TL;DR: Google minimized the revenue impact of adblocking in last week’s stockholder meeting, but by our calculations the actual costs are staggering. Worse, by being whitelisted under Adblock Plus’s acceptable ads program, Google is probably the primary source of funding for future development of adblocking technology.
Google Acknowledges Adblocking
At the Google 2015 Annual Stockholders Meeting last Wednesday, Larry Page fielded a tricky question that has some alarming implications for the future of the ad-fuelled giant.
During Q&A a stockholder asked whether adblockers are having any effect on advertising, Google’s primary revenue source:
Neatly sidestepping the actual question of the effect of adblocking on his bottom line, Page delivered a mea culpa for advertising in general, saying “the industry needs to get better at producing ads that are less annoying.” Such passive acceptance of the merits of adblocking is in stark contrast with the legal action currently being taken by other companies to combat adblocking. He went on to talk about how Google has pioneered making ads better, citing search ads as a prime example:
A lot of places where ads get blocked, search ads do not get blocked.
This innocuous sentence in fact refers to the most controversial topic in the adblocking debate: Google’s relationship with Adblock Plus.
Adblock Plus operates an “Acceptable Advertising” scheme, under which “large corporations” must pay to have permissible ad formats (such as sponsored search links) whitelisted. While Adblock Plus believes they are offering a fair compromise, most publishers have likened it to “racketeering” [MondayNote], “extortion” [Tom’s Guide], “shakedown” [Digital Trends], “blackmail” [Pando Daily] and “highway robbery” [Pro Sieben Sat1]. Most controversially, it was revealed in 2013 that Google is dealing with Adblock Plus to get its search ads whitelisted.
Google isn’t the only search engine handing over a slice of its revenue to the adblockers, but this is the first time they have acknowledged their participation with anything other than a “no comment”.
For most publishers, it’s demoralizing to see that Google, even with all its resources, decided to pay rather than fight. With adoption growing virally worldwide, Adblock Plus now wields enormous power, and occasionally flexes its muscles to issue vague threats, such as this letter to Twitter.
But even more controversial than the debate over the ethics of adblocking is the sheer scale of the payments being made – and what that money is funding.
It is safe to assume that Google – rumored to be paying $25 million – is the largest customer on the Acceptable Ads program. This is a relatively small sum for a global corporation with revenues of nearly $60 billion, while being a huge cash injection for a fast-growing adblocking startup in Cologne. It is not credible that these funds are simply being spent on the administration of the acceptable ads program. Instead, they are presumably being reinvested in the future development of adblocking. For example, in January, Adblock Plus announced Active Directory support to enable the deployment of adblocking across entire corporate networks, and in May, Adblock Plus launched its first mobile browser, likely to multiply its growth and devastate mobile revenue, just as advertisers finally arrive en masse to the platform.
Although paying Adblock Plus may recover some short-term search engine revenue, it also tightens the adblocking stranglehold on the remainder of Google’s revenue.
All this controversy serves only to recoup a fraction of the revenue lost due to adblocking. Let’s take a look at what Google is getting in return.
First, Adblock Plus will only whitelist “static advertisements”, and not “attention-grabbing images”. This precludes Google’s display and video ads businesses. YouTube ads are seamlessly blocked, along with ads on “network members’ websites” using Adsense or Doubleclick.
Second, there is no guarantee that Adblock Plus users will see whitelisted ads. Many Adblock Plus users have chosen to opt out of Acceptable Ads, and as more ads appear, it’s inevitable that many will continue to do so.
Third, Adblock Plus is only one of many different kinds of adblock. The other adblocking extensions are more militant and don’t support whitelisting. The closest competitor is the “other” Adblock, which actually commands more market share on Chrome. The new open-source uBlock is gaining fast traction in Silicon Valley tech circles, due to its no-compromise approach and efficiency claims. If neither of those adblock extensions suit, there are dozens more to choose from.
$3.5bn Saved / $6.6bn Lost
At PageFair we work with thousands of publishers to analyze and combat adblocking, so we decided to combine our numbers on adblocking with Google’s 2014 Investor Data and market data from eMarketer and Comscore. Our data show a US adblocking rate of 13.6%. However, our data may reflect a slightly higher rate because the publishers that sign up with us usually already know that they have an adblocking problem and are actively seeking a solution. For argument’s sake, let’s say that the US adblocking rate is 10%.
|Business Unit||US Revenue
|Recovered via Adblock Plus Whitelist
|Remaining Adblocked Losses
(Adsense for Search)
(Adsense & Doubleclick)
The above table breaks down Google’s business areas by ad format, extracts US-only revenue, applies a conservative estimate of 10% US adblock penetration (we believe it is actually closer to 14%), and tallies up the amount of revenue recovered through the Adblock Plus deal versus revenue that is still being lost.
We calculate that, while Google is recovering roughly $1 billion in US revenue by being whitelisted, almost twice that amount is still lost due to Adblock Plus and its competing extensions.
These figures reflect US revenue only. 57% of Google revenue is international, and Europe’s adblocking rates are notoriously higher. Our estimates put the global numbers at roughly $3.5 billion saved and roughly $6.6 billion lost. You can check out the source data if you want to double-check our calculations.
Google losing $billions to global adblocking Tweet
Elephant in the Room
With such staggering losses, it looks like that one lone stockholder was right to stand up and point out the elephant in the room. Google needs to find a real answer to adblocking, rather than sounding off a few uncomfortable lines that would sound better coming from an Adblock Plus spokesman. Adblocking is set to increase by at least 50% this year, and far from there being “no major change in that dynamic,” it is now crossing over into mobile. With 90% of its revenue derived from advertising, Google needs a better and more comprehensive alternative than relying on the mercy of the current adblocking kingpin.
Google stockholder points out elephant in room: $billions lost to adblocking Tweet
DISCLAIMER: Although we make every effort to be objective, PageFair is an anti-adblock technology company. We work with publishers to diagnose adblocking, provide an adblock-focused advertising solution (endorsed by the Acceptable Ads program) and provide custom anti-adblock solutions to premium publishers.