Google continues to make buckets of money from advertising, but industry pundits have for some time been warning of a disturbing downward trend in one of the company’s core businesses: AdSense. At PageFair, we have data that we believe points to a new major factor behind this decline.
AdSense Falling Behind
Selling ads on partner sites through the AdSense program has been vital to Google’s bottom line since its launch in 2003, with revenue growth from advertising on partner sites and Google’s own sites largely keeping pace with each other over the last ten years.
But that was no longer the case in the first three quarters of 2013, when AdSense growth completely stagnated and revenues actually shrunk. Things looked a bit more optimistic in the last quarter of 2013 and the first quarter of 2014, but the single-digit growth reported for each of those quarters was far from the 20% average growth seen in 2012.
So what’s the problem?
Theory 1: Shift to Mobile
Smartphones are getting the blame for a lot of things these days, so it’s not surprising that the shift to mobile is also seen as an impending catastrophe for advertising revenue:
Google has reported declining value from clicks on its ads. And the shift to mobile ads is accelerating the decline, because it produces a fraction of the revenue of desktop ads. (Tom Foremski)
It’s certainly true that we’re increasingly spending more of our online time on mobile devices. Gone are the days when you sat down at a desktop to get your daily Internet fix. In a recent post about how mobile searches are increasingly carried out on apps and not on Google, TechCrunch cited a Nielsen consumer report from February:
A Nielsen consumer report out earlier this year confirms the shift to mobile. We’re spending an average of 34 hours using the Internet on our mobile phones every month compared to 27 hours using the Internet on our desktop. (TechCrunch)
So it’s fair to say that the smartphone has rapidly become the go-to device for online access. But does it deserve the blame for the loss of revenue seen on the AdSense network, or is there something more complicated happening?
The same Nielsen report notes that the average US household now boasts at least four digital devices, with 80% owning a “PC with Internet”. That’s up from 79% in 2011 and 75% in 2009, which means that more homes are still getting traditional computers, even though Internet access is fracturing across multiple devices. This would seem to imply that AdSense should, all other things being equal, still be showing some growth.
Theory 2: Advertising Policy Changes
Google itself has claimed that AdSense revenue in 2013 was affected by actions taken to clean up the partner site network:
In Google’s Q3 conference call with analysts, CFO Patrick Pichette said, “advertising policy changes” were to blame for the change in AdSense performance. (Tom Foremski)
These “policy changes” seem to refer to attempts by Google to remove partner sites that weren’t complying with its terms and conditions, e.g., those with inappropriate or stolen content, and sites producing fraudulent clicks. Banning sites from AdSense could certainly explain a correction in revenue in 2013, but at PageFair we think there’s another cause that needs to be acknowledged.
The Elephant in the Room: Adblocking
As far back as 2007, the New York Times mulled over the possible impact that the then embryonic AdBlock Plus might have on online advertising:
The larger importance of Adblock is its potential for extreme menace to the online-advertising business model. After an installation that takes but a minute or two, Adblock usually makes all commercial communication disappear. No flashing whack-a-mole banners. No Google ads based on the search terms you have entered. (New York Times)
This was when AdBlock Plus was only available for Firefox – “a niche product for a niche browser”.
Adblocking has exploded in the intervening years. The two browser plugins – AdBlock and AdBlock Plus – have been riding on the coattails of the mainstream adoption of Google Chrome since 2007, and are now the most popular plugins for Chrome and all other browsers. New PageFair data shows that 25% of desktop users are now blocking ads and the number of adblocking users is growing at 65% per year. We’ll publish a comprehensive report on these data in August.
We can look back in time at adblock adoption using Google Trends. The search volume for “adblock” exploded in 2012 and 2013, doubling each year.
Google’s AdSense network experienced massive growth during a period when users were being assaulted by abusive and deceptive advertising. The ad industry’s chickens appear to be coming home to roost, with average web users now learning how to opt out of advertising altogether. Since 2012, adblocking has gone mainstream, and its growth shows no signs of slowing. In fact, adblocking looks set to make the jump to mobile this year.
The growth in adblocking correlates with the slowed growth of AdSense, and the popularity of adblocking is sufficient to explain away a significant share of AdSense’s missing growth. An ironic twist is that most adblockers don’t intend to block AdSense’s relatively clean and nonintrusive banner ads – they have YouTube ads in mind instead.
If you depend on web advertising, then adblocking is something you need to think about. You can find out how many of your visitors are blocking your revenue by installing PageFair on your website. It’s free and only takes 2 minutes. If you want to keep up to date on this problem, make sure to follow us on Twitter.