Ad Blockers Will Change How Ads Are Sold
Ad blocking keeps growing and widening the chasm between publishers and advertisers. Media executives no longer hold back, they now openly blame the advertising community for being too slow to grasp the full extent of the digital advertising problem, they claim the ad industry badly needs a deep overhaul.
Last week, I was in Berlin for a presentation of the Digital News Initiative created by Google and a group of publishers (see a previous story on the Accelerated Mobile Pages program). Needless to say, ad blockers was the talk of the town.
In a detailed lecture, Dr. Thomas Schreiber, who works with European publishers, exposed the first step of Google’s approach. Unsurprisingly, the search giant will first collect facts. In a wide study to be conducted globally in the coming months, Google will try to ascertain what exactly motivates a web user to install an ad blocker. A (large) unspecified number of people will go through what is called a Cognitive Load Test in which users are compensated for reading as many articles as possible. Different series of stories will carry various ads formats, ranging from the most invasive to the lightest. Applied on a large sample, the study will provide valuable information on ad intolerance. The Google survey will also yield reliable numbers for people using ad blockers, especially in Asia where mobile web browsing runs high.
As often, averages don’t provide the whole picture. Stating that 25% or 30% of users have installed an ad blocker is close to meaningless. We know the oldest segment of the internet doesn’t block ads very much. By contrast, the rate will skyrocket for a younger, more tech-savvy crowd. I recently took a quick show of hands while giving a couple of lectures to young audiences: more than eight out of ten admitted using an ad blocker. A few months ago, the operator of a large gaming site told me that 90% of its users were blocking ads.
Clearly, entire categories of digital properties are being wrecked.
The study should also confirm that people who are ideologically opposed to advertising are a minority compared to the ones who have installed an ad blocker simply because digital promotions and tracking have become unbearable. Richard Gingras, who oversees news products at Google, said on stage that the invasion of ad blockers “…is the reaction to a user experience gone bad”.
All conversations I had with conference attendees confirmed a growing resentment from publishers who denounce the ad community’s “let’s milk the cow until it dies” approach. The whole food chain is seen as way too tolerant of invasive ads. More important, some publishers begin to question the ability of their own sales force to adapt quickly enough. The future of advertising revenue rests on adopting a “less is more” attitude: less annoying formats will eventually generate more revenue.
This implies two major shifts.
First, publishers need to regain full control of their sales houses. Because they were once deemed crucially important, great autonomy was given to sales organizations. Some were even set up as subsidiaries, with their own P&L, management structure, etc. That made sense (sort of) when advertising was the major contributor to news media revenue. I’m referring to a time when 80% of the revenue of large newspapers and 120% of some magazines depended on ads (many weeklies or monthlies were losing money on distribution.) In order to attract the most driven and the most connected sales execs, it was deemed important to give them the golden key to the fiefdom, and to let them run it as they saw fit. Many legacy media are still stuck with such a system.
The time for such structures is gone. The depletion of revenue on a per format basis (print or digital) has rebalanced many P&L with a greater share now coming from various circulation schemes. At the same time, digital advertising has become increasingly automated, a trend that makes clever marketing strategies and personal connections no longer relevant. Today, it’s better to have a cohort of smart Excel jockeys tied to a trading desk than a few advertising sales warhorses.
Creativity and sophisticated value propositions will be saved for bespoke campaigns such as branded content customized to the needs of a handful of advertisers. A growing proportions of such campaigns are negotiated without intermediaries and produced by large production studios. For digital newcomers or legacy media, the larger a news brand is, the more it is willing to invest in full stack production facilities covering all aspects of the business, from strategic planning to execution for digital storytelling, video or print sections.
This trend will lead to sector consolidation. Those who invested the most will extend their footprint and their bargaining power, leaving slow movers in their dust. If you doubt this, just look at The New York Times’ T-Brand Studio or at the Wall Street Journal Custom Studios, or even at the Buzzfeed ad machine, and see what they are capable of in terms of customized ads. By the way: many of those ads are designed to evade blockers.
The second looming shift is the overhaul of advertising compensation schemes. The whole food chain suffers from a “cascading incentives” disease. In broad strokes, here is how it works. At the top lies the creative agency that conceives the campaign. The way these agencies are structured only rewards large works: there is no financial interest for designing a clever digital strategy to be sold at a CMP of $9 if negotiated directly or $1 when going through programmatic. By contrast, planning and producing a $2 million TV commercial for a global brand is not only intellectually rewarding, but it will also yield way more fees and bonuses for the people involved. That’s why creative agencies have assigned very few of their more talented people to work on digital, fueling the general mediocrity everyone is now paying a hard price for.
As it turns out, the filthy baton is passed to the media buying agency that will be left with only one option to make money: place as much as possible of this acknowledged bad promotional material. Eventually, the “channel stuffing” mentality will percolate down to sales people caught between the pressure from the media buying agency and management’s constant reminder of everyone’s objectives. From top to bottom, no one will in any way be incentivized to look at the big picture and to preserve the long term value of the individual user. Short term rules the game.
This must come to an end.
However, I’ll fall short of saying the news media ecosystem should be spared of any form of financial incentive. Quite the contrary. The components of a digital media company are much more intertwined than when print was dominant. Therefore, the entire compensation system of news companies — a sales staff massively depending on bonuses while newsroom compensation is based on fixed salaries — needs to be reconsidered. A modern news team should be financially rewarded for its contribution to traffic progression as well audience quality and retention performance.
Two more observations.
One, a compensation system predominantly based on commissions and bonuses is not always the best solution. Take Apple Stores: sales people are not incentivized on an individual basis. The result is an incomparably better consumer experience.
Two, a company is a community in which someone who doesn’t display a minimum sense of common interest should simply leave. Unfortunately, it is often much easier to profusely reward the tiny upper crust than to take care (meaning: motivate, implicate, train …and fire) the lowest tier.
Coming back to the ad issue, if publishers are serious about restoring the performance of digital advertising and, hopefully, making ad blockers eventually irrelevant, they should put an end to this vicious circle of a warped sales chain encouraged to sell rotten ad products. Otherwise, the user will keep retaliating.
— frederic.filloux@mondaynote.com
