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Data Desk 6: Whatever it Would Cost to Eliminate Mobile Ads, Consumers Don’t Want to Pay it

by John Krystynak on Jul 9, 2015

There has been a lot of discussion about ad-blocking lately, especially for mobile devices. There’s even been some prognosticating about the replacement of advertisements as a medium. Some have suggested that “free” services aren’t really free because of the privacy data tradeoffs, and others are asking why there isn’t an option to pay to get rid of ads in some services. Still others, as in this op-ed in the New York Times, have expressed an interest in consumers paying services directly to have ad-free versions of products. (But this scenario is hypothetical in that it assumes that most services would be willing to charge direct to consumers or via a robust micropayments infrastructure, which doesn’t currently exist.) Ultimately, the discussion raises these key questions: Assuming consumers could pay to remove ads from their mobile phones, would they, and how much would they pay to do so?

Keeping this larger debate in mind, we decided to take a look at our data to see what a shift to ad-blocking might mean, and most importantly to find out if a majority of consumers do in fact value an ad-free mobile experience.

We determined that if a user wanted to experience all digital content without ads, the point at which all publishers would make the same amount they are making with ads is approximately $15 per month per user for all digital content, and $5 for mobile only. The majority of this sum is money that is spent on industry giants Google and Facebook. Since mobile is the largest growth area in digital advertising — and increasingly the format where people consume media — we decided to focus on mobile advertising. We surveyed 5,000 Americans aged 18-65 and asked them if they would be willing to pay to remove ads from their phones. Two of three Americans (66.8%) wouldn’t pay anything at all to remove the ads on their mobile phones, and the vast majority (81.3%) would pay less than the theoretical threshold ($5) for mobile publishers to break even.

Methods

We decided to address these questions by doing some conservative calculations based on estimates. To get an idea of what the total digital ad spend in 2014 was, we took eMarketer statistics on US ad spend for 2014 ($50.7 billion), and divided this by the US population 18 and over from 2013 at roughly 242 million. This gave us the number of $17.46 per adult, per month spent on ads in the US. Since this number was based on estimates, to be conservative, we called it $15.00. For US mobile ad spend, eMarketer estimates a total of $19.15 billion for the 2014 calendar year. After dividing this by the total number of US mobile subscribers over 18 (217.8 million: 90% of roughly 242 million) we arrive at $89.53, or $7.46 per consumer per month. We conservatively lowered this estimate to $5.

This gave us a basis for a national survey. In early June of 2015, we surveyed 5,000 US residents between the ages of 18 – 65. Employing Google Consumer Surveys, we asked the participants what (if anything) on top of their current phone bill they’d be willing to pay per month to have an ad-free mobile experience, with the options of 0, 2, 5, 10, 15, or 20+ dollars.

The winning answer from this survey is statistically significant and the study has an RMSD score of 2.5%.

Findings:

The raw numbers speak for themselves. Overall, the majority of Americans are not interested in paying anything to remove mobile ads, and an overwhelming number wouldn’t pay much. The option selected most was $0, with 68.8% reporting they would pay nothing to remove ads.

Applovin_Graphs_OverallResponses_Final

Income

In general, no matter what the income, the people we surveyed were not inclined to pay. However, as one would expect, those that did indicate that they would pay were higher earners. In this case we defined a “higher” earner as anyone making over $75k per year.

As you can see from the chart below, people making $75K+ were less likely to opt for $0 (meaning they would pay some amount per month). Sixty-four percent of high earners still selected $0, but that means 36% of them would actually pay something to not see ads. Even though they are the higher earners, the tallies from the other answers indicate the amount they would pay is mostly $5 or less. Those that made less than $75K per year were even less likely to pay — only
23% would pay anything other than $0.

Applovin_ResponseByIncome_Final

But what about free ad blockers?

We’ve established that most people aren’t willing to pay to remove ads, but free adblockers do exist. This study seeks to answer the question of how many people would pay to remove ads from their phones and didn’t overtly seek to discover if consumers are inclined to use free ad blockers for the mobile web, which are already available on Android and rumored to be coming to iOS next.

However, given that “free” is core to the commentary on this issue, we did consider if the use of free ad blockers will have an impact. First, publishers will always need to make money, and it’s tough to imagine them simply allowing ad blockers to take away such a large piece of their revenue without fighting back. Secondly, currently free ad blocker integration is a hurdle for consumers. These ad blockers are extensions, and getting people en masse to install third party extensions is an unlikely scenario. The rule of defaults maintains that 95% of users never change their default settings. Finally, all ad blocker technology, including free,  doesn’t have a 100% success rate even when installed properly. And perhaps most notably, it is not available for mobile apps, the fastest growing area of media consumption. The availability of these ad blocking products could pose an existential threat to the advertising ecosystem, but if it ever does, that time has not come yet. As the MIT Tech Review posits, Ad Blocking Is Coming to the iPhone, But Will Anyone Notice?

There are other key pieces of this to follow up on. For example, if one could pay to remove ads, how would publishers be compensated for lost revenue? Micropayments as a solution haven’t really worked (although there has been at least one notable success story). How would advertisers get the word out about their products, and what would this do to consumers’ appetite for their products? Plus, what kind of impact would all of this have on our overall economy? We believe that each of these (and the many more) parts of this discussion are key to the overall debate. But, for the foreseeable future, it appears that ads will continue to be the best way for publishers to be compensated.

For now, it appears that consumers simply don’t want to pay for content (and even if they did, there isn’t an infrastructure to do so). They also haven’t indicated they would pay to block ads. Today, advertising subsidizes content for those who are unwilling or unable to pay anything for it. Our data indicate that despite the many discussions about how exactly consumers could go ad-free, they aren’t eager to do so if it means paying out of their own pockets.

 

John Krystynak is AppLovin’s Chief Technology Officer.

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