Ad blockers: a change in power in the digital advertising ecosystem?

8th October 2015

Ad blocking has been around for over 10 years but has made its way into the spotlight recently – when Apple announced that it will integrate ad blocking capability on mobile devices in its latest operating system.

Various apps, such as Purify and Ad Block, shot to the top of the Most Downloads Apps list and caused quite a stir in the industry about what exactly ad blocking will mean to digital advertising – for both publishers and ad serving companies. After all, mobile advertising is continually rising with mobile adoption increasing – and such a move will impact their revenue stream.

A recent report by PageFair (PDF), however, has brought some facts that give perspective to the state of ad blocking.

Users of ad blocking is estimated to be around 200 million worldwide

 

Growth in ad blocking

Image source: PageFair

While adoption was relatively steady in the early part of this decade, it is in the past two years where adoption of ad blocking has seen a significant rise. To further put this number into perspective, the report estimates that the cost of ad blocking will be US $41.4 billion in 2016!

Ad blocking is actually being driven by desktop adoption, not mobile – and it’s not even close (for now)

According to the report, ad blocking on desktop PCs has a 98% share compared to that of mobile (including tablet) devices. So while the latest buzz is around the iOS adoption, it is important to keep in mind that it only accounts for a tiny fraction of ad blocked devices in use at the moment. (Editors note: it is also acknowledged in this report that mobile share will only increase.)

Makers of ad blocking software are now a powerful party in the digital advertising ecosystem – forcing larger advertisers like Google to ‘play ball’

Popular Chrome and Safari ad block extension, AdBlock – with a reported user base of 40 million – was bought by Adblock Plus (no relation to AdBlock). If you were a user of the extension, as of October 2, you would’ve been presented with the following screen:

 

Acceptable ads program

Image source: AdBlock

The main takeaway from such a message is that ad blocking is now being commoditised.

There are a few interesting points with this acquisition:

  • Larger ad blockers have recognised how allowing “acceptable ads” from certain publishers is a major revenue stream

Advertisers that are part of the program include Amazon and Google. Keep in mind that in Q2 2015, Google websites (which includes Search) generated US$12.4 billion (that’s approx. US$138 million a day!).

Adblock Plus states that being part of the Acceptable Ads program is free….for small to medium businesses. Their website states that they are “paid for supportive services by some larger entities”.

Hypothetically, let’s assume Google pays Adblock Plus 0.0001% of its revenue stream as above. That still equates to US$1.24 million per quarter!  And that’s only from Google.

  •  Ad blocking providers, while currently largely fragmented, will become consolidated

With such a (potential) revenue stream becoming more evident, it will only lead to more consolidation in the digital ecosystem. This could potentially be a big issue for large advertisers (such as Google).  Consolidation means more leverage and membership into programs, such as “Acceptable Ads”, could prove to be very expensive for such advertisers.

Final thoughts

At a user level, it would seem as if the idea of having their web experience free of advertising is a thing of the past with the emergence of such programs as the Acceptable Ads. The real impact will “more likely than not” be felt at the advertiser/publisher level and they’re taking action to overcome this. If so, it represents quite a shift in who holds the most power (and perhaps, leverage) in the digital advertising ecosystem. It will be interesting to see how the relationship between digital advertisers and ad blocker develops in the medium to long term.