Interactive Advertising Bureau

Mike Zaneis says he's generally a relaxed guy.

But when the subject of online ad-blocking technology comes up, calmness vanishes from the voice of the Interactive Advertising Bureau's general counsel and executive vice president for public policy.

"Ad blocking to me is so fundamentally wrong, it just boils my blood," he seethed in an interview, predicting a coming showdown in which publishers start blocking people who block ads.

Of course, plenty of consumers loathe online advertising, which can inflict flashing gaudiness and subject people to behavioral targeting. That's why Adblock Plus, AdBlock, and other browser add-ons exist to strip ads off Web pages and, increasingly, mobile apps. It's also why Adblock Plus' acceptable ads manifesto is getting attention. Adblock Plus developer Eyeo encourages a relatively unobtrusive style of ads that it doesn't block -- but publishers must apply to get on its whitelist, and big ones such as Google also have to pay.

Zaneis called the approach a "ransom note." Ad blockers are a mortal enemy for the IAB, which represents more than 600 companies that are responsible for showing 86 percent of ads in the US.

He might speak grandly of the threat to the advertising-supported businesses, but he's not wrong about ads fueling the Internet. eMarketer forecasts worldwide digital ad spending to grow 14.8 percent to $137.5 billion in 2014. Ads have generated fortunes for Facebook and Google, and Apple is trying to follow suit with mobile ads. How many people would use Facebook social networking or Google search if, like a Sunday New York Times subscription, it cost $4.30 per week? Probably not 1.23 billion people.

Zaneis talked to CNET's Stephen Shankland on Thursday. (Disclosure: CBS Interactive, publisher of CNET, is a general member of IAB.) The following is an edited transcript of the conversation.

Shankland: How does the IAB see ad blocking?

Mike Zaneis: It's a huge economic problem for the industry, one the industry is just coming to grips with and to see as the fundamental threat that it is.

How big a problem are ad blockers for publishers?

Zaneis: It varies wildly. For some publishers, it's a blip on the radar screen -- less than 5 percent of users or ads are being blocked. That's what we in the business call a discrepancy: it's not that big a differential. But one gamer site, Destructoid, has a young, tech-savvy audience, and 40 to 50 percent of its users are running ad blockers. That's putting extreme pressure on his [Destructoid's publisher] ability to stay in business.

So will publishers start building paywalls or charging for subscriptions to content?

Zaneis: Part of it is basic economics. To date, the growth in industry has been so robust, with double-digit expansion, so the industry has been able to handle this free-rider problem, with X percent not consuming advertising yet having access to the content and services.

eMarketer

If growth begins to level off, there will be further pressure to monetize every eyeball -- and to keep costs down. It costs something to deliver these services. Bandwidth is not free, server capacity is not free.

There is only one endpoint: an unsustainable economic situation that ad blockers create. The industry will have to rise up and answer it. You see some sites beginning to block users with ad blockers. Maybe you'll see paywall offerings to users that are using ad blockers, but you're not going to see a mass migration off ad-supported content, the economic engine that drives the Internet.

You mean publishers will show an error message to those with blockers that says, "Sorry, we're not going to show you our content"?

Zaneis: Yes.

How hard is it for Web sites to detect ad blockers?

Zaneis: It's not difficult at all.

Do you know of publishers doing that?

Zaneis: Destructoid began to do that. He decided he didn't want to be in an all-out war with his users, so he took it down. He ran it on a trial basis.

Ad blockers use use different technology for blocking. Sometimes the ad blocker just won't send the call from the Web site to the ad network. Sometimes it will allow the call to go through, but block incoming delivery of the ad. Sometimes the ad will render on the page [in the browser], but then the ad blocker will obfuscate the ad itself. If you're a publisher, there are different ways of detecting and resolving that, and there are different harms. If the call was never made, then the publisher is never able to make any money, because it wouldn't show as an [advertising] impression. If the call went out and and back in, the marketer is being essentially defrauded -- it paid for an impression that was not showed to a consumer.

You can see why publishers and marketers have an incentive to figure this out.

What do you think of Adblock Plus' acceptable ads manifesto, which Eyeo says is an attempt at compromise between obnoxious ads and no ads?

Zaneis: It's a ransom note. These people are no better than Internet pirates facilitating the theft of content. To do it under the guise of "these ads aren't acceptable" is a complete facade. It's a sham. They block all ads by default.

Well, to be clear, by default, Adblock Plus shows ads from whitelisted advertisers.

Zaneis: They allow ads to come through for those who pay the ransom. Tens of millions of people have downloaded this. The default is Adblock Plus blocks all ads, then they allow ads to get through if you pay them money. They don't review all those ads. It's a complete sham to say they only whitelist acceptable ads.

You sound pretty worried. When is this really going to be a problem for publishers?

Zaneis: It's major already a problem for some publishers.

But you think it'll be a big problem for everybody at some point?

Absolutely. There is only one end point to this challenge: over time more ads will be blocked, and it will become such an important economic issue for our industry that we will have to act very aggressively. It's Economics 101.

What response is more likely? Paywalls, ad-block blocking, or something else?

Zaneis: I predict publishers will not provide for content and services for free. People who don't participate in the economic exchange of digital advertising are unlikely to partake in the benefits of it. That doesn't compute from an economic standpoint.

But what's the most likely response?

Zaneis: The paywall option is not viable for the vast majority of the Internet. Consumers don't want that. The next logical solution is that people won't give away content and services to folks who aren't part of the value chain [those using ad blockers].

When will this come a head?

Zaneis: I can't predict that. I'm not privy to publishers' economic numbers. I think you'll see it on an individual company basis as they make the decision. Once you get a handful of publishers committed to resolving the problem, I think you'll see a cascading effect throughout the industry.

Won't it be pretty unpleasant for them to go to war with their audience?

Zaneis: Absolutely. Some companies will make the decision not to pay the ransom, but a lot of folks will. When you're sitting there and somebody has a knife to your throat, a lot of people will pay that ransom.

I do know one thing. Adblock Plus -- these people don't understand advertising and the economic model of the Internet. They talk about acceptable ads, but they're way behind the curve of where the Internet is progressing. They don't want disruptive ads, and they don't want things that come over the content on the page. Maybe they've never seen ads on mobile page, maybe they have no idea about interstitial ads [which appear between transitions from one page or screen to the next] and rich-media ads and digital-video ads and prerolls that take over the screen for a predetermined amount of time. That is the here and now, and the future.

How big a problem is it really? Most people don't install ad blockers. Earlier you were talking about 5 percent, which is about one in twenty people. Could publishers offer more moderate ads so people aren't as likely to install ad blockers?

Zaneis: It's a tragedy of the commons problem. It only takes one Web site to do something bad, for a person to say, "I don't want that advertising," and install an ad blocker.

You can have more and more people installing ad blockers and undermining the economic model of the Internet. So that puts pressure on to monetize the other people, so they'll see more ads.

And ad blocking applies to mobile developers as well as Web sites.

Zaneis: Mobile is becoming the Internet when you look at time spent. This concept that Adblock Plus is going to dictate to our industry what ads are acceptable and what aren't, but they have no concept of how a mobile ad works...They say we wouldn't accept [intrusive ads] in the offline world? Bullshit. What do you think a TV commercial is? It's a preroll ad or a midroll ad. On mobile, the predominant ad is interstitial. When I open an app, I get an ad. Adblock Plus says that's disruptive and not acceptable. There we are at loggerheads, and we won't be held ransom. In reality, this is not a moral imperative for them, this is for-profit company that wants to make money, which is why you pay them off and ads get shown. The hypocrisy is outrageous.

Do publishers and advertisers have a publicity problem, though? Lots of people object that with advertising, the user becomes the product that a publisher is selling to the advertiser, and people don't like being treated like something to be sold, as a source of revenue to be mined.

Zaneis: There's not a single study that supports that. People understand being marketing to. My grandparents were marketed to their entire lives. The oldest form of advertising in this country is the Sears catalog. People are OK with that. The Internet is the greatest revolution of our time, and it's supported by ad revenue. So there's a consumer revolt against it? The exact opposite has happened. It's a wild success.

We need to be respectful. There are bad ads. Nobody likes the belly-fat ads. We're working at making advertising a more positive experience for users. We're doing that because we want the experience to be better. Adblock Plus is doing this because they just want people to pay them off.