I Still Do Not Understand The Economics of ‘Free’ Internet Ads

A couple of years ago, I wondered if the rise of ad blockers and tools that nuke various internet trackers would undermine the ad-based internet model:

But while this [ad blocking] brings the Mad Biologist joy, it’s an economic disaster. Basically, every way the web is ‘monetized’ (Intelligent Designer, that’s a horrible misuse) is annihilated by Ghostery. Ads are gone. My tracking info is inaccessible to third parties. And there is a lot of monetization (ugh) going on. One io9.com page has the following things you probably didn’t realize were running in the background: ChartBeat, Criteo, DoubleClick, Facebook Connect, Facebook Social Plugins, Google +1, Google Analytics, NetRatings, SiteCensus, New Relic, Parse.ly, Quantcast, ScoreCard Research Beacon, SkimLinks, Twitter Badge, Twitter Button, Adobe Typekit. That’s a lotta crap, much of it which does me no good. But people are making money off of it, until they have to deal with assholes like me who nuke their business with add-ons.

While I seemed to be an early adopter of this technology (compared to the tech press anyway), it seems to have been adopted globally:

Along with The Netherlands, the German market is by far the most affected one by the ad blocking phenomenon. There, ad block use approaches 40% of the internet population. The reasons for the epidemic are unclear, but two elements are likely to play a role. First, AdBlock Plus (ABP), the most popular ad blocking software, has its roots in Cologne. Second, a cultural factor: German opposition to online advertising that manifests itself in the government’s obsessive anti-Google stance pushed by large media conglomerates such as Axel Springer SE.

In France too, ad blocking use is on the rise: about 30% of Gallic internet users are said to have installed extensions that remove banners and other modules; and the Millennials segment (born in 1980-2000) is twice more likely to use an ad blocker. The worst hit are Gaming sites with 80% to 90% of their views deprived of ads. More broadly, the more technophile an audience is, the more likely it is to resort to an ad blocking product.

The US market seems the less affected with 15%-17% of the internet population, again on average, using an ad blocking extension. Among the Millennials, the share is said to be twice the average. The UK is said to experience the same pattern.

Altogether, 300m people in the world have downloaded an ad blocking extension and about half have actually installed it.

And it’s scaring the hell out of publishers (boldface mine):

For publishers, ad blockers are the elephant in the room: Everybody sees them, no one talks about it. The common understanding is that the first to speak up will be dead as it will acknowledge that the volume of ads actually delivered can in fact be 30% to 50% smaller than claimed — and invoiced. Publishers fear retaliation from media buying agencies — even though the ad community is quick to forget that it dug its own grave by flooding the web with intolerable amounts of promotional formats….

But the most potent response evolves around the idea of changing the commercial relationship between publishers and their customers. They could consider three different kind of deals:

– Option #1: use an ad blocking extension and face your preferred site displaying various annoying tricks that will deny or slow down access.

– Option #2: opt-in, i.e. register with a valid email address. Yes, you will get ads, but on a selective basis: No autoplay videos, no pop-in windows, etc. From the publisher’s perspective, an opt-in reader is more valuable than an anonymous one, and the loss on the number of formats can be offset by a stiffer rate-card.

– Option #3: simply subscribe and you get rid of any ads (except Branded Content that I see as another form of editorial — not my favorite one, for sure — but carrying the best value for publishers and the smaller inconvenience for users. Even better, entire sites and apps will load much faster, which is a solid argument when 50% of the audience reads through mobile.

While that post focuses on ad blocking, to me an equally significant problem is the potential death of tracking devices. There’s a lot of money made in selling people’s internet habits (why else would most for-profit sites have so many trackers?). That model seems like it could be in a lot of trouble.

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