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Ad Blocking Point of View

November 9, 2015

Executive Summary

x The immediate impact of ad blocking in iOS9 is overblown. The ad‐pocalypse predicted for mobile isunlikely to occur, and the advertising industry has time to adapt to increasing viewer frustration withcurrent advertising practices.

x Mobile ad blockers have dropped off the charts, literally. Within four weeks, ad blockers have gonefrom two of the most popular apps in the iTunes store, with approximately 85,000 downloads a day,to effective invisibility. They are now significantly below the top 100 (Crystal was at 669 in the U.S.iTunes store as of October 17) with fewer than 800 downloads a day. Cumulative downloads to dateare approximately 800,000, or less than 1 percent of the U.S. iPhone subscriber base. We do notproject it to grow beyond 2 percent by the end of 2017 despite its availability on iOS 9.

x Ad blocking potentially offers long‐term benefits to online/mobile. The use of ad blockers indicatesthat the implicit bargain between publishers and viewers has gone awry. Consumers are not againstadvertising in media. They understand that they trade access to their eyeballs in return for free,valued content. But if a 30‐minute TV show had 20 minutes of ads, or if ads popped up as modaloverlays at random times on the screen, then viewers would revolt. That’s the metaphor for what hashappened online. Ad blockers will force the equation back into balance, with significant long‐termbenefits to the ad industry. Short term, if content blocker usage increases substantially, manyadvertisers and publishers will feel some short‐term pain as they adapt to using more native ads,sponsored content and “acceptable ad” formats.

x AdBlock Plus’s “pay to spray” business model creates resistance within the industry. AdBlock Plus,the dominant content blocker in the market, claims that 95 percent of the companies that havepassed their acceptable ads criteria pay nothing for that approval. However, the fact they charge anycompany a fee erodes their credibility and exposes them to the charge that they are extorting moneyin return for giving major players like Google access to viewers. And even though they have startedan “acceptable ads” working group to establish standards, the Interactive Advertising Bureau (IAB)and others will not tolerate one company with its own agenda to drive a standards discussion for anentire industry.

x Acxiom’s Recommendations to Publishers

+ Engage in conversations with your viewers around various strategies. Find out what bothersthem most and which solutions they are most likely to tolerate.

+ Follow the IAB’s L.E.A.N. principals. Don’t preload ads when the units aren’t in view (whichspeeds page loading); limit tracking calls that do not directly improve the delivery of relevant

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content; remove support for video auto play (with or without sound enabled), modal screen takeovers, or other invasive formats like flashing and blinking ads.

+ Shift your mix of media to more native advertising and sponsored content. Ad blockers find it difficult to distinguish native and sponsored content because they lack the telltale code snippets that ad blockers identify to block other formats.

+ Implement the IAB’s ad blocker sensing code along with intelligent ad serving. We do not recommend using this technology by itself. Instead, the ad blocker should be considered another signal used by ad serving algorithms that determines how ads are served to the viewer, which ads are served, in which format, and how often.

+ Request viewers who use ad blockers to whitelist your site in return for implementing good practices. Good practices include those that viewers say they want, those that will emerge from the IAB’s recently announced L.E.A.N. initiative, as well as many of our recommendations.

+ Consciously and judiciously use frequency caps on retargeting. We realize this technique yields the best return on ad spend (ROAS), but there are ways to implement that minimize the impact on viewers yet only marginally impact your results.

+ Improve audience targeting with better recognition and data. Just undertaking smarter retargeting is insufficient. Serving more relevant content to viewers will increase their satisfaction with ads on your sites, reduce their likelihood of implementing ad blockers, and also reduce the impressions needed to maintain (or even increase) your ROAS.

+ Paywalls. Set up an intelligent paywall. Numerous potential approaches exist. Which one is best for a specific publisher depends on its business model.

+ Set Up an Intelligent Ad Recommendation Engine. Thought about differently, a content blocker is just a functionally limited ad recommendation engine. So let’s turn the notion around. Provide “an intelligent ad recommender” on your site that allows viewers to tell you which types of ads are most acceptable, and then only serve those ad types, formats and content they tell you are of interest to them. If they truly do not want any ads, then you can decide how best to monetize those viewers without reducing your reach.



Introduction

The release of iOS 9 on September 17 created substantial angst in adtech because it included ad blocking technology on iPhone web browsers for the first time. Our advertiser and publisher clients have been paying close attention to the accelerating adoption rate of ad blockers in the last two years.1 Ad blocking on mobile, an increasingly important ad channel, intensified those concerns, especially because of the disproportionate share of web usage and higher dollar value of commerce on iPhones. The subject has generated so much coverage in the mainstream press – The Wall Street Journal, The New York Times, Forbes, Bloomberg and CNN – that suddenly the idea that the majority of mobile users might download ad blockers became a seemingly realistic scenario.

Ad blocking certainly raises serious concerns about the power balance between advertisers, publishers and viewers. But the current rhetoric is so overblown that our advice to clients is simply to take a deep breath and relax. The sky is not falling and doomsday will not occur tomorrow. There is time to adapt to ad blocking, with a host of available strategies. In the long term, it will benefit our customers in two ways. First, it will cause further technological innovation in the industry. Example: programmatic native ads or ad reinsertion. Second, in the long run it will stop practices that undermine the implicit bargain made with viewers, improve the user experience and yield higher quality ads.

This research brief has three purposes:

x Provide a comprehensive view to the issues around ad blocking.

x Provide recommendations for adapting to a world with ad blockers.

x Perhaps most importantly, to calm advertisers’ and publishers’ fears about disintermediation from their audiences and loss of revenue.

The Storm Around iOS 9

Online ad blocking has been noticeably available since 2007, when PC World chose AdBlock Plus as one of its 100 best products of 2007.2 For several years, ad blocker usage was miniscule. By mid‐2012, only about 40 million Internet users used ad blockers or approximately 1.5 percent of the global Internet population. Large advertisers and publishers noted them, if at all, as more of an annoyance than any meaningful concern. Smaller online‐only publishers with a techie following noticed them immediately, however, as they caused significant revenue falloff. In March 2010, Ars Technica, a small online publication devoted to “alpha geeks,”3 ran an experiment preventing browsers running ad blockers from displaying content without a paid subscription. Its editor‐in‐chief also published “Why Ad Blocking Is Devastating to the Sites You Love.” But these voices were few and far between.

In mid‐2012, ad blocker usage online accelerated. Adoption rates doubled. By January 2015, 181 million people – approximately 5 percent of Internet users worldwide – used ad blockers (Figure 1). Still a

1 Campbell, Foster and Blanchfield, Sean. “The Cost of Ad Blocking: Pagefair and Adobe 2015 Ad Blocking Report.” (Pagefair and Adobe, 2015) 2 Dahl, Eric. “The Top 100 Products of 2007.” (PC World, 2007. http://www.pcworld.com/article/131935/article.html?page=11 ) 3 Technologists and IT professionals. See http://arstechnica.com/business/2010/03/why‐ad‐blocking‐is‐devastating‐to‐the‐sites‐you‐love/



relatively small number, but enough that even larger publishers noticed. As more articles appeared in mainstream publications4,5,6, publishers began to fear a growing consumer trend that would undermine the very bargain they had struck since Internet publishing began: publishers provide free content and viewers view ads that pay for it.

Figure 1‐ Global Monthly Active Ad Blocking Users (on desktops)

Source: Pagefair and Adobe 2015 Ad Blocking Report

In mid‐2015, the mobile web was still exempt from ad blockers.7 AdBlock Plus released its first ad blocker app for Android in November 2011, but by 2012 Google had pulled it (and other ad blockers) from the Google Play store. These apps could still be downloaded from manufacturers’ websites but installation required sophisticated knowledge.

Consumers in the meantime were increasingly hyperventilating about the mobile web experience. Ads were more intrusive on a smaller screen, they significantly slowed page loading times due to the more limited bandwidth in mobile and all that extra content consumed expensive data plans without any consumer benefit.

4 Hill, Kashmir. “Use of Ad Blocking I on the Rise.” (Forbes: August 21, 2013, http://www.forbes.com/sites/kashmirhill/2013/08/21/use‐of‐ad‐blocking‐is‐on‐the‐rise/ ) 5 Lee, David. “Is it Ethical to Block Adverts Online?” (BBC: December 5, 2013,http://www.bbc.com/news/technology‐25219922 ) 6 Hickey, Megan “Online advertisers turned off by ad‐blocking technology.” (USA Today, April 24, 2013, http://www.usatoday.com/story/news/2013/04/24/rockefeller‐online‐advertising‐blocking/2110793/ ) 7 Pagefair/Adobe, op. cit.



“The story, in a nutshell, is that readers are finally getting fed up. Fed up with incessant banner ads, obnoxious pop‐ups, and videos that automatically start playing when you load a page. Fed up with full screen takeovers that force you to find, and click, a tiny ‘x’ before you can read the article you actually came for. Fed up with cookies and widgets that track their every move online, allowing advertisers to target them with increasing precision.”8

Enter Apple and iOS 9 and its threat to the mobile franchise. The threat seemed very real to publishers. The extensive coverage of iOS 9 ad blocking in the largest consumer media outlets9 heightened concerns that the “tipping point” had now been reached. Every consumer would be aware of ad blockers and a large percentage, it was feared, would make installing them standard practice. At the same time several major mobile operators intended to deploy ad blockers on their networks to protest invasive formats displayed on mobile — popups, auto‐play videos — that account for 10 to 50 percent of a carrier’s network capacity.10 When ad blockers zoomed to the number one and three positions on the app store and AdBlock Plus was, suddenly, allowed back on Google Play, the threat became palpable.

Suddenly mobile ad monetization – on the soon to be dominant platform for viewing and ecommerce – seemed threatened with extinction.

“It’s been called a nuclear option that will bring about the end of mobile monetization and cause the decline of the mobile Web as we know it. Some believe it may cause a mobile ad‐pocalypse, while others suggest that Apple’s scorched‐earth advertising play could lobotomize Google.” (Fox News)

The AdBlock Plus Business Model: Fueling the Tempest

Fear is one emotion; anger is another. Add the two together and you get polarization among groups with opposing interests and enflamed rhetoric. This is exactly what has happened.

Small publishers, disproportionately impacted, are angry about how ad blockers insert themselves between them and their viewers. AdBlock Plus’s business model is also fueling their anger. Instead of blocking all ads, Eyeo (the publisher of AdBlock Plus) created the concept of an “acceptable ad.” Acceptable ads follow strict guidelines such as no animations, don't get in the way of reading text, and don't take up more than a third of a page’s width. Sites following these guidelines are added to a whitelist, allowing them through AdBlock’s filters unscathed.

Wladimir Palant, AdBlock Plus’s lead developer, said in a 2012 interview with The New York Times that he never intended to rid the Internet of all advertising, only annoying advertising. “We feel that the original

8 Tweney, Dylan. “The writing is on the wall for the ad‐supported Web: It’s the end of the line.” (Venture Beat: September 17, 2015, http://venturebeat.com/2015/09/17/the‐writing‐is‐on‐the‐wall‐for‐the‐ad‐supported‐web‐its‐over/ ) 9 Including The NY Times, Wall Street Journal, CNN, USA Today, Fox News, Fortune, and The Guardian. 10 Cookson, Robert. “Mobile Operators Plan to Block Online Ads.” (Financial Times: May 14, 2015, http://www.ft.com/intl/cms/s/0/7010ae7a‐f4c6‐11e4‐8a42‐00144feab7de.html?siteedition=intl%23axzz3axVutzyb )



‘kill all’ approach isn’t productive here; we need to start differentiating between ads and giving people better ways to allow some of them,” he wrote in an email.

The story might have ended there except for the other aspect of AdBlock Plus’s business model: it charges larger publishers to be on the whitelist. ABP claims that, “There is no way to buy a spot in the whitelist. Also note that whitelisting is free for small‐ and medium‐sized websites.”11

Despite that claim, and the claim that 90 percent of publishers pay nothing to be whitelisted, the sense is that those that pay a fee get preferred treatment. Moreover, publishers, even those more thoughtful about ad blocking, view ABP’s approach as something close to extortion. Frederick Filloux, who supports evolution away from advertising’s current “race to the bottom” and who openly acknowledged using AdBlock Plus on a daily basis, wrote:

“Eyeo’s AdBlock Plus takes the advertising rejection in its own hands — but these are greedy and dirty ones. Far from being the work of a selfless white knight, Eyeo’s business model borders on racketeering.”12

Randall Rothenberg, CEO of the Interactive Advertising Bureau, the great defender of publishers worldwide, has been even more direct:

“These ad blocking companies, many of them — especially some of the larger ones — engage in extortionist business models where they’re basically trying to extract mafia‐like protection money from publishers. I don’t think anyone should look at them as anything different than the Sopranos come to the digital advertising world.”13

The intense emotions ad blocking has provoked among industry participants has made finding common ground on an issue that everyone agrees needs attention – the degradation of the user experience caused by current advertising practices – very difficult.

The Real Issue: An Implicit Contract Gone Wacky

With all of the Sturm und Drang, few journalists or analysts have examined ad blocking from the standpoint of market dynamics. From that perspective, ad blocking is a negotiating tool between two parties to a contract, albeit an implicit one. Conceptually the contract is exceedingly simple: “I (the viewer) receive valuable content for free. In return, I willingly view advertisements that allow you (the publisher) to pay for the service/value you provide.”

11 AdBlock Plus website. https://adblockplus.org/en/about#monetization 12 Filloux, Frederic. “The Rise of AdBlock Reveals a Serious Problem in the Advertising Ecosystem.” ( MondayNote.com: December 8, 2014, http://www.mondaynote.com/2014/12/08/the‐rise‐of‐adblock‐reveals‐a‐serious‐problem‐in‐the‐advertising‐ecosystem/) 13 Emma Mackenzie. “IAB’s Randall Rothenberg slams ad blocking as “quasi‐criminal”. Uh‐huh. How about auto refresh?” (Which‐50: August 27, 2015, http://www.which‐50.com/blog/2015/august/27/iab‐s‐randall‐rothenberg‐slams‐ad‐blocking‐as‐quasi‐criminal‐uh‐huh‐how‐about‐auto‐refresh/#.VhKklPlVikohttp://www.which‐50.com/blog/2015/august/27/iab‐s‐randall‐rothenberg‐slams‐ad‐blocking‐as‐quasi‐criminal‐uh‐huh‐how‐about‐auto‐refresh/#.VhKklPlViko )



The problem is that the contract’s terms are not codified. Nowhere are acceptable limits of consumption of content or exposure to ads defined. The result is that when one group’s interest begins to diminish the other’s benefits, the only way to reestablish what is effectively a fair exchange is to use indirect, market‐driven methods to force changes in the behavior of the other party. This is a steady state equilibrium, with Adam Smith’s invisible hand maintaining the balance.

Viewers would take all content for free sans ads, if they could. Publishers of truly high‐value content therefore find methods to be paid – whether it is ads, subscriptions, or paywalls – to maintain a fair exchange of value. But beyond getting a fair trade, publishers are driven to maximize their revenues/profits by serving as many ads, with the highest possible ROAS for their advertisers, as viewers will tolerate. When the volume of ads degrades the experience of content, consumers ‘vote with their mouse’ as a means of reestablishing a fair exchange.

Viewers are telling publishers that they have taken advantage of the bargain, disturbing the natural equilibrium. Publishers didn’t do this consciously. It was driven by industry dynamics in which there is almost infinite inventory and insufficient ads to fill it. The result for any single publisher, except those that have highly valued and scarce inventory, is very low margins. Thus the need to maximize revenue from every page view by loading as many ads as possible. The result is a tragedy of the commons where individuals acting independently and rationally according to each's self‐interest behave contrary to the best interests of the whole group by depleting some common resource, in this case the goodwill of their viewers.

Viewers are responding. They are communicating that they are fed up with intrusive advertising. In a nationally representative survey undertaken by the IAB, 89 percent of respondents who have installed ad‐blocking technology reported using ad blockers to improve their experience. The ads deemed most intrusive are video ads that play automatically, screen takeovers, and blinking ads – all ad types that directly disrupt the consumption of content.

We also hypothesize that unrestrained retargeting is a major cause of viewer dissatisfaction. And this goes to answering a very important question inherent in the upswing in content blocker adoption in mid‐2012: why did it occur? We believe the answer is that around that time retargeting emerged as the industry’s hottest trend.

“Retargeting is not entirely new … Yet the old tactic of finding people who have visited your site has seen a resurgence thanks to recent ad‐tech advances that make finding audiences in large numbers possible. That’s led to boom times. Take Criteo, for example. The retargeter, which brought in former Yahoo, AOL and Huffington Post exec Greg Coleman a year ago as its president, now has 600 employees, up from 120 in 2010.”14

The Facebook Exchange went live in September 2012 and immediately became one of the most important retargeting platforms. A Q4 2013 survey by Chango‐Digiday found that 56 percent of respondents listed

14 Abramovich, Giselle. “Why Retargeting is the Hottest Area of Ad Tech.” (Digiday: April 19, 2012, http://digiday.com/brands/why‐retargeting‐is‐the‐hottest‐area‐of‐ad‐tech/ )



FBX as a retargeting tactic they used – up from 41 percent in 2012. By early 2013, 20 percent of marketers had dedicated retargeting budgets.15

Uncontrolled retargeting is wonderful for advertisers since it has significantly higher conversion rates. But consumers consider it invasive and scary. In many ways, it could be considered “display spam.” Not only do these ads stalk the consumer on every page they view, but they also displace ads for other potential products the consumer may value more highly.

Moreover, ad retargeting made consumers aware for the first time just how much advertisers and publishers tracked their online behavior:

“For days or weeks, every site I went to seemed to be showing me ads for those (Zappos) shoes,” said Ms. Matlin, a mother of two from Montreal. “It is a pretty clever marketing tool. But it’s a little creepy, especially if you don’t know what’s going on.”16

The result was an outcry. The FTC became involved, the AdChoices icon became widely deployed, and Apple deployed its IDFA to help mobile users block targeted advertising.

Yet time and again consumers indicate they highly value the exchange of free content in return for seeing ads. As an example, in a Zogby Analytics poll of 1,000 adults commissioned by the Digital Advertising Alliance, 92 percent thought free content like news, weather and blogs is important to the overall value of the Internet, with 69 percent responding that content is “extremely important.” More than 75 percent said they’d prefer ad‐supported free content on the Web to paying for ad‐free content. Just 9 percent said they’d prefer to pay for content.17

The issue isn’t the terms of the bargain; it is its current implementation.

Consumers are exercising their market power in the only way available to shift the balance. Lacking other options to communicate their displeasure, they are installing ad blockers.

The question is what should the industry do about it? The brutal truth is publishers cannot ignore the dynamics of the commons. It cannot be fixed with a Band‐Aid or getting into an escalating war of technology with ad blockers – as Google’s new Accelerated Mobile Page Project tries to do18. It requires fundamental changes in the current approach to ad quality, ad behavior and ad value to the viewer. Tim Armstrong, the CEO of AOL, puts it best:

15 Quoted from “The Chango‐Digiday Retargeting Barometer Q4 2013” in Plomion, Ben. “Retargeting: Five New Statistics That May Surprise You.” (Convince and Convert: Q4 2013, http://www.convinceandconvert.com/digital‐marketing/retargeting‐5‐new‐statistics‐that‐may‐surprise‐you/ ) 16 Helft, Miguel and Vega, Tanzina. “Retargeting Ads Follow Surfers to Other Sites.” (New York Times: August 29, 2010, http://www.nytimes.com/2010/08/30/technology/30adstalk.html? ). 17 Interactive Survey of US Adults. (Zogby Analytics/Digital Advertising Alliance: April 2013, http://www.aboutads.info/resource/image/Poll/Zogby_DAA_Poll.pdf ). This was a statistically valid poll so it is a reasonable predictor of the viewpoint of all Americans at that time. 18 Advertising Age staff. “Google Unveils Project to Load Mobile Web Pages Faster (And Let Publishers Keep Control of Ads).” (Advertising Age: October 7, 2015, http://adage.com/article/digital/google‐unveils‐mobile‐news‐reader‐load‐articles‐faster/300797/?utm_source=digital_email&utm_medium=newsletter&utm_campaign=adage&ttl=1444838625 )



“Right now ad blockers look like the big disruptors of the moment, but in the future the disruptor will be some company that figures out how to do advertising differently,” Mr. Armstrong said. "We're all going to live in an invisible prison if we think ads are going to stay the way they are today."19

Part of that will be the industry setting standards for what makes a good ad and then policing bad actors. Because if it doesn’t, whether through ad blockers or some other technical solution, consumers will push back until the terms of the deal they make with publishers seem fair to them once again.

It is Not a Mobile Ad-pocalypse – Really

With all of that said, the online advertising industry has time to adapt before the problem reaches critical mass. Here’s a reality check: right now, there are 280 million Internet users in the United States, another 270 million in Europe and Russia, and 2.8 billion worldwide.20 The 181 million users actually using ad blockers online is approximately 5 percent of the U.S. population of Internet users, 2.5 percent of U.S. and European users, and 0.4 percent of the worldwide population of Internet users.

Pagefair and Adobe have estimated that lost ad revenue from ad blockers will be $21 billion in 2015. Our estimates show, however, that revenue lost to ad blockers runs approximately $8 billion worldwide21. Even that overstates the effect, since advertising spend tends to remain constant in the face of changing technology.22 Dollars will shift to other formats that are very difficult to block, such as paid social, video, native ads, sponsored content or other content marketing. With Internet advertising representing approximately $166 billion in 201523, ad blocking is costing the industry at most 4.8 percent of revenues worldwide. This is not an insignificant amount, but it’s not an ad‐pocalypse, and while worrisome leaves plenty of time for publishers to adapt, even in mobile.

The best example of the problem’s true extent is the actual number of downloads from the app store for iPhones and iPads since the September 17 launch of iOS 9. Since iPhone downloads dominate iPad downloads, we focus our analysis there (Figure 2). But the same trends apply to iPads.

19 Ives, Nat. “Why AOL's Tim Armstrong Says Advertising Is About to Get 'Exponentially More Expensive.' (Advertising Age: September 30, 2015, http://adage.com/article/special‐report‐advertising‐week‐2015/tim‐armstrong‐advertising‐exponentially‐expensive/300690/ 20 McKirdy, Euan. “China's online users more than double entire U.S. population.” (CNN: February 4, 2015, http://www.cnn.com/2015/02/03/world/china‐internet‐growth‐2014/ ) 21 Simple math: Average spend/viewer online is ~ $43.7/year times 181mm users of ad blockers = $7.9B. Our estimate of $43.7/year‐ viewer comes from calculations based on multiple sources, calculations available upon request. 22 Chemi, Eric. “Advertising’s Century of Flat Line Growth.” (Bloomberg Business: March 3, 2014. http://www.bloomberg.com/bw/articles/2014‐03‐03/advertisings‐century‐of‐flat‐line‐growth ) 23 Roy, Sumit. McKinsey Global Media Spending Report (McKinsey Corporation: June 11, 2015, http://www.onlinemarketing‐trends.com/2015/06/mckinsey‐global‐media‐spending‐report.html )



Figure 2‐ US iPhone Ad Blocker Downloads

Source: Derived from US iTunes Store rankings from AppAnnie.com

Two ad blockers, Crystal and Purify, represent more than 90 percent of all downloads. Crystal’s average rank for downloads in week 1 was 1.1. It was 27 in the second week, and by the third week it ranked 46. By the end of the first month, Crystal had fallen to 669th place. Using a standard algorithm for estimating downloads from app store rankings,24 Crystal’s downloads have gone from about 53,000 a day to approximately 100 a day. Purify maintained its ranking longer, dropping from a high of 3 in week two to an average 5.4 in week 3. By the end of week 4, it had dropped to 102nd place. Downloads have declined from a high of about 18,000 a day to approximately 1,700 a day, on average.

The cumulative downloads from all sources is probably around 800,000 on a U.S. iPhone user base projected to be 75 million in 201525, which is about 1 percent. We believe the decline in downloads will continue as potential prospects move from young, male techies who are intensely engaged in these types of technology solutions, to a more diverse user base. Assuming content blocker downloads from all sources stabilize at about 10,000 downloads a month, the penetration of ad blockers on iPhones will still be less than 2 percent by the end of 2017. Even if you double that number, ad blockers on mobile will still penetrate less than 5 percent of iPhone users.

The Economics of Ad Blocking for Publishers

Averages, however, do not capture the substantial pain certain publishing segments are experiencing. Small publishers are disproportionately impacted because they depend extensively on low‐end,

24 Garg, Rajiv and Telang, Rahul, “Inferring App Demand from Publicly Available Data.” (Pittsburgh: Carnegie‐Mellon University, 2012). http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1924044 ) 25 eMarketer, August 2013. Quoted http://www.statista.com/statistics/232790/forecast‐of‐apple‐users‐in‐the‐us/. Using the 18% growth rate between 2014 and 2015 and applying it to 2014 numbers yields an estimated 2015 base of 75mm users.



programmatic revenue. Larger publishers have many more pages of limited‐inventory, high‐quality content with large audiences. They can afford a direct sales force that sells their premium inventory, since they can charge $10‐$12/CPM on average and earn 75‐90 percent margins (Figure 3).26

Figure 3 ‐ Average US Online Display CPMs

Smaller publishers, on the other hand, operate in markets that effectively have infinite inventory and limited demand. CPM rates range from $0.10 to $1.50, with the publisher usually keeping about 30 percent, although it ranges from 20 percent to 60 percent. For mobile, fill rates run 12‐17 percent and pricing is even lower, with remnant inventory CPMs running $0.05 to $0.50. These dynamics are summarized in Figure 4.

26 This average fails to capture how expensive some premium inventory can be. For example, Architecture Week has approximately 30,000 visits/month, an average time on site of ~ 3minutes, and an average of about 2.5 page views/visit, yet charges $21 CPM ROS for a standard 300x250 pixel banner on a premium page per its 2015 rate sheet. On the other end, Expedia had 28.3 mm visits/month, average time on site of 18.51 minutes, and 6.5 average page views/visit, and $20 ‐ $40 CPMs for similar inventory. See http://www.promisemedia.com/online‐advertising/sample‐online‐advertising‐rate‐cards for a more extensive list of rate cards for major sites.

Source: SQAD Webcosts May 28, 2014



As a result, we estimate that a small gaming publisher27 serving 20 million impressions a month will lose approximately 10 percent of revenue, which effectively wipes out 30 percent of its profits.28 Larger publishers take a slightly lower hit to revenue (about 7.5 percent). But with margins of 75‐90 percent, the impact is less severe, even though we estimate that online ad blocking is costing a typical large publisher several million dollars per year.29

Figure 4 ‐ Flow of Dollars through the Advertising Ecosystem

Recommendations to Publishers

So how should publishers approach the growing use of ad blockers online and their introduction into mobile?

First, there is cause for concern, but not for alarm unless you are in the few highly impacted segments (i.e. gaming, technology publications). Even if there is some short‐term pain, the industry is now focused on the issue. Solutions will present themselves in time to avoid any ad‐pocalypse, whether in online or mobile. Voluntary standards for improving ad serving are appearing, new technology is already evolving, ad dollars are shifting to other formats, and most importantly, attitudes within the industry are changing.

27 Gaming is one of the hardest hit verticals. 28 These calculations are available from Acxiom upon request. 29 Using some simple models, we estimate that a publisher generating 100mm ad impressions a month is losing between $500,000 and $1.2 mm a year on revenues of $12mm.

Source: Rare Crowds Analysis of Marketplace – includes display, video, and mobile



The community has finally recognized its tragedy of the commons and that it must treat viewers with “higher regard” than the current race to optimize yield has caused it to do.

Second, do not ignore what viewers are telling you, which is that the terms of the unspoken agreement are seriously out of balance. Trying to outwit ad blockers through technology without addressing viewers’ fundamental complaints is not the right answer. It will only lead to a costly “arms race” for both publishers and advertisers and will only delay the day of reckoning when the fundamental issue will finally be addressed. Take the ad blocking vehicle away from viewers and they will just find other solutions to accomplish the same goals.

Here are some interim options you can adopt until new standards emerge that meet viewer concerns:

1. Engage in conversations with viewers around various strategies. Find out which ad techniques bother them most and which solutions they are most likely to tolerate.

2. Follow the IAB’s L.E.A.N. principals. L.E.A.N. stands for Light. Encrypted. Ad choice supported. Non‐invasive (Ads). Broad principals we believe form an excellent framework from which to construct implementable standards. Among those we believe are needed: no preloaded ads when the units aren’t in view (which speeds page loading); limit tracking calls that do not directly improve the delivery of relevant content; remove support for video auto play (with or without sound enabled), modal screen takeovers, or other invasive formats like flashing and blinking ads. The IAB is already hosting regional town halls to gain feedback to move these principals into standards design. Participate to influence outcomes that meet your needs.

3. Implement the IAB’s ad blocker sensing code along with intelligent ad serving. The IAB has developed a code snippet that allows browsers to detect when a content blocker is being used. We do not recommend using this technology by itself. Instead, the content blocker should be considered another signal used by ad serving algorithms that determine how ads are served to the viewer, which ads are served, in what format, and how often.

4. Request viewers who use ad blockers to whitelist your site in return for implementing good practices. Good practices include those that viewers say they want, those that will emerge from the IAB’s recently announced L.E.A.N initiative, as well as many recommendations in this list. Explain in a very visible but succinct manner how you are respecting their concerns, how they can respect yours, and provide instructions for adding your site to the whitelists in the most common ad blockers.

5. Shift your mix of media to more native advertising and sponsored content. Ad blockers find it difficult to distinguish native and sponsored content because they lack the telltale code snippets that ad blockers identify to block other formats.

6. Consciously and judiciously use frequency caps on retargeting. We realize retargeting yields the best ROAS, but there are implementation strategies that minimize viewers’ negative perceptions of the technique yet only minimally impact advertising ROAS.

a. Don’t oversaturate viewers. Set frequency caps, based on statistical analysis of efficacy, on all campaigns, or ensure the programmatic networks you interface with do so.



b. Don’t just specify the average number of impressions in the cap. Specify the ranges as well – the minimum and maximum of impressions per viewer. The average represents a statistical distribution. Lacking controls, ad servers can serve hundreds of impressions a day to a viewer, even while serving an average of 10‐12 per week to all viewers, because the distribution is skewed left. Cutting the long, right tail off the distribution can reduce some of the displeasure with retargeting without impacting ROAS in a meaningful way.

7. Improve audience targeting with better recognition and data. Just undertaking smarter retargeting is insufficient. Viewers consistently tell our clients they will tolerate many ad impressions if those ads are relevant to them but will tolerate almost none if they are not.30 So first, identify a viewer correctly using solid recognition technologies, preferably ones that are determinative and not statistically based. Then understand those viewers through the use of your own data about them, enhanced with robust third‐party data sources that provide demographic, lifestyle and behavioral information. You will serve more relevant content to viewers, which will increase their satisfaction with ads on your sites, reduce their likelihood of implementing ad blockers, and reduce the impressions needed to maintain (or even increase) ROAS.

8. Paywalls. Set up some form of intelligent paywall. There are numerous potential approaches. Which one is best for a specific publisher depends on its business model.

a. Provide a paid service but then give viewers the option to opt‐in to a free version in return for seeing ads.

b. Provide limited content before charging a fee. This could be some number of page views each day, or limits on how much content can be viewed in a month, or providing unlimited access to a small subset of the site’s total content.

c. Sell by the page view. Allow viewers to control how much they are willing to consume by allowing them to consume by the page view.

9. Set Up an Intelligent Ad Recommendation Engine. If you think about it in a different way, a content blocker is just a functionally limited ad recommendation engine. It basically implements the following algorithm: “Lacking any information about the form and quantity of advertising that upset you, I recommend no ads and block everything.” That’s like saying “I don’t know whether you like peas or Brussels sprouts with your meal so I won’t serve you any vegetables.”

Let’s turn the notion around. Provide tools on your site that allow viewers to communicate which types of ads are acceptable to them and then only serve those ad types, formats, and content they tell you are of interest. If they truly do not want any ads, then you can decide how best to monetize those viewers without reducing reach.

These options can be put in the settings section of your sites and viewers can be pointed to those at the end of the registration or setup process. A limited set of questions can be posed at

30 One recent public article on the subject is Tessa Wegert. “These 3 Digital Marketing Strategies Are Making Ads More Relevant for All. ” (ClickZ, April 16, 2015 http://www.clickz.com/clickz/column/2404274/these‐3‐digital‐marketing‐strategies‐are‐making‐ads‐more‐relevant‐for‐all ). But members of our team have conducted their own studies at various times and have gotten this finding consistently.



registration, although this has to be handled carefully lest it cause higher bounce rates. A single question may be all that publishers are willing to risk and viewers are willing to tolerate during registration but even a single question could improve your ability to optimize viewers’ ad experience. In this scenario, a follow‐up question can be posed at each login until the required survey is completed, limiting viewers’ overhead and not interrupting their experience. A single question can be posed during the first few site visits for sites with a significant base of anonymous viewers, using the individual’s cookie (online) or device identifier (mobile) as a match key.



About the Author

Arthur Coleman is General Manager of Acxiom Labs, where he leads a team of engineers and data scientists. These teams conceive and develop intelligent products that can generate new revenue sources for Acxiom by creating discontinuous change in our industry.

ad blocking point of view - acxiom · ad blocking point of view ... the wall street journal, the...

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