Winning the Hardware Software Game Winning the Hardware-Software Game - 2nd Edition

Using Game Theory to Optimize the Pace of New Technology Adoption
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  • Ron Giuntini said More
    As always a good read.
    I have always... Thursday, 25 January 2018

In Part 1 of this analysis on adblocking I described how advertising dollars have remained relatively constant over time, even as radically new venues for ads have appeared. I then described how it was the advent of ad networks that enabled Advertisers to cost-effectively advertise on the Internet, but that the ensuing dynamics have led to an over-proliferation of ads. I ended Part 1 with a discussion of how the ad situation for mobile Users is exacerbated by the unnecessarily poor quality of mobile web browsers.

In Part 2 of the analysis, I described how trends in the way Users have been accessing the Internet have led to decreases the effectiveness of previous modes of advertising.

In this last part of the analysis I discuss how the ecosystem may continue to evolve from where it is now.

A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.

 

The Heart of the Matter

Figure 11 provides an illustration of the players and relationships in the Adblocking Game.

Figure 11

Currently, Advertisers reach Publishers through Google and Apple ad networks (and other ad networks not illustrated).

The different types of Publishers include:

•  Media, which are mostly ad-supported

•  Non-Media, which are largely ad-supported

•  Platforms (Facebook, Buzzfeed, Twitter, Snapchat, Instagram, etc.), which are ad-supported

•  App Developers, which are supported through app sales and advertising revenues

Advertising is an extremely relevant component of the Internet, because it is advertising revenues that fund so much of the content provided there. As adblocking becomes more widespread, it prevents Content Providers (Publishers) from being able to generate revenues to support the provision of their content. From Philip Elmer-DeWitt, in “Let the iOS 9 ad block wars begin!”

Advertisements, in case you haven’t noticed, are what make the World Wide Web go round. Online ads fund everything from Facebook to Fortune.com. Google gets 90% of its revenue from online ads, and the better part of its mobile ad revenue comes directly from iOS.

Ad blockers are to the Web what spam filters were to e-mail, only now the stakes are higher.

So the two big questions become:

1.  If trends in adblocking continue, how will Publishers support provision of their content?

2.  If trends in adblocking continue, how will Advertisers adapt?

 

Need for Collective Action on Two Fronts

The effects of the Online Adblocking Game are exacerbated simultaneously by two different sets of non-cooperative interactions:

      i.  Advertisers, in competition with each other to win Users’ attention, are led to post increasingly intrusive ads.

    ii.   Users’ small size and anonymity together lead many Users (those who use adblocking software) to free-ride on other Users (those who do not use adblocking software).

The adverse effects of the Adblocking Game could be attenuated by promoting cooperation among Advertisers and/or Users. And actions along these lines are indeed being taken.

Initiatives taken by and/or on behalf of Advertisers to persuade Advertisers to post less intrusive ads include, for example, the following.

•  Adblock Plus’ program encourages Users of adblocking software to whitelist sites that post acceptable ads. From Allowing Acceptable Ads in Adblock Plus:

Starting with Adblock Plus 2.0 you can allow some of the advertising not considered annoying to be viewed. By doing this you support websites that rely on advertising but choose to do it in a non-intrusive way.

•  IAB Tech Labs Solutions promote acceptable ad use by Advertisers:

The IAB [Interactive Advertising Bureau] Tech Lab is taking action to fight ad blocking. Along with its Ad Blocking Working Group, the IAB Tech Lab is leading several initiatives and the following efforts that are underway:

1. Guidelines and Standards

Alongside efforts to promote secure ad delivery and other consumer protections, the IAB Tech Lab is developing tighter guidelines on page load impact and file sizes in order to have a lighter set of ads…

2. Detection and Post Detection

The IAB Tech Lab is developing open technology for publishers and other website content providers to consistently and reliably determine whether ad blocking is occurring on a page…

3. Better User Experience Solutions

The IAB Tech Lab is addressing concerns around user experience including the frictional contribution from latency and non-secured ad delivery (non HTTPS)…

4. IAB Research

To ensure that we develop viable, long-term solutions, IAB has conducted research around ad blocking and user experience. IAB is also developing new research focusing on web browsers, consumer experience, data calls, latency, and other adverse effects of the supply chain on user experience so that we can make even better decisions about optimized standards and best practices for design, development, sales and operations teams.

On the User side, Users could undertake certain initiatives to prevent the degeneration of the Adblocking Game to the point that many Publishers are driven out of business. In particular, Users who use adblocking software could agree to whitelist websites that provide acceptable ads. Unfortunately, this has not worked. The next section on Moral Suasion will discuss this in more detail. As that discussion suggests, perhaps Adblockers could be convinced to whitelist acceptable ads through peer pressure. It seems to me that this would be the approach with the highest probability of success, in no small part because encouraging such whitelisting has the added benefit of being an extremely effective means of reinforcing Advertisers’ efforts (initiatives) to make unintrusive ads. That is, the Advertisers’ collective actions would be reinforced by the Users’ collective actions.

Failing the encouragement of whitelisting acceptable ads, perhaps a way could be found to take down the veil of anonymity behind which Adblockers are currently able to hide; in other words, use public shaming. Alternatively, some Publishers (such as the Washington Post) have tried blocking content to adblocking Users, but that has not proven to be very successful.

 

Adaptations by Publishers

 

Moral Suasion

Some Publishers have responded to adblocking Users through “moral suasion,” by trying to educate them that ads are the lifelines of their businesses and imploring them to either remove their adblockers or subscribe to the Publishers’ content. Allison Schiff, in “Ad Blocking – Unlike Fraud – Comes At The User’s Behest” describes the need to educate Users about the impacts of their actions:

Many consumers “don’t make the connection between turning on an ad blocker and cutting off someone’s livelihood,” said Scott Cunningham, SVP at the IAB and general manager of the IAB Tech Lab, which announced a series of initiatives around the ad-blocking issue.

Avram Piltch in “Ad Block Apocalypse? Here's How to Save the Web”describes in more detail the issue of moral suasion.

Solution 1: Moral Suasion (aka Please Whitelist Us)

One possible way to limit ad blocking is through moral suasion. If users believe that their actions are harming people's livelihoods and endangering the free content they enjoy, perhaps they will voluntarily uninstall or never install the blockers.

So far, such appeals have fallen on deaf ears. According to PageFair, just 0.33 percent of ad- blocking users whitelisted a site after seeing an appeal from the publisher asking them to do so. Of those users, a third eventually un-whitelisted the site.

In the case of music piracy, consumers seem more concerned with danger to themselves or their reputations than with the potential harm they are doing to content providers. A 2007 study of college students who download illegal music found that increased threats of negative consequences (fines, jail time, lawsuits) were effective in curbing the behavior but raising awareness of the damage done to artists and record companies was not. However, researchers found that subjects were less likely to pirate songs when they thought that their peers would perceive it as wrong.

In order to use social norms to stop ad blocking, publishers must convince readers that this behavior is unethical. As we've seen, not everyone agrees on this point.

The PageFair study suggests that moral suasion will not be an effective means for Publishers to combat adblocking by Users.

 

Take Legal Action

Publishers could try to overcome adblocking by suing the developers of adblocking software. As of yet, this has not been a successful strategy for those who have tried it. However, the issue as to whether or not adblocking is legal still remains largely unlitigated. More from Avram Piltch:

AdBlock Plus prevailed this spring in two different German lawsuits brought by publishers. In both cases, the courts ruled that the software company did not violate anti-competition laws by asking publishers to pay for inclusion in its whitelist and did not violate copyright by helping users remove ads.

So far, the issue hasn't been extensively litigated in the U.S. or other parts of Europe. However, David Moore, the chairman of the IAB Tech Lab's board of directors, told Ad Age that "there is work being done to explore" the trade group's legal options and whether they could sue a blocker.

 

Shift to Partnerships with Platforms

More Users have been spending more time on platforms, getting more of their information there. Since platforms are increasingly where the action is, it makes sense for Publishers – especially media companies – and Advertisers alike to increasingly try to push their content through the platforms. In “Mutually Assured Content,” John Herman describes this idea in more detail:

Twitter and Instagram and Vine and Snapchat and especially Facebook are larger concentrations of people than virtually any conceivable publication, and these people are clicking, tapping, scrolling and sharing more vigorously than people ever did on websites. Platforms! Where the action is; where the actions are. Companies that are able to work out advertising partnerships with these platforms will be able to extract not just attention but money; those that can’t, or don’t, will find themselves in a position not unlike the one they put writers in during the last period of the internet economy: doing it for the exposure.

More on this same concept from Ben Thompson, “The Facebook Reckoning”:

With 1.4 billion users, the social media site has become a vital source of traffic for publishers looking to reach an increasingly fragmented audience glued to smartphones. In recent months, Facebook has been quietly holding talks with at least half a dozen media companies about hosting their content inside Facebook rather than making users tap a link to go to an external site.

Several reporters have declared that the media companies will become more like wire services. That is, they will spend their resources creating content, but rather than publishing their content on their own sites, they will seek out channel distributors through which to distribute their content. Of course, in the process, the media companies will lose much of the leverage they currently enjoy to the other sites (platforms) that choose to distribute their content. John Herman expresses this idea:

The new media is becoming a wire service in that it depends on partners for distribution and revenue; the new media is becoming a wire service in that its work solves particular problems in another business’s model. Print distribution created thousands of papers distinguished and limited by geography. Wire services gave these papers national and global coverage that they wouldn’t have otherwise been able to afford. They were also more powerful than a vast majority of their clients, for whom they solved a unique structural inefficiency.

But few media organizations are nearly as powerful as the platforms they will partner with, and most will have no practical leverage at all.

Matthew Yglesias furthers the wire service idea in “The ad blocking controversy, explained”:

Instead of digital media brands being companies that build websites, they will operate more like television studios — bringing together teams that collaborate on the creation of content, which is then distributed through diverse channels that are not themselves controlled by the studio.

"These larger firms will insist on calling these relationships 'partnerships,'" John Herrman writes, "but they will be nothing of the sort." Platform-owning technology companies will systematically hold the upper hand in negotiations. That most immediately implicates media companies.

In truth, however, the shift toward native advertising and toward partner platforms rather than websites was under way well before Apple announced the arrival of mobile ad blocking on iOS 9.

 

Shift to Other Revenue Models

Small Publishers in particular will be hit particularly hard by the increasing prevalence of adblocking. As Allison Schiff in “Ad Blocking – Unlike Fraud – Comes At The User’s Behest” reports,

“Ad blocking is a threat to the whole industry, but it has an especially high impact for the small publishers who make up so much of the rich fabric that is the digital experience,” said Randall Rothenberg, CEO of the Interactive Advertising Bureau...



But “small publishers don’t have the means to combat this and they’re left hanging,” Cunningham [Scott Cunningham, SVP at the IAB and general manager of the IAB Tech Lab] said, explaining the motivation behind the ad blocker detection code, which is about to enter beta testing.

Although publishers can use the code as a means to entreat their ad-blocking visitors, it doesn’t solve the core issue underlying behind why users are blocking ads in the first place.

Many Publishers are going to be forced to use other revenues models to survive, such as subscriptions, ecommerce, selling services, etc. (For a more detailed description of alternative revenue models, see the last section of my previous analysis, Playing the Online Adblocking Game.)

 

Adaptations by Advertisers

 

Create Better Ads

Some Advertisers have discovered that getting eyeballs is not about creating clickbait, but rather, it’s about creating ads (and content) that resonate with Users. Ben Thompson discusses this concept in “Why Buzzfeed is the most important organization in the world”:

What’s especially exciting about BuzzFeed, though, is how it uses that knowledge to make money. The company sells its ability to grok – and shape – what works on social to brands; what they don’t do is sell ads directly (By ads I mean the sort of display ads you see on just about every other publishing site; your typical BuzzFeed page will have links to stories they have created for brands for pay) ... The most obvious benefit of this strategy is that, contrary to popular opinion, and contrary to its many imitators, BuzzFeed does not do clickbait. Editor-in-chief Ben Smith wrote last year:

“…If your goal — as is ours at BuzzFeed — is to deliver the reader something so new, funny, revelatory, or delightful that they feel compelled to share it, you have to do work that delivers on the headline’s promise, and more. This is a very high bar. It’s one thing to enjoy reading something, and quite another to make the active choice to share it with your friends. This is a core fact of sharing and the social web of Facebook, Twitter, Pinterest, and other platforms.”

In short, by not making money from display ads, and by extension deprioritizing page views, BuzzFeed incentivizes its writers to fully embrace Internet assumptions, and just as importantly disincentivizes pure sensationalism. There is no self-editing or consideration of whether or not a particular post will make money, or if it will play well on the home page, or dishonestly writing a headline just to drive clicks. The only goal is to create – or find – something that resonates.

In Avram Piltch’s words, “I think it's about engaging with them [Users] on a level where they're not intruded upon.”

 

Shift to Native Advertising

Several reporters have suggested that Advertisers will respond to adblocking by turning to native advertising. Wikipedia defines native advertising as follows:

Native advertising is a form of online advertising that matches the form and function of the platform on which it appears. For example, an article written by an advertiser to promote their product, but using the same form as an article written by the editorial staff. The word "native" refers to the content's coherence with other media on the platform.

Avram Piltch is one who’s predicting the increasing use of native ads.

Solution 5: Native Ads

Native advertising is the practice of including promotional units in the site content, without sending them through an ad server or often making them look like ads. Advertorial articles are a common form of native advertising but so are paid results in a site's internal search engine and ad units that appear as story listings in a site's content feed (perhaps on the home page). If properly labeled, these custom promotions provide a unique and immersive way to weave advertising into the fabric of a site.

However, the best native advertising is customized by the publisher and pitched directly to the marketer. That type of manual effort won't scale as easily as running standard-size ads through trafficking software and may not even be possible for smaller publishers.

The problem with native ads, as several people have indicated (see, for example, Matthew Yglesias, “The ad blocking controversy, explained”), is that they only work on “destination sites, ” that is, on sites where people browse and click through to read articles. However, if people access content on one site by clicking through from another site, they will bypass the native ads, thereby rendering them ineffective. Ben Thompson discusses this problem in“The Facebook Reckoning”:

… [N]ative advertising only really works if customers go directly to your site or app; it’s much less effective if your site is only ever at the end of a link in another stream (which is the case for the majority of publications). It follows, then, that if native advertising is the only truly sustainable advertising on mobile, that the only sites or apps that can succeed with ads are “destinations” – sites or apps that users go to directly.

The problem is that it’s really hard to become a destination: you need compelling content of consistently high quality. Notice, though, that that is precisely the opposite of what most online publications have focused on: in their race for ever more content and ever more clicks most publications have lowered their quality bar and made themselves uniquely unsuited to making money on mobile.

 

Shift to Partnerships with Platforms

As with Publishers, another solution to adblocking is for Advertisers to shift from advertising on more fragmented sites to advertising on platforms. One advantage is that platforms are destination sites, which make them well-suited for native ads (see previous subsection). Another big advantage to Advertisers of advertising through platforms is that they provide an integrated User experience. Ben Thompson explains this in more detail:

… [T]he sort of native advertising that is interesting is the type that lives in a stream like the Facebook news feed.

The Facebook app owns the entire screen, and can use all of that screen for what benefits Facebook...You can’t help but see the advertising, which makes it particularly attractive to advertisers. Brand advertising, especially, is all about visuals and video (launching soon!), but no one has been able to make brand advertising work as well on the web as it does on TV or print. There is simply too much to see on the screen at any given time.

This is the exact opposite experience of a mobile app. Brand advertising on Facebook’s app shares the screen with no one. Thanks to the constraints of mobile, Facebook may be cracking the display and brand advertising nut that has frustrated online advertisers for years.

 

Winners and Losers of the Adblocking Game

Based on the discussion and Figures 9 and 10, the winners and losers in the Adblocking Game are readily apparent (see Figure 12).

Figure 12

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