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Why ad blocking, a form of digital self-defense, is not a net neutrality violation. Strand Consult Research Note


Now a $100 billion business globally, mobile ads account for about 20 percent of the data traffic consumed on a typical mobile subscription. This is frequently traffic that subscribers don’t want and haven’t asked for. Video ads, in particular, slow the Internet experience and can render in such a way to obstruct the actual content the user requests, not to mention burn out the device battery and run up the customer’s data charges. Not only are some ads irrelevant to users, a number may be infiltrated with “malvertising”, the malicious practice of embedding malware within legitimate advertising (or even running parallel to legitimate advertising), which can infect users’ systems without even clicking on the ads.

Moreover mobile ads are not passive. You can’t change the channel or leave to the room to avoid exposure. Digital ads are integrated with advanced ad serving technologies to collect information about the users’ behavior which is aggregated and offered to advertisers to help them make their ad placing decisions. Understandably at least 200 million users have downloaded ad blocking software to protect their user experience and economize on their mobile subscription. The market for ad blocking is a big and growing, as consumers use these tools as a form of digital self-defense.

The sheer volume of ads and their poor design create disturbances in network traffic flows, adding further to congestion and operators’ traffic management challenges. While blocking unwanted content at the end-user’s device is the method of today, it is not ideal. The actual suggested practice of implementing fine-tuned firewalls and network access-lists is to block at network boundaries, as close to the content source as possible. Such configuration saves network capacity used by data that will be discarded at the customer device. In wireless networks, saving capacity also results in saving scarce spectrum for the customers’ actual desired use. The resulting efficient utilization of network capacity makes for better user experience. Finally, traffic flow disturbances can also be security events (such as denial-of-service attacks). Thus network refusal of misbehaving traffic is most effective as close to the source as well. It is clearly evident that the most effective data refusal solutions are implemented at the network level.

Mobile operators are expanding their suite of network security solutions with ad blockers. While operators want to protect their customers and meet their needs, many advertisers are understandably upset. In some countries, the use of ad blockers may be as high as 20% in some customer segments. For a number of ad-driven businesses such as news, they have already started transitioning to full and partial fee-based models. The benefit of course is closer relationship with users, a new appreciation from customers about the value of the product (hence agreement to pay), and improved advertising with preferred advertisers.

Strand Consult has published a comprehensive report on net neutrality, Understanding Net Neutrality and Stakeholders’ Arguments, and has a team that studies the issue around the world. We are asked by journalists, policymakers, and others whether ad blocking is a net neutrality violation. The short answer is no. In this research note, we examine ad blocking and the benefits it creates for competition and innovation.

Google dominates the online and mobile advertising markets
Google which accounts for the lion’s share of online advertising, as well as a large share of mobile advertising, has fought against ad blockers. While it does allow ad blocking extension to its Chrome browser, Google outlawed ad blockers from its Google Play app store in 2013. This makes it very difficult for every 4 out the 5 smartphone users (which incidentally use the Android operating system) to take advantage of ad blockers. This could be an anti-trust violation. It’s no surprise that consumers welcomed Apple’s incorporation of ad blocking functionality in its iOS9 operating system, and its ad blocker was for a time the most downloaded app from its store.

To be sure, there is an opportunity for advertisers to improve the format, design and content of their ads and thus gain and maintain the respect of users. Meanwhile ad blocking performs the valuable service to filter those ads which have not evolved. Given that Google obstructs users’ efforts to protect themselves from ads, consumers want other options. Fortunately mobile operators around the world are in a position to meet consumers’ needs for ad blocking technology but also to create competition for ad servers such as Google, as well as to promote better advertising platforms.

What net neutrality says about ad blocking
On the basic level, the net neutrality principle holds the user sovereign and supports that users should be allowed to access the services and applications of their choice, including ad blockers. Net neutrality advocates have frequently held that users are buying subscriptions not to access the operator’s network, but the content that is served over that network from third party. But it is certainly NOT the case that subscribers are buying the advertising willingly. Many would be happy to have the ad traffic removed, and ideally, their payment reduced accordingly, or even receive a payment in exchange for advertising.

Advertising done right could significantly reduce the broadband subscription cost to the end user, if not make it free all together. As they have direct relationships with both, mobile operators are in a position to broker a tasteful and trustworthy marriage between their subscribers and advertisers. Indeed some operators offer sponsored data programs which give users free access to content, but there is no reason why advertisers could not fund mobile subscriptions outright. There are many industry verticals where this makes sense, for example healthcare or connected cars.

In addition to the benefits of user sovereignty and free/reduced cost Internet access, ad blocking serves an important goal for many net neutrality activists who have long championed that the Internet be de-commercialized and ads removed. What the pushback against ad blocking reveals is the schism among net neutrality supporters. Those who oppose ad blocking tend to be net neutrality advocates funded by Google. They are just posing to protect their funding source and its dominance in the advertising business. Mobile operators' ad blocking is a cloud-based service just like any other ad blocker, and it adds to user choice and competition.

Indeed net neutrality rules in some countries require that data be blocked if a user request it. Given growing concerns of data protection authorities about privacy and cybersecurity, they may advocate for more ad blocking. But for telecom regulators who are increasingly challenged by the schizophrenic nature of net neutrality advocates--consider the recent revelation that Netflix has, for 5 years, secretly and purposely degraded the traffic to its customers on AT&T's and Verizon’s networks—ad blocking represents the latest in a growing nightmare for them to interpret net neutrality rules consistently. The report Understanding Net Neutrality and Stakeholders’ Arguments looks at these challenges.

Mobile operators bring much-needed competition and innovation to the advertising industry
Operators are in a unique and important role to improve the user experience in a number of ways. One of their value propositions is advertising deployed with a paid contractual relationship with the end user, putting the subscriber in charge, unlike that of an amorphous user agreement for a “free” service, something which an adserver such as Google can change at will. Mobile operators exist in highly competitive markets where there are with multiple networks and dozens of service based competitors. The market for ad servers, however, is extremely concentrated and even more so in mobile advertising where Google is the default in the operating system, browser, search engine, and app store among other control points. Traditional online advertising, led by Google, has not only decimated the the newspaper industry, it has long since passed broadcast and cable TV. Mobile advertising is now on track to consume 70% of the online ad revenues. For the EU, solutions delivered by mobile operators have the added benefit of returning tax revenues to the country where the advertising occurs, unlike Google advertising which is invoiced from Ireland to avoid prevailing tax regimes in the member states.

It’s time to reinvent advertising—as an alternative to Google
Advertisers have limited options online. Google controls the search network as well as most related syndicated content networks. Advertisers have a number of complaints about this, including unpredictability, poor customer service, and lack of clear information. For example Google can make major change to its search engine with only a brief announcement. Advertisers’ traffic can drop by half overnight without warning, and there is no recourse. Even advertisers spending millions of dollars per month are not entitled to customer service. Another major complaint is the murkiness of how its platform works with the intersection of search engine optimization (SEO) and pay per click (PPC) advertising. The lack of clear guidance from Google means that companies have to fend for themselves or hire external firms, but this has opened the door to massive misinformation or fraudulent information from shady SEO and PPC companies which prey on desperate advertisers.

Google will turn 20 next year. No competition authority has succeeded to tame its growing power. That's why market forces need to be allowed to work. Thus the growing market for ad blocking is the proper and effective response, and is now irreversible.

It is a fact that advertising has been important, indeed integrative, to the development of the media industries. If we had no advertising, there would be no radio, TV or print as we know it, and much less Internet. In the past the network owner was the content creator, producer, and distributor. Advertising emerged as one means to fund distribution. The Internet took it a step further, which allowed services to be delivered on network, irrespective of owner.

To be sure, Google argues that the content it provide would not be possible without advertising. While users are accustomed to advertising, this does not mean that they would not like alternatives. Also while they agree to advertising, they are not so comfortable with the development of lifetime profiles based upon their behavior. A better balance can be had through alternatives created by competition from mobile operators.

The conclusion is simple
The media industry has always been evolving, and this needs to continue. It should learn from the music industry to see how to boost sales of digital subscriptions to digital content. Also ad blocking can teach advertisers a lot about what consumers think, and this is excellent feedback to develop new products in future.

As we move to world where mobile phones becomes the nexus of content and connectivity, operators are in a position to protect their subscribers from unwanted advertising and create competition by offering alternatives for content, whether free, sponsored, or paid. In fact, the mobile industry can add a lot of value to the media industry. There is an inequality of the ad revenue versus the content that artists want to produce and users want to consume. Creating more competition for distribution of content can strike a better balance of revenue between those long tail content providers and users. Mobile operators such as Telmore and Plenti in Denmark are doing this with business models that work directly with local content providers, giving consumers and content providers alternatives to Google. Read our Research Note.

It is an exciting and much-needed evolution. Google probably considers it a threat, but on the other hand, mobile operators are already adding value with these models. If customers do not realize value, they will never buy the offer. Similarly, these offers, which are partnerships struck by mobile operators, must either reduce cost or increase revenue for the content provider partners. If not, the offers will never work.

If you want to know more about Strand Cosnults unique report, Understanding Net Neutrality and Stakeholders’ Arguments, please contact us today, purchase report and be much wiser tomorrow.