The End of the Free Web

The web model of using advertising revenues to pay those who create content is quickly breaking down and it’s going to drastically change the free web we are all used to. It feels like a lot longer, but the advertising web model has now been operating for only twenty years. Before that people and companies built web sites and posted content they thought was interesting, but nobody got compensated for anything on the web.

But then a few companies like AOL discovered that companies were willing to pay to place advertising on web pages and the web advertising industry was born. Today news articles and other content on the web are plastered with ads of various kinds. And it is these ads that have funded the new industry of web content providers. These are now numerous web magazines and other websites that are largely funded by the revenues from ads. Most of the news articles you read on the web have been funded from the ad revenues.

But ad revenue of this kind are disappearing and this is likely going to mean a major transformation of the web in the near future. Here are some of the main reasons that ad revenues are changing:

  • People have changed the way that they find and read content. Twenty years ago we all had a list of our favorite bookmarked sites and we would peruse those web sites from time to time to catch up on their content. But today the majority of people get their content through an intermediate platform like Facebook, Twitter or Google. These platforms learn about your tastes and they direct articles of interest to you. We no longer search for content, but rather content finds us.
  • And that means that the big platforms like Facebook control the flow of content. A few years ago Facebook reacted to user complaints that their feeds were too long and busy and the company reacted to this by only flowing a percentage of potential content to users. That meant that a person might not see that an old high school friend bought a new puppy, but it also meant that each user on Facebook saw fewer web articles. The impact from this change was dramatic to web publishers, who on average saw a 50% immediate drop in their revenue from Facebook.
  • Meanwhile the big platforms decided that they should keep more advertising revenue and they are now promoting content directly on their platform. For example, Facebook now pays people to create content and Facebook favors this over content created elsewhere – which has further decreased ad revenues.
  • Advertisers have also gotten leery about the web advertising environment. This has worked using instantaneous auctions where web sites bid for advertising slots. Web sites willing to pay the most get the best advertising content, but the automated selling platforms strives to place every ad somewhere on the web. This resulted in large companies getting grief after finding their ads on unsavory web sites. Big companies were not enamored in finding that they were advertising on sites promoting racism or radical political views. So the big companies have been redirecting their advertising dollars away from the auction-driven ad system and have instead been placing ads directly on ‘safer’ sites or directly on the big web platforms. Google and Facebook together now collect the majority of web advertising.
  • There has also been a huge growth in ad blockers. People use ad blockers in an attempt to block many of the obnoxious ads – those that pop up and interrupt with reading content. But using ad blockers also deprive revenue for those sites that any user most values. While only miniscule amounts of money flow from each ad view, it all adds up and ad blockers are killing huge numbers of views.
  • The last straw is that web browsers are starting to block ads automatically. For example, the new version of Chrome will block ads by default. Soon, anybody using these browsers will be free of auction-generated ads, but in doing so will kill even more ad revenues that have been paying those that create the content that people want to read.

We are already seeing what this shift means. We are seeing content providers now asking readers to directly contribute to help keep them in business. More drastically we are seeing a lot of the quality content on the web go behind paywalls. That content is only being made available to those willing to subscribe to the content. And we are seeing a drop in new quality content being created since many content creators have been forced to make a living elsewhere.

But the quiet outcome of this is that a huge chunk of web content is going to disappear. This probably means the death of content like “The ten cutest puppies we found this week”, but it also means that writers and journalists that have been compensated from web advertising will disappear from the web. We’ll then be left with the content sponsored by the big platforms like Facebook or content behind paywalls like the Washington Post. And that means the end of the free web that we all love and have come to expect.

The Battle Over Ad Blocking

advertise hereIt’s easy to forget that most forms of media are still paid for by advertising. While there are a few exceptions these days for services like Netflix and Amazon Prime that are paid for by subscription fees, most media still relies heavily on advertising to stay financially afloat. Even the most expensive cable networks, like ESPN, that earn huge revenues from subscription fees still also get significant revenues from advertising.

But advertising is changing rapidly as the way people use media is changing. Newspapers have lost the bulk of their advertising and magazines are similarly struggling. Radio seems to be holding its own, but other forms of media are starting to struggle as well. Numerous analysts have their eye on cable and TV advertising as it’s becoming obvious that people are cutting back on watching the big screen. And even many of those who watch TV are avoiding all of the commercials by watching TV on a time-delayed basis.

The hope of the advertising world was that they could shift dollars from traditional media to the web and still get people to see their ads. In fact, in some ways it’s easier to target ads to specific audiences on the web than it is on television. But now we are seeing a huge growth in the use of ad blocking software and one has to wonder what that is going to do to web advertising.

Advertising on the web has been growing quickly. For instance, Kantar Media reports that advertising spending on the Internet grew over 15% last year while advertising for network TV dropped 3.4%. But one can foresee a big gray cloud hanging over that growth due to ad blocking.

Several surveys show that 25% or more of US Internet users now say they are using some sort of ad blocking software. It’s been estimated that ad blocking cost Google about 10% of their advertising revenues, or $6 billion last year. So this is quickly becoming a huge problem for web sites and services that rely on advertising revenues.

It’s not hard to understand why people use ad blockers. Last week I was looking at fish aquariums, something I hadn’t looked at in years. Afterwards I think six of the next ten sites I looked at had ads for aquariums with a few showing the exact same one I had last looked at on Amazon. This whole process feels too targeted and a bit creepy to me.

We will probably be seeing a lot more ad blocking soon. For example, Apple has said that they are going to build ad blocking into the next version of Safari for the iPhone. That is clearly going to make web browsing on the smartphone a lot faster, but it’s going to remove a whole lot of users from advertisers.

There is also now a movement for web pages to fight back against ad blocking. For example, PageFair, a Dublin-based startup, has developed software that will defeat ad blockers and still allow the ads to pass to users. This presages a war between ad blocking software and the software to defeat it, much like the ongoing fight between virus purveyors and anti-virus software. Ad companies will find ways to get their ads viewed and then the blocking companies will find ways to block again.

It’s obvious that a lot of people don’t like ads. How many of you have looked at the web sites that show top ten lists for a wide variety of topics? These sites are so loaded with ads that they seem to take forever to load, and in some cases they simply freeze during the process of loading ads. I avoid these kinds of sites, but even just reading tech news pages every day gives me an average of 50 new adware tracking cookies, almost all of which are passed to me through ads.

I understand why advertising is needed on the web. There are many news sites and other interesting web services that are 100% funded through banner ads and other advertisements. As somebody who likes a lot of these sites I would hate to see them disappear, but I also hate the ads. I think this has always been the case and it’s the rare person who loved the ads on broadcast television. Even if you like a new ad the first few times, it gets very old by the fiftieth viewing.

This is going to be an interesting battle to watch and a lot of what we think of as the best stuff on the web is going to depend upon who wins between the advertisers and the ad blockers.