Author(s): Raghu Gopal
Last autumn, when Jamaica-based operator Digicel announced it would implement network-level ad-blocking technology, the news caused a disproportionate amount of interest among operators and advertisers around the globe. With about 13 million mobile subscribers across the Caribbean and Central America, Digicel is not a large operator, but there was the potential of something big with the development: new business models in which mobile carriers take a cut of ad revenue.
Three recently announced it would implement the same technology used by Digicel to filter ads from its mobile networks in the UK and Italy. Three has at about 9 million subscribers each in the UK and Italy. But these networks are part of Hong Kong-based CK Hutchison global operations, which encompass more than 85 million subscribers spread over several continents. Three stated in its press release it plans a "rapid roll-out" of ad-blocking across its networks. The numbers are getting bigger.
Digicel and Three are using technology developed by Israeli start-up Shine. The company's Web site states boldly that ad-blocking is a consumer right, but the motivation for the operators is more than consumer protection.
On the surface, the operators' argument is valid. Why should mobile subscribers be forced to pay for the data to view ads they probably don't want to see? The current mobile advertising model is a bit like the scene in the movie Brazil, in which a wife is required to pay the government for her husband's police interrogation. It's a service they didn't want but had to fund. And mobile ads are getting heavier, with more video and more sound, and a bigger drain on data allowances.
Three states that it plans to "tackle excessive and irrelevant mobile ads" which "degrade" the overall mobile experience. It's difficult to argue with that. Network-level ad-blocking could be a potent tool, not just improving the user experience but disrupting the current ad-based content ecosystem. Shine's technology goes further than browser extensions such as Adblock Plus as the company says it can also eliminate ads embedded in apps.
Shine will enable operators with a new point of control and there's no hiding the fact that there's money to be made here. Networks in competitive markets are looking for new business models as average spending drops. They're eyeing the profits companies like Google and Facebook make on the back of mobile networks at subscribers' expense. Three states that "the industry has to work together" to optimise the customer experience. To our ears, this sounds like code for revenue-sharing.
CCS Insight expects ad-blocking to evolve, morphing into new business models for operators as well as a few device manufacturers (principally Apple). Operators could essentially sell air time to advertisers for significantly more than the subscriber would have paid for the same access.
Advertising would become a new form of subsidy. The concept is not unprecedented in the mobile industry. Sprint's Boost Mobile recently gave subscribers the option of lowering their connection costs if they allow Boost to display ads on their smartphones when the screen is unlocked.
Three's new ad-blocking project is moving the topic to a new level. This is a major mobile operator experimenting with the business models of some of the world's largest companies. There are several interested parties and a significant risk of unintended consequences. Three should be praised for its thoughtful stance and lack of a moralistic tone.
Operators around the globe will be watching with interest. So will some regulators. Net neutrality rules in some countries could prevent such operator interference; some authorities might welcome it. For now, all eyes will be on Three's block party.