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The Ad-Blocking Controversy: Economics, Morality, Technology

-- By KatherineHamm - 11 Jan 2016

“To fix surveillance, we have to address the underlying reasons that it exists … State surveillance is driven by fear. And corporate surveillance is driven by money.” –Maciej Cegtowski

Digital Advertising and Ad-Blocking Explained

Unlike traditional television or print advertising that supplies ads targeted at a general audience, 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 sites. By following users across different sites and using ad networks with a presence across many sites, companies 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 security. Naturally, the practice of ad-blocking or filtering out digital advertisements grew up in response and ad-blocking software flourished, creating economic consequences for advertisers and raising moral questions.

The Economics of Pay-Per-Click: Advertisers, Users, Robots, Ad-Block

As advertisers learned to track, profile, and target their audiences more efficiently, they saw huge corresponding revenue gains. Consequently, advertisers began allocating larger portions of their budgets to digital ads and the market for digital ad sales burgeoned. In order to reap a portion of the gains from the increasingly lucrative market, publishers competed for viewer traffic to attract advertisers and their increased digital ad sales budgets. Indeed, many publishers began to pay for traffic.

Payment for viewer traffic—pay-per-click—can take many forms. The most expensive option is to pay for specific search terms in a search engine like Google, where advertisers pay an average of $1 to $4 per click for general search terms, typically in a real time auction. (According to one report the most expensive search term is “San Antonio car wreck attorney” at $670 per click.) Content discovery is another option upon which publishers rely to redirect traffic to their sites. Companies that specialize in this type of redirecting such as Taboola and Outbrain display “related articles from around the web” at the bottom of sites and charge about 10 cents per click to redirect viewers. Finally, the least expensive option is to pay for traffic directly from a traffic broker at a fraction of a cent per click. Unfortunately for advertisers, this last type of traffic is frequently inhuman.

Botnets, networks of digital robots that simulate human traffic to websites, are responsible for an increasingly large proportion of purchased traffic, accounting for anywhere between 10-50% percent of an advertiser’s budget. In aggregate, advertisers may lose an estimated $6.3 billion to fake traffic in 2015. With such high losses for advertisers caused by non-human traffic, its small wonder they have given name to the practice: ad fraud. In response, many advertisers have developed countermeasures to protect against ad fraud, or click fraud, and including extremely invasive measures to make sure their traffic is legitimate.

However, ad fraud is not the only threat to digital advertisers’ profits. The rise in ad-blocking technology has also undercut profits by filtering out ads from users’ browsers. Ad-blocking software is available for free 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.

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. The report offers breakdowns by demographic, demonstrating that young males tend to use ad-blockers at a much higher rate than other demographic groups. 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 .

The crux of the argument against ad-blocking is that advertising revenue keeps web content free . Since advertising revenue currently funds most 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.

Luckily, there are alternatives. Though paywalls have proven mostly unsuccessful, 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. These features 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 articles on their websites. When these articles inform or entertain readers, they are shared widely via social networks, a mutual win for readers and advertisers. 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.

It remains to be seen whether these solutions can fully replace revenues from advertising for publishers. Until then, individuals will have to decide whether the use of ad-blocking software is moral; whether improvements in privacy and user experience justify the lost of revenue to content creators.

References

http://www.forbes.com/sites/adamtanner/2013/06/17/the-web-cookie-is-dying-heres-the-creepier-technology-that-comes-next/ http://www.bloomberg.com/features/2015-click-fraud/ http://www.bloomberg.com/features/2015-click-fraud/ https://blog.malwarebytes.org/malvertising-2/2015/02/what-is-malvertising/ http://www.businessinsider.com/ad-blocking-software-has-200-million-users-2015-8 https://pagefair.com/press_release/pagefair-2015-report/ https://marco.org/2015/08/11/ad-blocking-ethics http://www.theguardian.com/technology/2015/sep/18/peace-app-ad-blocker-pulled-marco-arment-iphone-ios-9 https://marco.org/2015/09/18/just-doesnt-feel-good http://digiday.com/publishers/ad-blocking-crystal/ http://www.wnyc.org/story/ad-blocker-bloodbath/ http://mobile.nytimes.com/blogs/dealbook/2014/01/21/why-bitcoin-matters/?referer http://smallbiztrends.com/2015/10/how-to-get-around-ad-blockers-monetize-website.html

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