AdBlock Plus won't bring down the web, but the bell is tolling for current business models

The recent court ruling in Germany that determined AdBlock Plus is legal is part of a long-running war of wits between advertisers and the established websites that use them and software developers who’d rather see an ad-free internet.

Despite claims of a “customised browsing experience” that many sites claim to offer in their cookie policy statement there’s really very little personalisation of the websites we browse, irrespective of whether we are on a laptop, tablet or mobile. Programmers know the weakness of these claims well enough and can easily write code that removes web advertisements from the pages for a cleaner, less distracting read.

But while removing ads may please consumers, it’s to the detriment of free websites – the vast majority of the web, in fact – that rely on advertising revenue. There are two business models on the web, either advertising or subscription-based. The German court decision effectively finds in favour of subscription over advertising.

Who pays, and how?

In some European jurisdictions hacking into a website, such as The Sun newspaper, has resulted in a prison sentence. While the work of hacking groups such as Lulzsec and Anonymous is politically motivated it seems quite implausible that any court anywhere would condone software that circumvented paywalls used by subscription websites. In a rather curious twist, two years ago observer.com (home of the New York Observer) website published an article explaining how to avoid the paywall of (its rival) the New York Times. But as observer.com was at the time also a subscription-based site, many of techniques the article described could be employed against its own site.

Another model is the freemium approach, which has become the dominant trend in the market for apps for mobile devices. The concept of combining free downloads with paid-for additions is a variant on earlier software business models including shareware and try-before-you-buy schemes. But the number of people making purchases through this model only amount to 2% of the total number who download the free app.

Combined with figures that suggest many apps barely make 1,000 downloads in their first year, that means barely 20 people might be taking up the premium part of the freemium offer. Yet because a small number of apps become massively successful, such as Angry Birds with revenues in excess of £100m annually, this encourages developers to continue trying their luck at the perverse lottery of the freemium business model.

Follow the money

However, the German court’s decision giving ad-blocking software legitimacy may ultimately be of little consequence given the untapped market for online advertising. As mobile and internet use continues to grow worldwide many advertisers remain wedded to traditional media. The risk-aversion of traditional advertisers creates a $US50 billion opportunity for online media. If advertisers can be convinced to balance the proportion of time spent using online media and the proportion of advertising directed at them, then the prospects for online and mobile advertising are rosy. As one free browser for mobile and tablets among many, or as a browser plug-in, AdBlock Plus is not going to make a major dent in the advertising business model of large websites with multinational brand advertising.

A new approach?

What’s more, in the background AdBlock Plus has very quietly introduced a different advertising approach. By allowing “non-intrusive” ads that meet AdBlock Plus’s criteria for acceptability – in effect, a throwback to online advertising circa 1999 – and charging “larger properties” in order to be whitelisted (and their ads not blocked), its free software relies upon a sponsorship or patronage business model.

Patronage of course isn’t new, but it does introduce reciprocal obligations and expectations on AdBlock Plus. The nature of ad acceptability is prescriptively defined but also continuously evolving. The site claims this is primarily to improve user experience, but it’s impossible to ask for who else the list might be improved without finding oneself thinking of the “larger properties” the firm already deals with to draw up its whitelist.

Companies operating on the web, in social media, online games and the internet in general desperately require innovations that can support them while reflecting the current consumer preference for free. Advertising-based business models need to capitalise on the promise of cross-device advertising as part of the move towards a truly customised user experience.

However, it’s clear that over the longer term the internet needs entirely new business models – and with or without the tacit support of the German courts, the patronage model of AdBlock Plus is not a prime candidate.

Gordon Fletcher does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.