Ad blocker – An answer to a broken business model?

Ad blocker – An answer to a broken business model?
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Ad blocker is of the most heavily discussed topics by publishers around the world. Why? Because more and more users are running it on their devices. How will this change the way online businesses live? And is it really that big of an issue?

Over the last two years a lot has been written about ad blocker. From a user’s perspective, it’s God, and from the publisher’s side, it’s the devil. Ad blocker usage continues to rise, now also available on mobile with a 90% growth within a single year. According to Pagefair, there are at least 419 million people blocking ads on smartphones.

smartphone population using adblocking browsers

The growth of ad blockers in two large Asian markets.

In the good old days (10 year back), ad block usage was less than 1 percent for many years. Since then, sites have been heavy and slow to load, as ads used more download bandwidth than ever and annoying pop-ups kept distracting the user. Today everyone knows that using an ad blocker will improve their user experience. Additionally, nowadays it’s also possible to block ads within an app – which was seen by publishers as a great way to bypass the blocking of ads.

Publishers – learn from the telco industry!

Telco has been in a difficult battle for over a decade. It started when the entrepreneur Niklas Zennström started Skype, the free phone service using bandwidth from Telco providers. In just a few years, Telco lost billions on their cash cow – pay for landline phone calls. Bandwidth/Data was an add-on service with simple flat rates, which opened the door to OTC (over the counter) providers and data free riders, where a small percent of users consume an over proportional percentage of data traffic.

Nowadays telco is more like Swisscom, Orange and some U.S. wireless carriers who already offer unlimited voice and data bundles, where you can choose from different data & speed packages. They may have found a way to co-exist with third-party providers of online content such as Skype and WhatsApp.

So how does this relate to ad blockers for publishers? Ad blockers work by blocking ad requests and hiding parts of the page that show ads. When an ad blocker is used, the publishers earn no ad revenues. The publisher has in most cases a free, open website where they distribute their articles, which are partly financed by the ads. Let’s compare Skype and Whatsapp with the ad blocker and apply the telco’s recipe. What will be the results? First, we have to accept the co-existence with third-party ad blocker. Second, it will increase a need of “data bundles” – which is in publishers’ world – a paywall solution.

>>> Are you a publisher who found a third way? Just click and let us know

Spotify model and adblocking

The paywall allows to consume a publisher’s site – or more likely it’s content in the same model as Spotify let you consume music by various artists. The same applies to information. “Newsify” aggregators are more and more popular as aggregators are now a global trend (just look at Amazon in the US, which aggregates 30% of all ecommerce). The Nordic media group Egmont recently launched a “newsify” (an app named Flipp) where you pay 10€ monthly and get access to more than 30 magazines. If you are a paper subscriber you get a 50% discount. This is a good way to convert paper to digital – it doesn’t solve the ad-blocker problem, but solves the free-riders and opens a new revenue stream. And that thanks to data!

A paywall in combination with a DMP (data management platform) is gearing up for monetization, since data becomes the key here. From the paywall it’s a lot of data: user demographics, behavioral and off-line syncing data. With accurate data, the publisher can increase revenues in premium sales.

>>> And we know how to help publishers with that. Let’s have a candid discussion and we will tell you, what we can do for you. Contact us!

Is it the game over for publishers without a paywall?

Yes and no. Let´s look at some scenarios. If you (as a publisher) are still selling a premium CPM campaign without any advanced targeting – a normal day the sell-out rate is 40%, the remnant is most likely sent to SSP (supply side platform) or a yield-optimizing company who might be able to sell an additional 40%. That makes still 20% remaining unsold. If you have 30-40% ad blocked users on your site, which nowadays is the average in Europe, with a fully functional ad blocker – or unblocker – you might get 40% more impressions to sell. That, however, will not increase revenue that much. It will most likely still end up unsold. So ad blocking might not be the issue in this case.

In the next scenario we have a publisher operating in a niche – let’s assume his site is focused on gaming and fast cars. The target group of users has a much higher adoption rate of ad blocking, often up to 80%. And with a loss in traffic of 80%, it becomes hard to sell the premium CPM campaigns. So here there will be definitely a loss in revenue. Several publishers in this segment have already started to change their business model into sponsorships and are struggling. In this case, without users paying for consuming their content, I think it’s very hard to survive on a healthy margin.

Evil twin of an ad blocker

It’s pretty interesting that the largest ad blocker has a sister company, Eyeo, to whom publishers can pay between 10-20% of ad revenues from users whom they unblock. So by paying these “pirates,” you as a publisher can show ads to users with an ad blocker.

That is the way for publishers in countries with the highest ad blocker penetration. For example in Poland, where the rate is close to 40%, probably most of the largest media groups sooner or later will become Eyeo’s clients.

Global_use_of_adblocking

 

Crowd proof

OK, but is this how a free, open internet was meant to be? Most ad blocker users don’t yet realize this, but sooner or later they will have to react.

Let me tell a story: Imagine an evening. It’s me and my 17 year son, sitting side by side on the sofa, both browsing the web. He visited Tv3.se with, like all other 17 year old guys, an ad blocker activated, and he got a message to switch off ad blocker or allow Tv.3 ads to be shown, or pay for premium. Immediately he, acting automatically, whitelisted TV3 in his ad blocker. I asked him why. He replied, “I just want to see the video. It’s annoying, but I don’t want to pay”.The whitelisting of sites has been working well for several UK news sites, who earlier this year started informing their users that if they want to access their news content they have to whitelist the pages and allow ads since they need the ad revenues to survive. Up to 40% of the ad block users seem to accept this honest and straight forward approach. But it will only work for publishers who have quality content.

>>> Are you a publisher with high quality content and you want to get more out of it? You came to the right place! 

Can´t Facebook Instant Article or an ad blocker cure this headache?

Why not to additionally ship the content to the largest distribution platform which has access to 1,7 billion users? Facebook’s instant article might be an additional revenue stream. They are more or less free of ad blockers, while not all ad blockers can block in-app usage.

Let’s wrap up regarding this broken business model. In all honesty, ad blocking will continue to increase it’s popularity. Today it is used by more than 1 billion users – and these users are more than satisfied, since it gives them faster loading times, and less data usage (especially important in emerging countries – where ad blocking has the fastest growth). For publishers, the ad blocker is similar to the telco´s headache – both just have to deal with the new reality and launch a sustainable strategy on how to monetize ad blocked and non-ad-blocked users.

>>> And how you cope with a broken business model? Click and let us know!

This blog contains my personals thoughts, and so I have to include this disclaimer. This blogpost is simplified and might lack several other dimensions that were not mentioned. If you want to discuss further you are always welcome to contact me at Yieldbird: fredrik.strauss@yieldbird.com

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