Block shock

IN ADVERTISING, an old adage holds, half the money spent is wasted; the problem is that no one knows which half. This should be less of a problem in online advertising, since readers’ tastes and habits can be tracked, and ads tailored accordingly. But consumers are increasingly using software that blocks advertising on the websites they visit. If current trends continue, the saying in the industry may well become that half the ads aimed at consumers never reach their screens. This puts at risk online publishing’s dominant business model, in which consumers get content and services free in return for granting advertisers access to their eyeballs.

By some estimates, more than 200m people worldwide are now regular users of ad-blocking programs (see chart). Eyeo, the maker of Adblock Plus, the most widely used such software, says it has been downloaded more than 400m times. Until fairly recently, ads were mostly being blocked on desktop and laptop computers but now people are installing the software on their mobile devices, which are expected to account for a growing share of their time online.

Ad-blocking software used to be fiddly to install, and thus its use was restricted to a technically adept minority. But now it typically comes in the form of an add-on to a popular web browser such as Chrome or Firefox, which can be installed in a few clicks. Websites’ use of ever more in-your-face advertising formats (videos that play automatically, pop-ups that obscure the text you are trying to read) have driven ever more people to seek ways to block them. Younger consumers seem especially intolerant of intrusive ads, and as they get older, overall ad-blocking rates are bound to rise further, predicts Peter Stabler of Wells Fargo Securities, one of the authors of a recent report on the phenomenon.

Not many publishers put a figure on their losses from ad-blocking, but ProSiebenSat.1, a German media group, has said that in 2014 the practice cost it €9.2m ($10.4m)—about a fifth of its web revenues. Publishers with a male, technophile audience are worst hit, says Sean Blanchfield of PageFair, an Irish startup that helps publishers quantify and manage ad-blocking. At some online video-game sites more than half of ads get blocked.

Small wonder that web publishers have started to take action. Some are switching to subtler means of advertising, such as promotional articles written in a similar style to the site’s editorial content. Others are trying to educate their audience. Ad-blocking visitors to the website of the Guardian, a British daily, for example, are greeted with the message: “We notice that you’ve got an ad-blocker switched on. Perhaps you’d like to support the Guardian another way?”

A few are taking a more robust approach. Some sites, such as Hulu, an online video service, block users who try to block its ads. In Germany several media groups have sued Eyeo. Its software lets some ads through, as long as they are not too intrusive, and in the case of the most popular websites, as long as they pay for the privilege. Some internet firms, including Google, are said to have cut a deal with Eyeo to have their ads included on the firm’s “whitelist” (Google declined to comment on this). The plaintiffs in the court cases argued that this is extortion. Eyeo, for its part, argues that the scheme lets publishers make at least some money, and that it does need some way of covering the cost of maintaining the whitelist.

In two cases so far, German courts have sided with Eyeo, and ruled that its product and its business model are legal because users are informed about the whitelist before installing the software. But even if other cases go against it, this is unlikely to stop ad-blocking. Most such software is based on a shared list of ad-serving computers, maintained by volunteers. So if the online publishers succeeded in making Eyeo go away, other providers would take its place.

The online firms had grounds for hope that, as consumers spent more time on smartphones and tablets, the ad-blocking problem would fade, since Apple and Google, which provide the operating systems for most such devices, can control which apps may be installed on them. In 2013 Google banned ad-blocking apps by Eyeo and other providers, arguing that they interfered with the workings of other apps.

However, these mobile walled gardens are not impenetrable. One way in is for users to download an alternative web browser to the one that came installed with their device, which incorporates ad-blocking features. One such, UC Browser, already claims 500m users, particularly in China and India. Last month Eyeo released its first ad-blocking browser, which so far is available only on devices running Google’s Android system.

Since such browsers only block ads on web pages that are viewed using the browsers, it is hard to claim they are interfering with other apps. That means they cannot block ads that appear within apps. However, even this sort of ad may not be immune to being blocked for long. Shine, an Israeli firm, has developed equipment that would allow mobile-network operators to block ads of any kind—those to be displayed inside apps as well as those for web browsers—before they reach subscribers’ phones. Shine says that it is in discussions with a number of wireless carriers, and that some will start using its product soon. One European operator has reportedly installed Shine’s product in its data centres and plans to turn it on before the end of the year.

Transatlantic tensions

If mobile ads were blocked by default, this would violate the principle of network neutrality, which holds that internet providers should treat all types of traffic equally. In 2013, when Free, a French internet provider, installed ad-block software on its modems, the government forced it to make the service optional. But even if it is left to smartphone users to turn on ad-blocking, the results could be controversial. If lots of mobile subscribers did switch it on, it would give European carriers what they have long sought: some way of charging giant American online firms for the strain those firms put on their mobile networks. Google and Facebook, say, might have to pay the likes of Deutsche Telekom and Telefónica to get on to their whitelists.

If that happened, the online firms would surely fight back. If an operator were, say, to block the ads on Google’s search service, Google could retaliate by trying to stop that operator’s subscribers from accessing their Gmail accounts. Such a tit-for-tat is not as far-fetched as it may seem: Google closed its news-aggregation service in Spain after a new law required it to pay for using excerpts of publishers’ content. If the mobile firms are not careful, they could start the world’s first digital trade war.