How much extra revenue will Facebook make by advertising to the blocked web?
Facebook’s decision earlier this year to start serving ads to adblockers is already starting to bear fruit. In last week’s Q3 earnings call, the company said that “desktop ad revenue grew 18%, which is higher than growth rates in recent quarters, and was aided by our efforts to limit the impact of ad blockers on advertising served via web browsers”.
This post examines these figures to extrapolate the revenue lift that Facebook will enjoy from serving ads on the blocked web. We estimate that Facebook’s decision to show tamper-proof ads will yield an additional $720 million over the next year.
The question and answer section of Facebook’s Q3 earnings call transcript gives us a broad hint about how much Facebook has benefited so far from tamper-proof ads:
On ad blocking, in terms of the impact, I would just point out that this quarter we had 18% year-over-year desktop revenue growth. If you look at recent quarters, it was about half of that growth rate on a year-over-year basis. So that increment, that acceleration in desktop revenue growth is largely due to our efforts on reducing the impact of ad blocking. So that’s what led to the acceleration of desktop revenue growth.
–David Wehner, Facebook CFO
That suggests that approximately 9% of desktop revenue growth was due solely to tamper-proof ads in Q3. However, Facebook only used these ads for a part of this period. It only began showing ads to adblockers on or around August 9. There followed just under ten days of cat-and-mouse games with the adblocking community as workarounds were created and defeated by Facebook.
|Timeline of the Short War Between Facebook and Adblock Plus|
|August 9||Facebook starts unblocking ads|
|August 11||Adblock Plus retaliates with workaround|
|August 11-18||Facebook and Adblock Plus play cat and mouse|
|August 18||Adblock Plus appears to accept defeat|
However, the widely-publicised defeat of Facebook’s anti-adblocking measures really only lasted for about three days in the wild, if you consider the fact that changes to EasyList’s adblocking filters take up to four days to propagate. We therefore estimate that ads were shown to adblockers for just about half of Q3, i.e. from mid-August to end-September.
If Facebook was able to boost desktop ad revenue by 9% by showing ads to adblockers for half of Q3, then the boost in Q4 and beyond from unblocking ads could be 18%.
Facebook reported ad revenue of $6.232 billion in Q2 2016, before it began serving ads on the blocked web. This translates to approximately $25 billion per year. Ignoring mobile, desktop currently represents 16% of this, which is approximately $4 billion. If we simplify the calculations by ignoring quarter-on-quarter increases and assume a sustained 18% increase for the year, this number could be $4.72 billion in 2017.
Facebook could therefore stand to make an extra $720 million next year by showing tamper-proof ads on the blocked web.
Facebook is demonstrating leadership and resolve in its ongoing battle with adblockers. Other websites are starting to join the fight, with Twitch recently announcing that it will begin deploying technology that will “reduce the efficacy” of adblocking software.
This new approach contrasts with previous attempts to ask users to whitelist websites or contribute to the creation of content by paying subscriptions. The Guardian newspaper continues to politely ask for reader support, but faces mounting losses. Subscriptions might have worked for Netflix, but the dismal numbers of people signing up for Google’s YouTube Red show that not every website can count on users to pay.
After decades of being subsidized by the advertising ecosystem, we just aren’t primed to pay for content on the Internet.
Ben Williams, the communications manager at Eyeo (the company that operates Adblock Plus), last week declared “total war” on Facebook. This is both hypocritical and desperate. Eyeo is still trying to refute accusations that they are nothing more than an “extortion-based business”, but in attacking Facebook’s ads – which are now exemplary – it demonstrates a focus on profit rather than user needs. Indeed, it is likely that Eyeo previously asked Facebook to pay to join its Acceptable Advertising scheme.
Rather than paying ad blocking companies to unblock the ads we show — as some of these companies have invited us to do in the past — we’re putting control in people’s hands with our updated ad preferences and our other advertising controls.
–Andrew Bosworth, VP, Ads & Business Platform
Facebook is not just showing publishers that restoring ads can regain lost revenue, it is leading the way when it comes to showing a reduced number of respectful and non-interruptive ads. It has listened to its users and decided to “address the underlying reasons people have turned to ad blocking software”.
Facebook’s ads are non-interruptive, secure, fast, don’t play sound unexpectedly, are perfectly targeted, packed with effective user privacy controls and (unlike nearly all other ads) don’t leak your data to data brokers.
-Sean Blanchfield, co-founder of PageFair
It was advertising that allowed the Internet to grow into an medium that gives us unprecedented access to information, entertainment and communication. Restoring ads to a uniquely receptive audience might mean that the Internet can begin to grow again with renewed confidence and even sustainability.
And that’s good news for publishers and users alike.