Ad-Blocking A Moat by Cook & Bynum
The move to mobile and the increasing use of ad-blocking software pose risks to the moats of digital franchises, including Google’s AdSense advertising business and any number of ad-dependent content publishers. Just as the Internet destroyed many offline businesses, its continued evolution will eventually do the same to some currently-dominant online franchises.
Readers deplore online ads, particularly the personalized ones that follow them from site to site. They still don’t want to pay for news. They don’t find tablets all that exciting for reading news. And the homepage is diminishing fast, usurped by Facebook (not so much Twitter). The biggest surprise: Using apps to block ads has gone mainstream.
Taken together, these hardened rules pose economic threats not just to legacy news brands, but even to the disrupters – Huffington Post, BuzzFeed – that upended digital news in the first place. The study, conducted by the Reuters Institute Digital News Report, in partnership with the Tow Center for Digital Journalism, surveyed more than 20,000 people in a dozen countries. And it came with a warning: News companies “will have to be more inventive than ever with editorial and business strategies if they are to survive.” Those companies with metered paywalls should be particularly concerned about the findings. Paywalls rely on a certain number of people to pay, offset by another group of less frequent visitors who won’t pay but are still valuable because they’re exposed to site’s ads. But what if more and more non-payers use ad-blockers? And what if the number of people willing to pay doesn’t grow?
It’s already happening. Some 47 percent of US internet users now utilize ad blocking software. For 18- to 24-year-olds, that number is even higher: 55 percent. Consumers are, the study says, annoyed with “advertising and the interruption it causes to their reading experience.” Focus group participants seemed to particularly hate ads that surfaced based on browsing history. As one woman put it, “Online ads are obtrusive, obnoxious, annoying.” And they are easy to get rid of. Installing ad blocking software is a cinch: Just mouse over a site like AdBlockPlus.org, click on a green button that says “install,” follow some simple instructions, then reopen the browser. Ads – all of them – vanish. That ad blocking, a tactic once employed by the geekiest of Web users, is going mainstream is scary on its own merits – if advertisers know people aren’t even seeing their ads, why would they continue spending billions of dollars a year to place them? But it turns into a toxic scenario when viewed alongside the resistance to paying for only online content.
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In fact, 26 percent of US news consumers say that mobile phones are the main way they access news. This is both exciting – news now has its gadget, just like music found the iPod – but it is scary in some respects, too. For one, successful advertising campaigns on five-inch screens have proven difficult, and people don’t spend as much time with the content. They dip in and out. Also, ad blocking is coming soon to the mobile Web. Multiple outlets have reported that Apple, in the next version of its iPhone and iPad software, will allow the technology in its browser. Blocking ads makes pages download faster and crash less. Once users try it, they can’t imagine ever going back. With about 500 million iPhones in hands around the world, if even a small chunk of those users fall in love with ad blocking, that’s a significant problem for advertisers and news outlets (to say nothing of Google).
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