How concerned should we be about Peak Advertising and Ad Blocking?

If like me you follow news and and current affairs closely, you’ve probably come across the theory of ‘peak oil’,  which describes the point at which oil production reaches its peak before declining, with perilous consequences for human civilisation as know it (think Mad Max, The Road or any other post-apocalyptic image of your choice).

A few days ago I came across a new ‘peak’ which, although arguably less closely associated with the collapse of our planet’s fragile ecology, might still warrant some consideration. The peak in question is ‘peak advertising’ and if you currently develop or use virtually any kind of digital service, it’s kind of a big deal.

Online advertising will continuously decline in effectiveness going into the future, to the extent that it makes existing models unsustainable (but please don’t panic)

Back in 2013, Tim Hwang and Adi Kamdar from the Nesson Center for Internet Geophysics presented a working paper titled ‘The theory of peak Advertising and the future of the web’. In it, Hwang and Kamdar describe peak advertising as:

“a simple proposition: online advertising will continuously decline in effectiveness going into the future, to the extent that it makes existing models unsustainable.”

What’s behind the decline in online advertising’s fortunes?

According to Hwang and Kamdar, four factors are behind the decline in the effectiveness of online advertising:

  1. Changing demographics of web users. Younger people, often described as ‘digital natives’, are far less receptive to online advertising than older population segments. The paper cites research showing over 65 year olds, who made up just 5% of the sample group, were responsible for 40% of the total observable effect of online advertising. This indicates that as demographics shift over time, online advertising will become increasingly less effective.
  2. Rapid growth in the use of ad blocking software. The situation has moved on here even since the working paper was published back in 2013. Recent research commissioned by advertising firm PageFair and Adobe described 2014 as the year ad blocking went mainstream. The repor found there were 144 million active adblock users globally in the second quarter of 2014 (5% of the online population), up 69% on the previous year. Plans are afoot for adblocking on iOS and Android ecoystems, which would drive further mainstream adoption.
  3. ‘Click fraud’ continues to undermine online advertising. Click fraud occurs when a person or computer program imitates a legitimate user of a web browser to click on an advert in order to generate a charge per click. The paper’s authors cite research which shows that click fraud was thought to have been responsible for $53 million dollars of wasted ad spending in the first two quarters of 2013 alone.
  4. Ever rising advertising density is reducing the value of advertising. As more and more businesses go digital, competition for users’ attention has increased. This means more ads are competing for a share of user attention. Studies have shown sharp declines in the percentage of viewers who even remember, let alone click on a banner advertising, for example.

Why should we care about the declining effectiveness of online advertising?

From an individual user perspective, it’s hard to feel much sympathy for the plight of the online advertising industry. However, given the critical role online advertising plays in the business models of so many web services (Google generates over 90% of its profits from advertising), I think we should be paying to what’s happening, if only so that we can help improve the way we fund the internet and online services in  future.

What needs to change to put the funding of online services on a sustainable footing?

Looking at the factors contributing to the decline of online advertising, it would be easy to single out ad blocking software as the monster of the story. I’ve already read articles where publishers equate ad blocking software to Napster and the impact file sharing had on the music industry.

Recent court cases in Germany brought by publishers against Eyeo, makers of the popular Ad Block Plus software for web browsers, seem to suggest businesses which rely on advertising are hoping legal action will be enough to protect existing online business models. So far, none of these legal challenges have been successful and more and more users continue to install ad blocking. Furthermore, the well-documented battles the music and film industries’ have waged over file-sharing and casual piracy would indicate any future solutions will not succeed if they overlook the feelings of users in favour of legal and/or technological restrictions.

So if a politically-sanctioned crackdown on user freedoms isn’t on the cards (let’s hope not, anyway), how can the system of funding online services be improved? Here’s are some of my thoughts.

  1. Go back to basics with online advertising to discourage ad blocking adoption. Even amongst those users who have gone out and installed ad blocking software, a majority are prepared to accept online advertising so long as it is ‘reasonable’ in nature. This would mean steering clear of intrusive video ads, ads which take over a user’s screen and generally anything which infuriates. While these measures will not in themselves restore the value of online advertising, they should at least stem the tide of users installing ad blocking opting out of ads altogether.
  2. Communicate with service users about the importance of advertising to the funding online services. With so many online services presented to end users as free, it is hardly surprising when users do not immediately connect using ad blocking with hurting the funding base for a given service. PageFair, which helps organisations affected by ad blocking, points to examples of where websites have successfully appealed to their users to exempt their site from ad blocking
  3. Engage users in developing new business models for online services which do not rely on online advertising. Even without the dramatic uptake in ad blocking, I believe the business model of primarily funding online services through advertising would be in trouble. In his book, The Curve, Nicholas Lovell has argued that businesses should accept that the costs of most digital goods are trending towards free. Instead of fretting about ‘freeloaders’ (in this case users who have installed ad blocking software), businesses should be gracious and offer free digital products and services as a first step in developing a direct relationship with customers, some of who will go on to become ‘superfans’ and make a greater financial contribution t your business than others. For example, rather than trying to fund The Guardian’s news production through online advertising, The Guardian should identify fans and persuade them to contribute financially, making appeals and offering rewards similar to those found in free to play games and crowdfunded projects on Kickstarter.

What Can Labour Learn from The Curve?

Over the past month or so I’ve found myself listening to more podcasts than I normally do. In addition to my usual Guardian Tech Weekly news fix, I’ve been enjoying TechDirt’s practitioner centred discussions on issues such as reforming the copyright and patent systems as well as the more academic musings of the Berkman Center for Internet and Society.

I’d love to put my renewed interest in podcasts down to my restless intellectual curiosity but, if I’m honest, I’ve probably also been attracted to the way podcasts at their best allow you to shut out the demands and distractions of daily life, not to mention the still-lingering pain of Labour’s election defeat. I’ve had lots on my plate lately, both inside and outside of work, and I’m grateful for the podcasts mentioned above for giving me a space to relax, listen and think.

One of the best things to come out of my recent podcasting binge has been the discovery of Nicholas Lovell and his excellent business book, The Curve. I heard Nicholas being interviewed on the Tech Weekly podcast back in April and and was sufficiently interested by what he had to say that I put my objections to DRM to one side and bought a Kindle edition of The Curve.

I just finished reading The Curve late late last night and would like to use the rest of this post to tell you a little bit about the the book and share some initial thoughts on how Lovell’s thinking could be applied more widely, in this case to the Labour Party, which I actively support.

What is The Curve?

The Curve sets out to answer a question that more than anything is at the centre of so much of the discussion about the internet and the disruption it is unleashing:

How do you make money when everything is going free?

Lovell’s answer is for creators to focus their efforts on converting ‘freeloaders’ into ‘superfans’ who are happy to spend lots of money with you on things which they deem valuable.

[youtube https://www.youtube.com/watch?v=pcyzn5oiDrI]

Lovell describes the spread of interest in any given product or service as a curve. At the bottom of the curve are the freeloaders, those who will tend to access your service for free (whether legally or illegally). At the top of the curve are the superfans, the kind of people who identify very strongly with what you do and see value in spending lots of money with you.

Lovell analyses the economic and technological forces at work which are driving more and more products towards a price point of either free or, at the very least, extremely low cost (think of all 99p and lower prices ebooks, apps, music, etc.)

What’s refreshing about Lovell’s approach is that, that unlike many of the loudest voices working in the creative industries, he does not seek to present digital piracy (and the ‘coming soon’ world of 3D printing-enabled physical piracy) as an existential threat to western civilization as we know it. Neither does he vilify everyday people for the rise of casual piracy that we have witnessed in recent years. Instead, Lovell encourages all businesses to see the freeloaders not as evil pirates but superfans in the making (or at the very least paying customers) and to concentrate our efforts on making it easy for people to spend lots of money with us.

Real Life Examples of The Curve

The book is chock full of interesting case studies of how businesses of all sizes, from individual musicians through to creative teams with 60+ members, are applying the curve in real-life. Some notable examples include:

  • Music. Trent Reznor of Nine Inch Nails. Instead of simply selling an album in a conventional way, Reznor made digital versions of his album freely available via Torrent sites, generating interest in his music. He then focused his money making efforts on selling expensive ‘limited editions’ and other premium products to fans at different price points.
  • Movies and television. Nicholls believes movies and television will be slower to adapt to curve business models due to system features such as the cinema theatre distribution infrastructure and the strength of existing broadcast networks. Nonetheless, Kickstarter projects such as the actor Zach Braff raising $3.1 million to make Wish I Was Here show the potential for a business model based on multiple price points and fan engagement to support filmmaking in a world increasingly accustomed to freely accessing digital copies of movies.
  • Fiction. Science fiction author (and digital activist) self-published a collection of stories called With a Little Help. The ebook version of the book is freely available via his website and Doctorow encourages fans to share his book in order to grow his fanbase. Instead, Doctorow has made money from selling special edition hard copies of the book to his fans, including a $275 limited edition wrapped in a burlap sack so that purchasers would get the scent of fresh coffee when they opened their package.

What can the Labour Party learn from The Curve?

While The Curve book is focused on applying curve to existing and new businesses, I believe other organisations could benefit from applying the same principles. One area I would like to see embrace the curve would be politics.

Speaking from personal experience as someone who this year went from being a fairly passive member of the Labour Party to a supporter/activist in the run-up to the general election, I see parallels in my journey to those Lovell has described in his book.

From looking at the national Labour Party website, there are some signs the party is embracing curve thinking:

  • ‘Keep Up To Date’ newsletter option. First time Visitors to the Labour Party website can submit their email address and they will be kept up-to-date with developments. This is a good first step to engaging people and technically it meets the definition of ‘free’. Less good, however, the option is not very prominently displayed and the offer of receiving email newsletters is not very enticing. The ‘free’ tier needs to be more functional and give visitors something they value.
  • New ‘Supporter’ schemes. Until a few years ago, you were either a member of the Labour Party or you weren’t (excluding for the moment the hot potato issue of trade union affiliation). Under Ed Miliband’s leadership, new affiliated and registered supporters schemes were introduced with lower pricing than full membership. In theory at least, this lowers the barrier to joining the curve. In practice, it is much more difficult to locate the supporter schemes than the regular membership option, which surely serves to discourage Supporter sign ups.
  • Multiple donation points. It is no secret that political parties of all persuasions rely on donations to fund their activity. The Labour Party is no exception and has a donations page where individuals can decide on the amount they wish to donate. The page includes buttons for common donations such as £10 right up to £1,000 and then a free text box for higher donations. Looking at this page, the Labour Party has made a good start towards making it easy for ‘fans’ to ‘spend’ lots of money with them.

In short, there is lots more the Labour Party (and other political parties) could do to embrace the curve. Focusing for now on the initial membership gateway of the Labour Party website, I would suggest the following:

  • Introduce a ‘free’ membership scheme. The ‘Supporter’ scheme is a good first step towards lowering the barrier of entry but more can be done. At present, the only freebie people who have bothered to visit the website can expect to receive is a newsletter. I believe people should have the option of joining the Labour Party for free without being labelled a ‘freeloader’.
  • Provide a social and operational context for donations. At the moment, visitors to the Donations page receive the message: “Let’s build a better Britain: Donate to the Labour Party now”. The website should more clearly explain what your donation will help accomplish. Fundraising charities do this well when they say £X will pay for an hour of a nurse’s time. The website should also share an accurate average donation figure. If I knew the average visitor donated £20, I would be unlikely to give less than that. At the moment, I lack a context for giving.
  • Utilise social standing and self expression to reward ‘superfans’ who give their time and expertise to the Labour Party. Democratic politics has been tarnished by scandals over donations and accusations of cash for access. I believe we need to extremely cautious about encouraging a big donor culture and instead look at ways of encouraging a large number of ‘regular’ supporters to give more. To achieve this, the Labour Party should think about how it could reward and motivate supporters in ways that the value. One option might be for politicians to give ‘shout outs’ on Twitter to supporters who made a difference on the door step. Another idea might be to give superfans early access to the latest news and then encourage them to disseminate it within their network.

Embracing The Curve

Nicholas Lovell acknowledges that curve thinking is not intended to be a one-size-fits-all solution to the challenges of doing business in a digital age. Nonetheless, I believe the thinking Lovell sets out in the book is sound and could benefit individuals, companies and organisations far beyond the digital tech and creative industries sectors.

Regardless of whether or not you agree with Lovell’s advice on how to succeed in an increasingly free world, I hope you’ll agree with me that it is refreshing to see someone present an optimistic assessment of our future which acknowledges the opportunities that we stand to gain as the internet and digital technology becomes an integral part of our society.

I for one will be continuing to bang on about the curve to anyone who will (half) listen to me. I will also be looking at how I can apply curve thinking to both my day job in communications as well as my outside interests. Apologies in advance if I become a broken record.

Learning Lessons from International Day Against DRM

It’s been a month and a half since I’ve last written a post for 80 Percent of Success. As ever, I’ve been kept busy by the usual mix of enjoyable and less than enjoyable activities/obligations.

One of the things from this time that I’m most proud of is getting more active again in politics by volunteering for the Bournville Labour Party during the general election campaign. It is through this work that I came up with a new blog, Cats of the Campaign Trail, which I hope gave people some pleasure.

In amongst all the  election campaigning (and cat spotting), I also tried to take action in support of a rights issue I care passionately about.

On Wednesday 6 May, the day before the general election, I held an event at the Impact Hub Birmingham in Digbeth to mark International Day Against DRM. In the interests of honesty, it’s fair to say I wasn’t exactly overwhelmed by support from my fellow Brummies. But that doesn’t mean all was lost. I’d like to use the rest of this blog to share my thoughts on the day and how the campaign can be made effective.

What is International Day Against DRM?

Before I go any further, it’s only right that I should take the time to explain what International Day Against DRM actually is.

The day is described by its sponsor organisation, the Free Software Foundation, as  understood as a day of community activism  in support of users’ media rights. But what does that actually mean and what’s DRM, anyway?

DRM stands for Digital Rights Management. Wikipedia defines DRM as:

A class of copy protection technologies that are used by hardware and software manufacturers, publishers, copyright holders, and individuals with the intent to control the use of digital content and devices after sale.

Common examples of DRM in everyday life include:

  • E books you’ve purchased from Amazon which can only be read on Kindle readers or Amazon Kindle apps (the same applies to E books purchased from Google Play, iBooks, Nook, etc)
  •  Videos you’ve purchased from iTunes which you cannot play on your Android smartphone
  • DVDs you’ve purchased in the past but you can’t transfer to play on your smartphone or tablet.

On occasions when publishers/studios/retailers are prepared to even discuss DRM, it is presented as a necessary and balanced measure to prevent people doing naughty things like making copies of books/books/games and sharing them with their friends and family. Provided people stick to the rules, it is argued, you have nothing to worry about from DRM and you should instead get on with enjoying your life and and consuming media. International Day Against DRM aims to challenge this thinking and generate support for eliminating DRM.

The case against DRM (according to the Free Software Foundation)

The Free Software Foundation sets out its case against DRM on its campaign website, Defective by Design. It presents the case in three main ways.

  1. DRM is not effective at preventing copyright infringement. The evidence can be seen in the widespread availability of books/films/music/video games, etc via file sharing networks.
  2. DRM goes beyond copyright enforcement and restricts individual rights. Laws already exist to allow companies to take action on copyright infringement. DRM allows companies to go further, restricting how individuals use the media they have legitimately purchased by, for example, preventing media from playing on rivals’ devices.
  3.  Restrictions enabled by DRM drives monopolization and control. By restricting how media is accessed, companies are able to exert undue influence and control. For example, once a customer has purchased a several Kindle E books from Amazon, they are unlikely to switch allegiances  customer because the DRM measures prevent them from transferring their E book library to another service.

Simplifying and strengthening the message on Opposition to DRM

While all the points made on the Defective by Design campaign website are valid, I think more work is needed if we are to truly build a strong campaign movement to oppose DRM.

For starters, let’s flip the negative and oppositional language of Day Against DRM and rally people behind something positive.

In my day job as a Communications Manager, I regularly organise events to mark special occasions such as Human Rights Day, International Day of the Disabled Person and Road Safety Week. All these events address serious and weighty issues but still manage to lead with a positive message. Rather than focusing on the negatives of DRM, we should consider renaming Day Against DRM to something more positive like ‘Digital Freedom Day’.

Keeping with the positivity, the campaign messages should emphasise the positive benefits to individuals of a digital world free from DRM.

From road testing the arguments against DRM with friends and family who do not have a special interest in digital technology, I would say the messages around consumer choice and convenience resonated most strongly. In my experience, the average person is not all that interested in the ins and outs of copyright law and the philosophy behind open source computing. They are, however, bothered when they can’t get the videos they purchased on iTunes to work on their new Android smartphone. Looking ahead, the campaign somehow needs to make mainstream  consumers aware of the role DRM plays in these headaches if we are to succeed in getting companies to change their ways.

Lastly, and still related to the positivity angle, the campaign needs to be seen as separate and distinct from more radical and/or anti-authoritarian arguments against DRM. For example, the Defective by Design website currently raises concerns over corporate and governmental surveillance through DRM. While I am  concerned about these issues (and support the Open Rights Group’s work in opposing such measures), I believe they possibly distract from the more ‘sellable’ argument around customer choice and could even put people off supporting the day, for fear of being seen as too ‘out there’.

Next Steps for Day Against DRM

While my attempt at promoting International Day Against DRM in Birmingham did not meet with much success, I remain determined to keep on campaigning to overcome the restrictions and unfairness made possible by DRM. I hope my thoughts on the campaign and how it can be improved will encourage others to get involved in building a campaign that will engage mainstream citizens and enlist their support in helping us create a brighter digital future for everyone.