J.P. Morgan: Everyone needs to chill out about ad blocking

ChillReuters PicturesChill! Ad blocking might not be as damaging as people think it will be.

It has been difficult to escape news about ad blocking over the past couple of weeks, after Apple’s iOS 9 software was released, allowing ad blocking on iPhones for the first time.

But the momentum behind the ad blocking trend — and conversations about ad blocking’s impact on publishers and ad tech companies — has been building for months.

A report released in August by PageFair and Adobe claimed the number of ad blocking users worldwide grew 41% year-on-year to 198 million monthly users. And a new report from comScore and “ad blocker blocker” Sourcepoint published earlier this month gave more details on how Adblock users tend to be publishers’ most valuable readers.

The heaps of column inches written about ad blocking have mostly made for bleak reading for publishers and the ad industry. But an analyst note released Monday by J.P. Morgan suggests the potential financial impact of ad blocking has been somewhat overblown.

J.P Morgan details a few reasons why the industry should chill out a bit more about ad blocking.

Ad blocking is mainly a desktop issue.

J.P. Morgan ran its own survey and polled 520 internet users in the US, over the age of 18. Its analysts found that US internet users are half as likely to use an ad blocker on mobile than on desktop.

And even for those that have gone on to download mobile ad blockers, J.P. Morgan believes these will only affect ads on mobile browsers, not apps. Some 90% of time spent on mobile in the US is within apps, according to Flurry, so only a small amount of potential browsing time is affected by ad blockers.

The concerns about Apple allowing ad blocking for the first time “appear to be overblown.”

So far, ad blockers on iOS 9 are only able to block ads on the Safari browser. J.P. Morgan notes that ad blocking apps have “impressively” made their way to the top of the app charts, but Safari’s share is just ~4% on desktop and ~23% on tablet and mobile, according to StatCounter.

“Publishers are starting to push back”

Publishers aren’t just sitting back and waiting to see what happens with ad blocking. They’re taking action.

J.P. Morgan notes that CNET, The Washington Post, and CNET have all been withholding content from users with ad blockers turned on.

Its survey also found that 40% of people polled would be willing to add quality or trusted sites to their ad blockers’ whitelists, or temporarily disable their ad blockers in order to access the content they desire.

“Ad spend is more likely to be redirected to higher-ROI [return on investment] formats”

The consequence of the growth of ad blocking could be that advertisers simply pay for better quality advertising that is less likely to annoy consumers. One example of this type of advertising is “native advertising” — ads that are clearly marked as paid-for/promoted/sponsored but fit with the natural content of a site or app, like Facebook’s News Feed ads, or Twitter’s Promoted Tweets.

The note adds: “We think ad blocking could ultimately be a net positive for high-quality players like FB and CRTO [an ad tech company that specialises in retargeting ads] as blockers remove low-quality ad clutter from the ecosystem and encourage advertisers to produce high-quality creative that is native, relevant, and ROI driven.”

And demand for online advertising isn’t suddenly dissipating either. Global media agency ZenithOptimedia forecasts worldwide online ad spend will increase at a compound annual growth rate of ~15% between 2014 to 2017.

But there’s still a big worry circling around ad blocking …

Taking all these points into account, J.P. Morgan said the biggest risk of ad blocking isn’t likely to be a loss of ad revenue (as many people have feared. PageFair even predicted Google alone is losing $US6.6 billion in revenue to ad blockers) but rather that the bigger impact will be the loss of data.

Ad blockers don’t just block ads, they block data tracking too, which publishers use to find out more about their readers.

Ultimately this is likely to affect revenue in the long-run, because the more publishers know about their readers, the easier it becomes to create the kind of content readers want, which means they will be better at retaining and building their audiences, and therefore the more likely they can sell ads at premium prices (especially those ads targeted to particular subsets of their audiences.)

Nevertheless, despite awareness and adoption of ad blocking growing, J.P. Morgan believes “ad revenue impact seems overdone.”

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