Ad blocking is a barrier to innovation – Financial Times

The shift in online activity from fixed-line to mobile devices has thrown up a host of winners. Advertising-funded services have seen revenues soar as consumers increasingly use their smartphones to access the web, unleashing a torrent of marketing spending that is due to hit almost $70bn this year.

Facebook, for instance, has built a mobile advertising business with an annual run-rate of $6.5bn in just two years, representing more than half of the total income it generates from that source — and it is growing at many times the fixed-line rate. In the hardware world too, the victors are already accepting their laurels. Sales of mobile devices far outstrip those of conventional computers.

But not everyone has done so well from the rise of mobile ads. Among the relative losers are the networks themselves. Margins have been squeezed by the shift to flat pricing packages on data usage and the need for the industry to invest in building infrastructure to deal with the extra traffic.

Despite this, wireless operators have not been able to get their paws on advertisers’ dollars. These businesses, which were built on connecting people to one another, have never been good at providing content, and past attempts have been costly flops.

Some are trying to secure a seat at the table. The US mobile operator Verizon has just agreed to spend $4.4bn on the faded web giant AOL, largely for its online advertising platform. The telecoms group hopes that by using sophisticated data gleaned from its own and AOL’s customers, it can share in the boom by helping marketers to target mobile ads more precisely.

Other operators have a simpler idea. They want content providers to hand over more of their revenues from advertising. And lacking carrots to persuade them, they are reaching for sticks.

An Israeli start-up backed by Hutchison Whampoa, Li Ka-shing’s conglomerate, called Shine has developed software that blocks most types of advertising on mobile devices, although it does not interfere with the ads that appear within a user’s timeline on Facebook and Twitter.

Several mobile groups are planning to load the software on to their networks. One told the Financial Times that it may do so to consumers by the end of this year — initially on an opt-in basis. There is even talk of a particularly aggressive offshoot, known as “the bomb”, that would apply across the entire mobile network and is designed to target Google specifically.

Mobile operators argue that they are simply offering customers control over how they use their data allowance online. According to Shine, pop-ups, auto-playing videos and other forms of digital advertising can consume 10-50 per cent of a mobile subscriber’s data plan each month.

The credibility of that claim depends on how the adblocking software is deployed. It is one thing to offer consumers a choice that they can choose to use. It is quite another if the operator pushes the option — or simply applies the block itself.

Go down that route and mobile networks would find themselves in the same ethical territory as US internet service providers that have “choked” the services of bandwidth-hungry applications such as Netflix, the video streaming service, as a way to get them to pay more per bit of information to reach the customer.

These pipe owners claim they are just trying to ration a scarce commodity. But their words also conceal a deeper purpose: they are contending for a share of the revenues generated by others’ inspiration and hard work. It is as if telephone companies were to demand a cut of the value of business deals that were concluded over voice calls.

It is far from clear that the tactics will work. Aggressive ad-blocking campaigns in fixed-line have backfired. When Free, the French ISP, blocked ads by default through its Freebox modem, the French government demanded that the digital barrier come down.

Online services funded by advertising are unlikely to take blocking lying down. They may launch their own mobile carriers, as Google is doing, or install software that denies access to the service to users that block ads.

There is never a simple answer to the question of how content revenues should be split with distributors. But coercive tactics cannot be part of the solution. Blocking ads risks stubbing out new entrants and innovation. That is not the way the future of the mobile internet will be secured.

jonathan.ford@ft.com