A quiet war is underway. And the future of the internet as we know it is at stake.
Most internet content is financed by interruptive advertising. And people hate it.
Apple (AAPL) and Google (GOOGL) want to do something about it. Their next internet browsers cut out the auto-loading videos and ad targeting. They also tackle some nefarious stuff, too.
The idea’s user-friendly and good business. It’s also a wake-up call for old business models.
Frederic Filloux, writing for Monday Note, does not mince words:
“Those who built businesses, sometimes large ones, at the expense of the user experience are on a death watch.”
He has a point.
Together, Apple and Google are a governing force. Their operating systems command more than 90% of mobile, the fastest-growing and most important part of the internet. And Chrome, the internet browser built by Google, dominates across all platforms.
Apple and Google are more than capable of remaking the way advertising works on the internet.
Following its failed attempt to run an ad business, Apple has been the most aggressive fighter of the ad-supported internet.
Last year it announced Safari, its browser, would natively support ad blocking. This year, at its developer conference, it announced the next incarnation would block auto-play videos and curtail advertising-tracking technology.
These initiatives play well with APPL’s larger message on privacy.
Apple executives have frequently complained that Silicon Valley Internet is too lax about the collection of user data. Last year, AAPL explained how its own policies use complex algorithms to carefully anonymize personal data. At least in theory, Apple does not collect individual user data.
Google’s complete business is advertising. Its entry into the browser wars is all about control.
On one hand, its software constantly crawls the internet. Google engineers have looked under most of the slimy rocks. They see harmful code from black hat hackers.
Filloux points out that GOOGL played an instrumental role in the Coalition for Better Ads. The advocacy group, which includes media buyers, publishers and advertisers, has committed to improving the ecosystem, ferreting out bad actors.
On the other hand, native ad-blocking in Chrome allows Google to set the agenda. It becomes the arbiter of what is acceptable. In the process, it strengthens its already considerable stranglehold on digital advertising while not affecting Search, the heart of its business.
eMarketer, a digital research firm, expects their digital ad spend will jump 15.9% in 2017, to $83 billion. Google is expected to collect $28.55 billion, or 40.7% of the total pie. That would be an increase of 16.1% over the 2015 spend.
Industry insiders believe that number will grow even faster if advertisers flee blocked digital banner ads in favor of paid Search.
Apple may have an ulterior motive, too.
Making the ad-supported internet less certain, pushes subscription models to the fore. As the market for premium smartphones reaches saturation, subscriptions have become an important part of its business plan.
However, there are investment opportunities.
Many smaller companies are well positioned to make lemonade from the pile of lemons promised by ad blocking. Right now, companies are building artificially intelligent software specifically designed to collect new digital media data points. Such software will be in high demand as the rest of the industry looks for new business models.
And don’t forget digital-content providers and product-placement companies. Their services will see new demand in the post traditional ad era.
Call me an optimist. I see opportunities in public markets for emerging-technology investors in most situations. There are smaller companies. But you must start with Alphabet (GOOGL), which will only grow share in this environment.