“But since you’ve been gone, I can breathe for the first time.”
Kelly Clarkson – Since You’ve Been Gone
My best friend has always been heavy on the Internet. He told me once that his life was better without advertising and blocking ads made him feel like he could breathe for the first time in his lifetime. What I found out is that he’s not alone.
So why do people use ad blockers? Personal data is being used by companies. People are being tracked. Some 91% of Americans feel like they’ve lost control over the way their personal data is collected and used. Advertisements are mixed within and sometimes over content. Pop-ups and pre-roll video ads are occurring so frequently that it makes you want to close you laptop and call it a day. People simply hate the principle of advertising and only want a faster, premium media experience with no tracking.
But why do companies rely on advertising? It’s simple, they offer you a product that is most of the time free and need additional revenue streams to help keep the lights on. Google is an ad network and for the better part of their existence continues to build platforms needed to support publishers of content like CNN.com or service providers like Pandora. For some this additional revenue stream helps make payroll and building new product. But companies now are beginning to remove advertising as a part of the user experience and working on new ways of monetization.
So here’s how it works with an ad network. First, a rev share deal between ad network and publisher is agreed to which always favors the ad network. Then, both technical teams work together to ensure the appropriate code is working and delivering ads as intended. Using Google as an example, their ad engine then takes over and serves thousands of video and display ad campaigns which are placed on your website or app. You even get the option to filter the ads by category or actual advertiser. Then when the ad is clicked, you generate revenue and get a high-level data report about your audience and performance. On average a publisher makes around $0.30 cents a click depending on the type of ad unit. This model is called cost-per-click or CPC but there are other forms of payout known as CPM (cost-per-thousand), CPL (cost-per-lead) as well as others. Google’s revenue this year will be north of $70B and whether publishers and apps will admit it or not, have adtech companies to thank at some point along the way.
Overall user behavior has changed and the majority of time spent now is on SmartPhones and in apps, not in a browser. Every publisher who has a website now needs an app and a mobile friendly site. Having an app initially meant more security and less ad blockers. Apps then started using ad networks in the same fashion for their website. However, with Apple’s release of iOS9 on September 16, 2015, they now allow the ability to download ad and content blockers. Install rates surged and mobile ads were immediately blocked. Then three weeks later on October 9th, 2015, Apple removed those same ad blockers from the apple store which had been blocking ads on Facebook and other third party apps. Talk about a change in direction and a problem nowhere close to being solved.
Ad blocking software will lead to nearly $22 billion in lost advertising revenue this year – representing a 41% rise from 2014. Google lost an estimated $6.6B in 2014 because of ad blocking. Now they pay companies who block ads like AdBlock Plus to become whitelisted. Only a few people know the revenue streams of these companies because they are all private so I don’t want to put a number out there. However, it is no secret that these small, ten person start-ups dedicated to ad blocking take very large revenue streams away from thousands of small and large businesses, while collecting the install fees from the user and under the table deals with Google and others to be whitelisted.
So here are my thoughts on where this may go.
- Publishers block content from people who use ad blockers.
- You start paying up for content.
- Micropayments – Publishers make you pay pennies for each type of content like reading an article or YouTube video.
- Subscription models – The end of free Internet and you pay a monthly fee like the WSJ, Netflix and Spotify.
- An advertising apocalypse occurs, led by Apple.
- Apple decides to embed their own ad blocking technology into future software releases, killing all direct and ad network advertisements.
- AdBlocking become a relevant business model with strong adoption rates.
- Companies decide to keep advertising and pay ad blockers under the table to be whitelisted on an impression basis.
- Native ads continue to takeover which is an $8B business this year.
- More forms of unique, newsfeed driven ad solutions as shown on FB are very hard to block. .
- FB becomes the new browser and ad blocker.
As ads continue to be blocked, revenue will be impacted and could start hearing this topic brought up on earnings calls soon.
Disclosure: I hold positions in Facebook, Apple and Netflix.