Could ad blockers be the next Tivo?
Media stocks have been tanking on analyst concerns that ad dollars are shifting to the Internet. But the move to online advertising brings another problem: The growth of ad blocking.
Ad blockers are expected to cost the industry $22 billion in revenue this year, according to a report by Adobe and PageFair, a company that helps publishers work around and measure ad blockers. The research projects that the number of people regularly blocking ads will grow 41 percent to 200 million by the end of 2015.
Concerns about ad blocking aren't new and are intensifying as the upcoming Apple mobile operating system will support ad blockers within its Safari mobile Web browser, a big step to take the practice beyond the desktop onto mobile devices. Blocking ads generally makes mobile phones run faster and use less data—which is expected to drive their adoption even further.
Who's cashing in on the trend? AdBlock Plus is the biggest company in the space, with more than 400 million downloads and estimated active users of more than 60 million. The software is free; it makes money by offering companies a certification process to get "white-listed" so their ads are shown. Then about 10 percent of those certified companies—the larger ones—pay a fee. Google is one of those companies. Its search ads are approved, as AdBlock deems them useful.
"We realized you could potentially endanger free content paid for by ads," said Adblock Plus spokesperson Ben Williams. "So we developed criteria for better ads with users; an ad can't pop up or under. It needs to be unobtrusive." Williams said that Adblock Plus is the only ad blocker that tries to do something responsible for the bigger ecosystem by not blocking all ads, explaining that the company doesn't want to put Internet giants out of business.
But with billions of advertising dollars lost every year, free content could be endangered, said Sean Blanchfield, CEO and co-founder of PageFair, a company that works with 3,200 Web publishers to get around ad blockers. PageFair replaces blocked ads with different ads that are designed to be more basic and less invasive so consumers don't mind them. The company estimates that Google—which is not one of its customers—lost $6.6 billion worldwide to blocked ads in 2014, this despite paying Adblock Plus. Google declined to comment on the report.
Who suffers the most? Companies that provide video and pop-up ads to Web browsers—like video ads on YouTube or pop-ups on any number of websites. Blanchfield points to Internet giants Google, Yahoo and AOL among others.
"The challenge now is to make sure that some publishers can stay in business. The problem isn't that ad blocking exists; the problem is that 200 million people have chosen to download ad blockers," said Blanchfield. "The solution is to reintroduce ads but do it in such a respectful way that people don't choose to hide ads."
Who's best-positioned? All the companies who deliver ads within apps—that means Facebook, Instagram, Snapchat and even Twitter, who weave ads into their platforms.
Facebook appears to understand that advantage. "Most ad-blocking software is focused on browsers and display ads instead of ads shown in apps," said a spokesperson for the company.
"In our case specifically, ad blockers haven't had as much impact—in part because the bulk of ads shown on/by Facebook are delivered on Facebook and in other apps that integrate with us ... Ad blockers are generally not as effective because they attempt to block entire types of content and can interfere with functionality that people want to receive," the spokesperson said in an email.
It's true that there's no way right now to block ads that appear within apps. But PageFair's Blanchfield doesn't expect it to remain this way forever.
"Ad blocking is mainstream on the desktop. The next stop is that it'll go mainstream on the mobile Web. After that in-app ads will be the next target," said Blanchfield.