The news: Just as advertisers were beginning to put together solutions to address last year's big reveal -- that a huge percentage of online video ads, as well as display ads, were being incorrectly or even fraudulently counted as having been viewed -- the industry got another shock. Apple's (NASDAQ: AAPL) iOS 9 platform, released in September, included a capability which allowed app developers to build in ad-blocking technology. Considering how ubiquitous Apple's mobile products were, and how well they integrated with each other, the possibility of losing ad revenue from mobile apps sent a chill down the spines of anyone who derived their income from advertising.
Shortly before that news, a report released in August by PageFair and Adobe estimated the potential losses for advertisers due to blocked ads on desktop computers could be as high as $21.8 billion in 2015.
Taken together, the reports probably induced a lot of puckering and compulsive clutching of wallets among the online advertising industry.
Why it matters: The actual amount advertisers stand to lose from ad blocking is debatable -- a counter-report by UBS said that losses from ad-blocking on Apple's mobile devices would probably be just $1 billion, less than half a percent of total ad industry annual revenue. The analyst firm's skepticism was based on several factors: ad-blocking would mostly take place in Safari browsers, which represent only 3 percent of ad industry revenue from browsers; the capability doesn't extend to apps, where people spend most of their time on iOS; and not everyone has iOS 9 on their devices.
However, that UBS estimate only includes Apple devices. Android-based devices are also widespread and much more fragmented in terms of devices and operating systems used. And the PageFair report was only estimating losses via desktop and laptop computers. If its report is accurate, losses due to ad-blocking on mobile device browsers could push losses higher, not lower.
The real issue is that consumers have almost no incentive to allow ads to get through to them. Online display and video ads eat up bandwidth as they're trying to view pages, and quirky ad scripts often stall or crash page loads; on mobile phones, those ads bite deeply into their data plans. A New York Times report in October took several media websites to task for their ads' impact on mobile devices. For example, boston.com, the most egregious offender in the report, required 30 seconds to load on the browser of a 4G-capable smartphone. That bulky ad content ate up 15.4 MB of the user's data plan at a cost of 32 cents -- every single time boston.com's home page was loaded.
With an ad blocker active, boston.com took just seven seconds to load the same page. What's not to like?
Advertisers need to pay much more attention to whether their display and video ads are torpedoing browsers and gobbling up mobile data, and they also need to win the goodwill of users in order to convince them to let ads through.
They might take a page from the mobile gaming industry. Faced with an entrenched segment of casual gamers who aren't interested in buying mobile games or making in-app purchases, some game developers like AppLovin and FuturePlay Games are exploring a strategy of incentivizing users who view video ads within the game -- rewarding them with double experience points, for example. "Everybody's doing ads in a negative reinforcement moment: You've just lost, you've missed, you don't have something, you've failed, you can't get somewhere," said Jami Laes, CEO of FuturePlay. His company is trying to make ads a feel-good experience, rather than a roadblock. "You can't do it where you have to do it to move forward. We feel good when we can do things or we want to do things."
As online video viewing increasingly moves into a mobile-first environment, capturing that feel-good incentive could be critical for the advertising industry in order to keep monetizing the OTT video space.