(Revision) The Ad-Blocking Controversy: Economics, Morality, Technology

-- By KatherineHamm - 15 Feb. 2016

Digital Advertising and Ad-Blocking Explained

Digital advertising relies on making direct connections with individual users. These “impressions” are measured in clicks. Tracking methods such as cookies, beacons, bugs, and digital fingerprinting allow advertisers to follow users across different site and create unique user profiles for every visitor to their sites. Web-browsing data, when combined with users’ past purchase histories and shared data from other companies, enables advertisers to develop behavioral profiles for users and target their ads accordingly.

For some users, digital advertising was simply an annoyance—crowded screens and slower loading cheapened users’ experiences. To other users, ad tracking and profiling represented a more insidious threat to their privacy. Naturally, the practice of ad-blocking—filtering out digital advertisements—grew up in response, creating economic consequences for advertisers and content providers and raising moral questions.

Economic Consequences of Ad-Blocking: Loss to Advertisers is Loss to Content Providers?

Ad-blocking software is available for free, easy to download, and allows users the convenience of faster loading times and ad-free browsing. It also offers privacy protection from trackers and combats the threat of malicious advertising or malvertising, when infected ads load on otherwise legitimate sites. Given these huge advantages to users, it’s small wonder that the use of ad-blocking software has ballooned in recent years.

Ad-blocking software has become increasingly popular with an estimated 200 million monthly active users globally, including 45 million users in the US—a 50% increase since 2014 according to a recent report. Roughly 1 out every 6 or 7 Americans uses ad-blocking software and will not be reached by any digital advertisements this year. Overall, ad-blocking is estimated to increase dramatically with the advent of ad-blocking apps for mobile devices. Indeed, the report predicts that digital media companies could lose an estimated $9.7 billion in 2016 due to ad-blocking technology for mobile devices—on top of the $21.8 billion in lost revenues due to all kinds of ad-blockers in 2015.

The Morality Debate: The End of the Internet?

The morality of using ad-blocking software has come into question , particularly with the launch of iOS9, which enabled ad-blocking on iPhones for the first time. Since iOS9 launched this fall, many ad-blocking apps have become top sellers on the Apple App store. Among these, the most popular app Peace was taken down at its creator’s request just weeks after launching because its success “just didn’t feel good” . Yet the founder of Crystal, another ad-blocking app disagreed , believing that the gains in privacy and user experience outweighed the lost revenues to content producers.

The crux of the argument against ad-blocking is that advertising revenue keeps web content free . Since advertising revenue currently funds most online content production, many worry that content production would no longer be profitable if ad-blocking software becomes ubiquitous. In the absence of an alternative revenue source, the amount of quality content could decline with advertising revenue.

Fortunately, there are several potential alternatives. Though paywalls have thus far proven mostly unsuccessful, advances in digital currencies could make them a tenable revenue stream. Currently, paywalls tend to request relatively expensive subscriptions for access to entire sites and are not well-suited to one-time visitors who want to read a single article or watch a short video. The process is cumbersome for the visitor, who must enter her credit card details for a single read, and the high transaction fees for online credit card processing make smaller payments impractical. The emergence of Bitcoin and other virtual currencies could make paying for online content viable by allowing micropayments of a fraction of a cent and reducing transaction costs to near zero. Readers could easily make a small payment from their Bitcoin wallet—no credit card details necessary—and publishers could receive the full amount of the payment without having to pay an expensive middleman. Thus, digital currencies could address the problems of using credit cards on a pay-per-view basis by mitigating their high transaction costs and providing anonymity, security, and fraud protection.

Native advertising presents another viable business model. In lieu of traditional banner ads, publishers can host high-quality sponsored content on their websites that resemble their other content. When these articles inform or entertain readers, they are shared widely via social networks, a mutual win for readers and advertisers. For example, BuzzFeed features sponsored articles and listicles very similar to its normal content. Because social sharing is essential to drive advertising impressions, this sponsored content tends to be high quality. Indeed, this brand of native advertising provides readers with real entertainment and engaging content. Similarly, adtech companies Outbrain and Taboola allow publishers to monetize their content by featuring “suggested articles” at the bottom of pages and redirecting traffic to those sites. Of course, another benefit to advertisers is that, because native advertising resembles the site’s unsponsored content, it is not blocked by ad-blocking software.

It remains to be seen whether these solutions can fully replace revenues from advertising. Until then, individuals will have to personally decide whether ad-blocking software is moral; whether improvements in privacy, browsing speed and user experience justify the lost of revenue to content creators. Interestingly, sites like Forbes and the Guardian request that users disable ad-block technology or make a donation when visiting their sites.

Perhaps technology could forge a middle ground that both protects users’ privacy and preserves publishers’ advertising revenue. It is easy to envision an ad-blocking app that specifically blocks ads that use invasive tracking and profiling. Forms of advertising that track and store web activity from site to site, attempt to identify particular people or build detailed profiles could be blocked. Simpler, non-invasive forms of advertising such as banner ads that do not use cookies and track merely the occurrence of a click without storing personal details could be allowed through. Such a program protects a user’s privacy, preserves advertising revenues for advertisers who honor visitors’ privacy, and, with enough adoption, could provide a financial incentive for advertisers to scale back the invasiveness of their advertising methods. The abundant high-quality free content does not have to come at the expense of privacy rights online; such a solution would have the potential of giving us both.

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