Adblock Plus vs. Internet Advertising

Adblock Plus, a startup that poses a serious threat to internet advertising, won a significant precedent-setting case on April 22 that confirmed its right to block ads. Two newspaper publishers sought financial relief and challenged the legal status of Adblock Plus’ business model in a German court, but the court upheld the company’s right to block online advertisements.

“The Hamburg court decision,” Adblock Plus executive Ben Williams writes, “is an important one because it sets a precedent that may help us defend what we feel is an obvious consumer right: giving people the ability to control their own screens by letting them block annoying ads and protect their privacy.”

For those who are unfamiliar with the software, ad blockers, as their name suggests, block ads online. Gone are the days of in-video YouTube ads, preference-seeking Facebook ads or pesky “click this red button” ads. Although several similar services exist on the market, Adblock Plus leads the pack as the most downloaded browser extension of its type in the world.

Even though ad-blocking software has existed for almost a decade, it was never perceived to be a legitimate threat to Internet publishers. But now, armed with ever-growing subscription rates and the recent Hamburg victory, ad blockers are tightening their chokehold on advertisers and changing how websites make money.

Simply put, ad blocking is an affront to the traditional business models of no-fee websites, such as Google and Facebook. While sites that do not charge users have traditionally made revenue by running ads, they now face an unexpected problem – what if people don’t see their ads in the first place?

As Interactive Advertising Bureau general counsel Mike Zaneis recently confirmed, “Ad blocking is beginning to have a material impact on publisher revenues.”

If online ads lose their visibility or relevance, companies will place less value in online advertising, which will likely lead to a downward spiral for the revenue streams of websites.

According to a report conducted by Adobe and PageFair, use of ad-blocking software increased 70 percent in 2014 alone. Currently, about 30 percent of the Internet-using U.S. population subscribes to ad-blocking software, and a total of 144 million users worldwide subscribe to ad blockers, a statistic that continues to grow. These numbers seem to suggest that ad blockers are gaining even further leverage against advertisers.

The software’s growing popularity has even caused Internet giants such as Google, Amazon and Microsoft to pay Adblock Plus to “whitelist,” or unblock, their ads. According to a report by the Financial Times, Adblock Plus had requested fees equal to 30 percent of the additional revenue these sites generate after their ads are whitelisted. Although it is unclear what the final terms of this agreement were, when the most influential players in the industry are paying to unblock their ads, it’s time to take notice.

Rather than paying into ad blockers’ demands, however, some companies have taken another route. They are beginning to employ more aggressive tactics to combat the rise of ad blockers.

New York-based startup Secret Media has developed software that allows websites to run video advertisements, which escape the detection of ad-blocking technology. According to its founder, Secret Media is already helping large media websites run over 10 million ads daily. Last year, jolted by the meteoric rise of ad blockers, Yahoo acquired Clarity Ray, a startup exclusively focused on developing software to circumvent ad blockers.

Yet although Internet giants have suffered major hits from this brawl for the $140 billion online ad industry, smaller websites have taken an even sharper hit, mainly because they cannot mobilize large resources as Google or Facebook can. While large websites can easily file lawsuits, strike deals or temper the effect of ad blockers through other sources of revenue, small websites typically have a smaller pool of resources and generate revenue almost exclusively from pay-per-click ads. Without any ads to click on, these small sites can lose most, if not all, of their sources of revenue. This poses an ethical question: are smaller, mom-and-pop sites particularly vulnerable to the adverse effects of ad blockers?

Another ethical concern asks whether it is fair that “free” sites such as Pandora and YouTube do not receive compensation. These sites have been “free” because they make money from advertisements. In essence, these companies were providing a service at no cost to the user in exchange for the inconvenience of a few ads. But through ad blocking software, users are now enjoying these so-called “free” services while simultaneously cutting their revenues.

Yet, it is hard to conceive that free websites could, anytime in the near future, charge users for their services in the event that ad blockers reign supreme. According to the Adobe and PageFair report, only one in five people surveyed would be willing to pay a fee to use their favorite websites without ads.

This peculiar scenario compels Internet publishers to either directly attack ad blockers, as Yahoo has done, or cave into their demands, as Google did earlier this year, because they know a fee-for-use would likely be a disastrous business decision.

But despite ethical concerns, the explosive growth of ad blockers demonstrates what may be wrong with the current state of advertising. The incredible popularity of ad blockers may be reflective of consumer demand for less excessive ads.

A common criticism of advertising is hyper-commercialism, which articulates the belief that advertising is too excessive and invasive. While it was historically impossible to avoid most ads, such as a 48 by 14 feet billboard in the middle of a freeway, consumers today can elect to avoid online ads in their near entirety. Ad blockers might well be revolutionary because they give consumers a choice over what they see.

While it is true that ads can potentially provide useful information or create awareness of substitute products, the current state of advertising seems misaligned with consumers’ interests. All too often, Internet ads clutter and dominate the screen, seek to collect personal data or sell products through intrusive methods.

But whatever the exact distaste towards online advertising is, the recent meteoric rise of ad blockers suggests many are voicing their aversion towards current methods of advertising.  Coupled with the recent Hamburg decision, ad blockers are poised to be the biggest threat to the future of online advertising.