Ad blocking – who are the winners and losers?

Friday 18th, March 2016


What does ad blocking mean for publishers, advertisers and consumers in Asia? Lee Walsh highlights the winners and the losers.

Here’s the deal: pay $3.64 a month and the internet would be completely free of ads. No banners, no sponsored search, zero tracking and no pre-rolls.

eMarketer estimate that $70 billion was spent on digital advertising in APAC last year. When this is spread across 1.6 billion internet users it is just $3.64 per month.

With the rise of ad blocking why not apply a subscription to the whole internet and leave the ads to TV and print?

Xerago comment: While this may seem like a novel idea, two questions pop up: First, how does one make it work? The only type of entity that could possibly have played the role of gatekeeper are the Internet service providers. It is very unlikely they would step up to the plate; most of them have a hard enough time coping with their governments’ requests to block offending websites from time to time. To expect them to police the entire Internet and weed out the ads is expecting a bit much.

Two, if the dominant theme in the industry since the dawn of Internet time has been ‘monetisation’ how is one to compensate all those smaller publishers for their content?

Companies like Spotify and Netflix have built multi-billion dollar businesses based on giving users access to content on demand without the annoyance of advertising. Even Google recognises that YouTube would be a much nicer place without advertising through its ad free subscription service, YouTube Red.

Xerago comment: For every Spotify, Netflix or YouTube that has cracked the subscription conundrum, there are a million other websites out there that lead a hand-to-mouth existence. The fact is that from the beginning the industry did not take the Internet seriously enough. It was merely seen as another advertising medium; one more channel to deliver the same creatives being developed for TV or print with smaller dimensions and some interactivity slapped on.

It worked to everybody’s self-interest. Publishers needed the money, advertisers needed the audiences. It was dead simple to create banner ads; the industry congratulated itself but failed to recognise an emerging problem.

The actual scale of ad blocking is still unclear, with estimates varying greatly between studies and markets. A recent report by Global Web Index estimate that 27 per cent of APAC internet users use some kind of ad blocking software. Nearly all the research does agree that certain demographics are much more likely to block ads. Namely Millennials. The one target audience that many brands are obsessed with reaching.

Xerago comment: 27% seems on the higher side for the APAC region. A quick comparison of some studies done suggests that the percentage of people using ad blockers all over the world is in the region of 200-250 million, less than 10% of total Internet audiences. There is agreement though that this percentage is only rising and rapidly at that.

As Lee points out a little later, ad blockers have been around for years but consumer adoption has been slow. It mattered little when the ad was playing on a desktop connected to a good broadband connection; however, the increasing usage of mobile phones to access the Internet is changing things.

For its part, what the industry has begun to do quite cleverly is to raise a shrill voice protesting against ad blockers. However, one fact that gets conveniently side-stepped in this chorus is another fact. That over 50% of all online ads are estimated to be seen by bots, not humans. This seems like a weak attempt to deflect the blame elsewhere.

My wife worked in magazine ad sales for many years. When we first met I questioned her career choice of battling away in an industry with declining audience and revenue figures. She replied: ‘People buy magazines for the ads, no one goes online for banners.’

And therein in lies the problem.

Spend any time in Singapore and you will see that people really do like to buy things. They even like a lot of brands. Many of the most viewed videos on YouTube are commercials. Yet, when listening to the proponents of ad blocking you would think that advertising repulsed the average citizen.

The problem is clearly not in advertising but the format it is delivered in.

Xerago comment: Not quite true. Let’s accept it; most commercials or banners were largely adapted from traditional advertising media. Until recently, advertisers had not begun to explore long-format ads or story-telling techniques effectively. There is advertising fatigue across age groups which the industry is unwilling to accept. Older audiences are perhaps more forgiving while millennials are less so.

Ad blocking software has been around for years on desktop. In two minutes you can download a plugin for Chrome and your desktop surfing will be largely ad free. Some people did this, but not a lot.

When it comes to mobile it is a different story.

On mobile where data costs money and waiting a few seconds for a page to load seems like an eternity, poorly designed and data heavy advertising is not tolerated.

Who are the winners in ad blocking?

Telecommunication companies: In many developing markets mobile networks are creaking under the explosive growth of data hungry users. Consider that on many mobile sites advertising and tracking can account for 40 per cent+ of data. Blocking ads frees up valuable bandwidth.

Xerago comment: Telecom companies are unlikely to be the real losers. In public, most of them may wring their hands about data networks being slowed down by data hungry users. In private, they will rub their hands in glee at the prospect of advertising traffic gobbling up customer data plans. Show me a telecom company that values the customer experience over the business from advertisers and I’ll show you a company whose financials or market share are less than flattering.

Content, native advertising, sponsorships: In general most content that is not ad served is not blocked. Although, there is only so much content that people can consume. The bigger challenge is advertisers ability to produce content that resonates and at scale. For every one Redbull there are 10 banks trying to get down with the kids.

Who are the losers?

Publishers: The main losers in ad blocking are publishers. Already many publishers are struggling to transition from offline to digital business models.

A study by Adobe estimates that worldwide ad blocking cost publishers $21.8 billion in 2015. This is forecast to almost double to $41.4 billion in 2016.

Xerago comment: There is no doubt that publishers are likely to lose in the foreseeable future. For those publishers who were in the traditional print journalism business and transitioning to a digital model, this is a double whammy.

The print model has begun to die in the US and will soon begin to elsewhere in the world. And the online model has had very few publications (The New York Times, The Economist etc) that had the guts to hold out for a paid model when the fledgling Internet was going the free route.

The ad tech industry: Ad servers, DSP’s, DMP’s, SSP’s, exchanges… For all its complexity the digital advertising ecosystem is still largely built on delivering standard ad formats and video. This has been surprisingly easy for ad blocking apps with a handful of engineers to cancel out. A host of start-ups have emerged to help publishers circumnavigate ad blockers, but the success of this tech-based arms race remains to be seen.

Xerago comment: For most of the ad tech industry, the death-knell was sounded by Tim Cook of Apple in September, 2015. That was when Apple announced that it would begin to allow ad blocking on its phone so as to offer an enhanced customer experience and to safeguard privacy. Given Apple’s clout in the space, it is a foregone conclusion that mobile phones will soon be out of bounds to intrusive advertising and popups.

Advertisers: If ad blocking really does become mainstream advertisers will find a way to spend money elsewhere. It is publishers that will bear the brunt of the issue in the short term. However, advertisers won’t get off that lightly.

More spend will be channelled to fewer placements not affected by ad blocking. The natural end game is that this will increase advertiser competition and drive up rates on these placements.

Xerago comment: It appears very unlikely that advertisers will be the real losers. To be sure, there may be some short-term upheaval in which advertisers try to make sense of the shifting landscape. Ultimately though, they will bring pressure on their agency networks to come up with more innovative ways of getting their messages across. And there is far too much at stake here; both publishers and the ad-tech industry will be eagerly waiting and watching to see which advertisers raise the bar first.

What about consumers?

Whilst consumers may enjoy quicker mobile surfing and lower data charges, most people want internet content to be free.

Advertisers and publishers have a short window of time to recognise how people use mobile devices and deliver formats which are both engaging and acceptable to consumers.

Xerago comment: We cannot help but get the feeling that consumers will in some sense be the real losers, although this cannot be truly gauged in the future. In the short-term, they may have had the pleasure of blocking the ads but in the long run technologies will evolve to find newer ways to co-opt consumers and deliver the advertising message.

As history has shown in a variety of instances, it is always the small guy who loses. Publishers are unlikely to sit back quiet and will look for workable ways to monetise their content. Advertisers will look to innovation as a way out and will return to the medium in a new and possibly strengthened avatar. And so, the cat-and-mouse game will continue!

Lee Walsh is the regional managing director, Southeast Asia and India, for Publicitas.

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