Ad blockers: A solution or a problem?

It's a cause. It's a curse. It's just business. Ad blockers take a bite out of the $20 billion digital advertising pie.

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The business of blocking

Ad blocking has become a business opportunity, and the publishers and advertising networks publishers aren't happy about it. "You have a third party disrupting a business transaction. They are throwing a monkey wrench into the economic engine that's driving the growth of the Internet," the IAB's Zaneis says.

Ad blocker vendors are pursuing a range of different business models, some of which have attracted money from angel investors and venture capital firms that hope to profit as the adoption of the tools continues to expand.

The most controversial business model, put forward by Adblock Plus, offers to help publishers recapture ad impressions lost to its product by signing on to its Acceptable Ads program. To qualify, a publisher's ads must meet Adblock Plus' conditions for non-intrusiveness and pass a review by the open-source community before being approved. Adblock Plus then adds the site to its whitelist. Ads on whitelisted sites pass through Adblock Plus's filters by default (although users can still change the settings to ignore the whitelist).

The catch? Adblock Plus charges large publishers an undisclosed fee to restore their blocked ads.

Faida declined to disclose how his firm determines who pays or the fee structure, other than to say that it varies with the company's size and the work required to include the publisher's ads in its whitelists. Tim Schumacher, the founder of domain marketplace Sedo and Adblock Plus' biggest investor, says some companies have been asked to pay flat fees, while other contracts have been "performance-based" -- that is, linked to the volume of recaptured ad impressions and associated advertising revenue. Currently, 148 publishers participate in the Acceptable Ads program; 90% of participants in the program aren't charged at all, Schumacher says.

And getting into the Acceptable Ads program isn't easy. According to Adblock Plus, it rejected 50% of 777 whitelist applicants because of unacceptable ads; the overall acceptance rate stands at just 9.5%.

[[To find out more about Adblock Plus, check out our interview with Tim Schumacher.]]

Adblock Plus has stuck a deal with at least one marquee customer -- Google signed on as a paying customer in June 2013. The deal covers its search ads as well as sponsored search results on Google and its AdSense for Search partner sites.

Since those search ads are mostly text-based, qualifying for the program was less difficult than for publishers that rely on display advertising. The deal ensures that Google's search ads will appear on affiliate sites even when other ad content is blocked. A Google spokesperson declined to discuss the terms of the deal or whether it was "performance-based," but the potential upside for Google may have made the deal a no-brainer. Last year the company earned $31 billion just on ads published on its own websites. If Google were to recapture even 1% of that amount from ads blocked by Adblock Plus, the deal would deliver a huge return on investment, according to Ido Yablonka, CEO of ClarityRay, a company that helps publishers deal with ad blockers.

(Google appears to be less comfortable with the encroachment of ad blockers in the mobile space, where ad revenues are skyrocketing, according to the IAB. Last March Google removed Adblock Plus from its Google Play store.)

"It would almost be malfeasance for them not to sign onto this," says Zaneis. "But what about the businesses that don't make billions of dollars a year?" Small publishers may lack the technology to know whether or not their ads are being blocked or to put up countermeasures, he says. Schumacher concedes that Adblock Plus needs to do a better job making publishers aware of the problem, as well as its solution.

Reddit, which (as previously mentioned) uses only a small amount of display advertising, was one of the first publishers approached by Adblock Plus and became an early participant in the Acceptable Ads program. "We never paid them, and we wouldn't do that if they did ask us," says Martin.

On the other hand, the former executive at the Alexa top-ranking site said an Adblock Plus representative told him he had to pay even though Adblock Plus agreed that the publisher's ads were acceptable and should not be blocked. "If we didn't pay they would continue to block us. To me it seems like extortion," he says.

Faida says Adblock Plus needs money from big publishers to support the program. "Larger organizations that want to participate must support us financially to make sure that the initiative is sustainable," he says. "The idea is, despite the growing rate of ad blocking, for websites to still have a way to monetize ads."

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