Ad Blocker – an Answer to a Broken Business Model? [Updated 2023]
Ad blocker is of the most heavily discussed topics by publishers worldwide. Why? Because more and more users are running…
Ad blocker is of the most heavily discussed topics by publishers worldwide. 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 few years, a lot has been written about ad blockers. From a user’s perspective, it’s God; from the publisher’s side, it’s the devil. Adblocker usage continues to rise, as seen in the chart below. Moreover, according to Hootsuite, 42.7% of internet users are blocking ads.
In the good old days, 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. Telco lost billions on their cash cow in just a few years – 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 percentage of users consume a proportional percentage of data traffic.
Nowadays, the telco is more like Swisscom, Orange, and some U.S. wireless carriers that 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 online content providers such as Skype and WhatsApp.
How ad blockers work?
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 co-existence with a third-party adblocker. Second, it will increase the need for “data bundles” – a paywall solution in the publishers’ world.
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Spotify model and adblocking
The paywall allows you to consume a publisher’s site – or, more likely, its content in the same model as Spotify lets 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 e-commerce). 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 is 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 offline syncing data. With accurate data, the publisher can increase revenues in premium sales.
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 – on 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 that might be able to sell an additional 40%. That still makes 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 adblocker – 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 a loss in revenue. Several publishers in this segment have already started to change their business model into sponsorships and are struggling. Without users paying to consume 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 adblocker has a sister company, Eyeo, to which publishers can pay between 10-20% of ad revenues from users 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%, most of the largest media groups will probably become Eyeo’s clients sooner or later.
Crowd proof
OK, but is this how a free, open internet was meant to be? Most ad blocker users don’t realize this, but sooner or later, they will have to react.
Let me tell you 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 the 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 straightforward approach. But it will only work for publishers who have quality content.
Can´t Facebook Instant Article or an ad blocker cure this headache?
Why not additionally ship the content to the largest distribution platform with 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 its popularity. Today it is used by billions users – and these users are more than satisfied since it gives them faster loading times and fewer 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 to monetize ad-blocked and non-ad-blocked users by using dedicated tools such as Predbid Stack, which module integrates effortlessly with anti ad-block solutions, empowering publishers to recover revenue from users who employ ad-blockers.
>>> And how you cope with a broken business model? Click and let us know!
This blog contains my personal thoughts, and so I have to include this disclaimer. This blog post is simplified and might lack several other dimensions that were not mentioned. If you want to discuss this further, you are always welcome to contact us at Yieldbird.
