Ad Blocking: The Current Landscape and The Road Ahead
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1 Ad Blocking: The Current Landscape and The Road Ahead January 2016 VIEWPOINTS
2 Ad Blocking: The Current Landscape and The Road Ahead Pete Meyers Alejandro Correa 1
3 Contents 3 Overview 3 What is ad blocking? 4 The growth of ad blocking 5 The impact 8 Evolving ad blocker business models and the industry 9 The road ahead 2
4 Overview On September 9, 2015, Apple CEO Tim Cook announced that the new ios 9 mobile operating system would support content blocking within Safari, Apple s mobile browser. The industry paid attention. Even though ad-blocking technology has been available since 2006 for desktop browsers, it has received less industry attention compared to other topics such as viewability, ad fraud and brand safety. Given that mobile phones and tablets now account for 60% of total digital media consumption and many web publishers receive more than half of their mobile web traffic from Safari, Apple s announcement was received with a mixture of anticipation from consumers, concern from marketers and dread from publishers, many who view ad blockers as creating an ethical conflict at the heart of web publishing economics. In this Viewpoint, we provide an assessment of ad-blocking technology, address the potential benefits and challenges for consumers, publishers and marketers, and share our perspective on how it will evolve. What is ad blocking? Ad blocking is the altering or removal of advertising units or advertising content on a webpage. This advertising can take many forms, including interstitials or pop up ads, embedded video, animated images and text. For most people, ad blocking takes the form of browser extensions such as AdBlock or Adblock Plus, which are simple to install on Google s Chrome, Mozilla s Firefox browsers and now Safari in ios, and follow this basic flow: 3
5 (source: Digiday 2 ) Ad blocking prevents third-party analytics, plug-ins and advertising tags from loading, which speeds up page load times and prevents third-party tracking tags that enable retargeting. Ad blockers accomplish this by tapping into large filter lists (an example being Easy List), which contain thousands of page elements that are associated with ads. Since an increasingly large volume of ads is served through ad exchanges or ad networks, blocking them is rarely more complicated than blocking the domains of the ad servers. The growth of ad blocking Currently, 16% of US Internet users have ad-blocking software installed. However, penetration is expected to climb at an aggressive rate due to Apple s ios 9 release. According to PageFair s 2015 Global Ad Blocking Report, US ad blocking grew by 48% to reach 45 million active users from June 2014 to June 2015 and ad blocking is estimated to cost digital media publishers nearly $22 billion in lost ad revenue during
6 Is the current ad-blocking environment related to Google no longer supporting Flash for Chrome browsers? Apple s announcement about content blocking for ios 9 coincided with Google s recent news that it was withdrawing support for Flash based content, including online ads. While both of these events have a material impact for digital marketers, the timing of them is coincidental and not directly linked. In Google s case, it will increase adoption of HTML 5 standards and result in lower file size ad units that reduce latency and power consumption. The impact On Consumers: At the core, there are two key consumer benefits to ad blocking. 1. Reducing the sense of advertising intrusiveness that can be felt due to bad advertising (e.g., pop up ads that prohibit consumption of intended content or that intentionally display images that could be considered shocking or in poor taste) or due to hyper-targeting of ads (e.g., retargeting web users and creating the feeling that an advertiser just keeps on following you. ) 2. Reducing page load times and/or increasing mobile device battery life due to the added file weight digital advertising causes. Example of advertisements that may cause consumer irritation: As with most types of content filters, ad-blocking software presents the possibility that desirable non-advertising content will be blocked erroneously, otherwise known as a false positive. Additionally, early stage ad-blocking technology experienced content load challenges that could disrupt content layout and lead to broken images. Newer versions have become more robust and effectively mitigated this issue, although not eliminated it entirely. A recent study by The New York Times compared mobile webpage load time and battery life on devices with/without ad blockers: 5
7 When measuring the mix of advertising and editorial on the mobile homepages of the top 50 news websites, more than half of all data and load times came from ads and other content filtered by ad blockers. There was a wide variation in load times and data usage due to advertising units across publishers, indicating that both site ad delivery technology and ad unit types (e.g., video vs. large format display) also played a large role. The battery life of the iphones tested improved with ad blocking, though not as significantly as webpage load times, saving minutes depending on the ad blocker. On digital media publishers: For digital media publishers, the drawbacks clearly outweigh the benefits. From an optimistic perspective, ad blocking has the potential for publishers to develop new, innovative revenue streams and diversify their business models. Examples include: Increasing focus on native and branded content ad products unaffected by ad blockers Evolved ad products that are lighter in weight and less disruptive to consumers Preventing users of ad blockers from accessing publisher content entirely, unless adblocking software is disabled Growing priority to push mobile readers to download apps and establish a walled garden exempt from blockers, rather than consuming content on the mobile web A push toward micro-payments or subscription-based models that keep premium content and services exclusive to users who pay a daily/monthly/annual fee Expanded reliance on e-commerce revenue streams, which could include many forms of in-house storefronts or external partnerships and affiliations Growing reliance on non-digital capabilities such as live events or other offline services With that said, ad blocking carries a significant potential to undermine business models for both large and small publishers alike. Let s look at The New York Times as an example. The NY Times Q Revenue (000) $250,000 $200,000 $150,000 $100,000 $50,000 $0 $209,815 $211,658 $157,249 $148,599 $21,655 $22,629 Revenues Circulation Advertising Other Q Q
8 In Q2 of 2015, overall advertising revenue declined 5.8%. Within this figure, print advertising declined by 11% and digital advertising increased by 11%. However, print delivers a higher percentage of total NYT ad revenue. Given this trend, ad blocking has the potential to effectively eliminate the digital advertising revenue growth that the Times has been relying on to offset its traditional ad sales decline. However, it does have other revenue sources that may counter this impact including a growing digital subscription business and an expanding custom content capability in The New York Times T Brand Studio. Smaller publishers may not be so lucky. Many niche publishers rely heavily on advertising revenue and do not have the direct sales capability of larger publishers to effectively sell branded content solutions or the tech resources to launch native placements. As such, ad blocking creates a very significant challenge to the existing revenue structure and creates the clear need to rapidly evolve the model or risk financial health. In a recent blog post by Michael Macher, publisher of The Awl, he stated that up to 75 85% of the site s revenue could be undermined by ad blockers, which is largely due to the readership consisting of the younger, tech-oriented individuals most likely to download mobile blockers. In both large and small publisher scenarios, there is a fundamental economic issue at heart: what happens to the quality of web content if advertising revenue is no longer an effective model to make it free? On advertisers: Historically, advertisers perspectives on ad blocking were fairly muted and primarily consisted of the belief that if media buys were either CPM or engagement-based models (CPA, CPL, CPE or other agreed upon user action), there was little to be concerned about. After all, if ad blockers prohibit a third-party ad server to deliver an impression, advertisers won t be charged for the media. However, growth in ad-blocking technology has the potential to disrupt digital media advertisers in several fundamental ways: Possible reduction of available ad inventory, particularly across niche vertical categories Decreased support of high-impact, rich-media technologies that may be more susceptible to ad blockers and thus more likely not to be offered by publishers Potential long-term price inflation due to publishers requiring advertisers to pay more for truly native ad formats and customized ad units that will either go undetected by ad blockers or be allowed to pass through their filters. 7
9 On Viewability Ad blocking clearly affects viewability potential. If the ad isn't served, there is no ad to view. In this case, the advertiser isn't paying and the greatest negative impact is on the publisher. While it is possible to block an ad from displaying without disrupting the ad call, part of the reason to block ads is to save on data and decrease page-load times so it wouldn't make sense to make the ad call but make the ad invisible. Evolving ad blocker business models and the industry It s with a healthy dose of irony that ad-blocking software developers may also represent part of the solution for publishers and advertisers seeking to break through. Most of the leading adblocking technology companies, including PageFair, Secret Media and Sourcepoint, sell to both sides of the debate charging consumers to download their app and charging publishers to circumvent their app to serve ads anyway. So how is this possible? In the case of PageFair, it sells technology to web publishers using lowlevel networking technology that circumvents blocking technology, allowing ads to be served. To do so, PageFair requires ads to not be intrusive, e.g., ads that don t animate, appear over content or employ trackers that monitor user behavior. PageFair s stance is that this leads to more transparent advertising and reduces consumer backlash against advertising s increasing invasiveness. Eyeo, the company behind Ad Block Plus, charges a list of more than 700 publishers an administrative fee to be whitelisted from their app and thereby allowing them to serve advertising to users who have installed their app. This program, the Ad Block Plus Acceptable Ads Initiative, is described by its CEO as a perfectly reasonable effort to allow well-meaning websites and responsible content producers to earn ad revenues. Despite the Interactive Advertising Bureau describing this model as extortion, this initiative includes Google as a paying subscriber and could broaden into an industry standard if it receives support across publishers and advertisers, and its ability to develop an independent board to participate in its activities. While advertising has been supporting free content, chasing automation and striving to maximize dollars has compromised the consumer experience. The IAB announced its LEAN initiative to change the industry approach. The IAB is encouraging Light, Encrypted, Ad Choice supported, Non-invasive advertising in response to the consumer demand for action. This doesn t mean that advertising formats are being removed but that there are more options. Publishers can provide rich ad experiences, LEAN ad experiences and subscription models. There is also the 8
10 ability to deny service to users who block ads. Ideally, the goal is to strike a balance between consumer tolerance and choice, reflecting a positive, effective ad experience on the brand, and ease and cost for the publisher. The road ahead The rapid increase in ad blocking, particularly among mobile web users, creates the potential for a rebalancing of power between consumers, publishers and advertisers. While advertising is the economic driver that allows for most web content to be consumed for free, ad blocking allows for a simple solution to the growing consumer sentiment that advertising has become overly invasive and leads to a sub-optimal (and potentially more costly) web browsing experience. At the same time, ad-blocking technology should be advanced to serve as more of a scalpel than a hatchet and increase the distinction between good and bad forms of online advertising. In the same way that digital publishers self-govern through collaborative industry standards, ad-blocking technology companies should be part of this community and help focus on acceptable ad formats and reasonable tracking practices, while aiding the user experience, particularly on mobile devices. Despite abundant media coverage, there is uncertainty regarding the impact of ad blocking. We believe that this topic deserves our attention, however, the news has been driven more by speculation than fact. This makes it very difficult for industry stakeholders to make decisions and plan accordingly. Part of the reason that so many ad-blocking apps exist is that, from a technical perspective, it is easy to prevent ad content from loading. If and when ad blocking becomes a genuine threat, we would likely see countermeasures from ad-tech companies that would effectively make ad blocking much more difficult to execute on. To the best of our knowledge, the largest publisherfacing ad-tech companies, which stand to lose the most from ad blocking, have not made any announcements regarding features that would make it more difficult to block their ads. Although some startups have begun to address the issue, we have not seen any of them gain significant traction in the market yet. Advertisers and other industry stakeholders looking for action cues may want to simply observe what the supply side is doing. When publishers and their ad tech vendors feel the need to announce structural changes to their ad delivery systems or practices, the rest of the industry should take stock and consider whether they should follow suit. 9
11 Sources: comscore: Mobile Internet Usage Skyrockets in Past 4 Years and Overtakes Desktop Digiday: WTF is Ad Blocking? Page Fair Ad blocking Report Quartz: Ad blockers: The Only Way Out of the Ad Industry s Short Sighted Greed Digiday: Why Fight It? One Tech Publisher is Letting Readers Remove Ads The New York Times: Putting Mobile Ad Blockers to the Test The New York Times: Ad Blockers and the Nuisance at the Heart of the Mobile Web AdExchanger: The Adblock Plus Acceptable Ads Initiative Builds Steam AdExchanger: We re Not All About Ad Blocking, Says #1 Ad Blocker Vox: The Ad Blocking Controversy, Explained: GroupM: Ad Blocking: Be Careful What You Wish For 10
12 Ad Blocking: The Current Landscape and The Road Ahead Written by Pete Meyers and Alejandro Correa Published by For the latest industry news, trends and happenings, follow us on Twitter For more information, please contact: Rachel Serton
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