad Blocking is a symptom of a bigger problem, which is that consumers find ads annoying. Make connections with consumers more interesting, and more relevant, the overall problem goes away – as does the symptom.

 

Stuart Bailey is Chief Digital Officer for OMD Australia

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