Ad Blockers and the Four Currencies

Apple recently allowed Ad-blocking in iOS 9.

Some people responded like this:

Every time you block an ad, what you're really blocking is food from entering a child's mouth.

There's more nuanced takes, but these two are the best, the first elegantly showing how Apple is a master of cynically "acting in [their] own self-interest, yet smelling like a rose" -- and the second describing the unintended consequences of the ad-blocking arms race in chilling detail:

As users we may have to ask ourselves whether the frame of the Mona Lisa being covered with Mcdonalds ads is less attractive to us than the idea of a clean frame around a portrait of the Mona Lisa eating a Big Mac.

Two legitimate goods are in conflict here.

Users have the right to control their computing experience, to not waste their data plans on bloated ad networks, and to avoid malware and tracking. And journalists still have to get paid somehow if we want quality writing to exist. But if this conflict keeps escalating, it could lead to a death spiral.

Allow me to explain using the same theory I first proposed in Piracy and the Four Currencies.

The Four Currencies

In that article, I proposed that music, moves, and games (like most goods and services) don't have just one price, but four¹:

$M   Money-dollars
$T   Time-dollars
$P   Pain-in-the-butt-dollars
$I   Integrity-dollars

Through this lens, piracy is a competing "service" that costs zero $M, but has some non-zero $T and $P cost, not to mention the $I (integrity) cost associated with doing something that incurs legal risk and/or violates a person's moral code. Obviously the weight of the latter is subjective and varies from person to person, but it is a real cost that weighs just as greatly as the others.

¹There's more than just four of these "psychological currencies", probably an infinite amount. These are simply the most salient for my purposes.

The bottom line:

People favor the product that charges the lowest total four-currency cost.

I'm not arguing that this is good, or right, or how-I-think-it-should-be. I'm simply arguing that this is how it is, and like it or not, we have to respond to these forces if we want to succeed in business.

At Level Up Labs, we compete with piracy by aggressively lowering the $T, $P, and $I costs of our game Defender's Quest, hoping to capture those customers who value those currencies more than $M alone. So even though piracy is "free" in terms of $M, for many customers we charge less $T, $P, and $I. And these customers gladly give us their money-dollars.

I should note that the "$I" cost is not always in favor of the "legitimate" purchase, either. If you have the image of a "bad actor," the "stick-it-to-the-man" effect kicks in and some people will feel less shame in piracy, or even feel affirmatively good about it (a negative $I cost). Since the $I cost is one of the few natural advantages content creators have, it is an absolute disaster to cede moral high ground to the competition.

Let me be clear -- I'm no moral relativist, but my specific usage of "moral high ground" here is intentionally subjective. I'm talking about the values and perceptions in the heads of your users, the people you need to win over so that you can get paid.

Let's talk about Ad-blocking.

It costs no money to view ad-supported content, so the $M cost is 0. However, the ads take time to load and play and are annoying, so they user pays $T and $P. Note that going out and installing an Ad-blocker has a one-time startup cost of $T and $P as well, so ads have to cross a certain threshold to drive a user to set it up, and that threshold is different for each person. (This cost is lowest for tech-savvy people, which is why game sites have such high ad-blocking rates compared to content aimed at say, seniors.)

So how to respond?

Well, one way is to raise the $I cost of ad-blocking. One way of doing that is saying stuff like this:

Every time you block an ad, what you're really blocking is food from entering a child's mouth.

Now as much as trendy internet pundits like to dismiss direct appeals to morality, they can and do work! This is a totally valid strategy and it will certainly get some subset of the population to uninstall their ad-blockers.

Hypothetical Bob McJournalist from New Hampshire has these weights:

      Block Ads    Watch Ads
$M        0            0
$T        0            1
$P        0            1
$I        3            0

Bob feels the $T and $P cost of advertising, but since he's a journalist himself that's outweighed by the moral appeal, so he dutifully turns off his ad-blocker, knowing he's doing the right thing.

But I doubt this strategy will be enough, and here's why -- in many users' minds, ad-blocking is not a guilty pleasure (like piracy), but an affirmative moral act.

Hypothetical Kristin Jeghaterreklamesdatter from the frosty hinterlands feels like this:

      Block Ads    Watch Ads
$M        0            0
$T        0            1
$P        0            1
$I       -1            1

This is a total slam dunk. Once the blocker is in place, viewing ad-blocked content takes no additional time ($T) or pain ($P), and Kristin feels affirmatively good (negative $I) about blocking the ads.

"Watch Ads" can't even compete. The ads are annoying ($P), time-consuming ($T), and Kristin refuses on principle ($I) to let ad networks invade her privacy with trackers. For Kristin, Ad-blocking strictly dominates.

The Death Spiral

Here's the really scary thing. If both sides double down, the costs are just going to keep diverging. As the Kristin Jeghaterreklamesdatters of the world respond with more ad-blocking, the ad networks respond with even more invasive ads and ad-blocker-blockers, which prompts stronger ad-blockers and counter-ad-blocker-blocker-blockers, and round and round it goes.

This drives Kristin's weights even further. The ads have to get longer ($T), louder, and more intrusive($P) to compensate for the lower number of people watching them, and Kristin's personal indignation builds ($I):

      Block Ads    Watch Ads
$M        0            0
$T        0           10
$P        0           10
$I      -10           10

So Kristin was a lost cause anyway. But what about Bob McJournalist?

      Block Ads    Watch Ads
$M        0            0
$T        0           10
$P        0           10
$I        3            0

Oops.

Even though Bob is committed in principle to watching the ads, even he has limits. At some point, everybody breaks. And people with lower thresholds will break even sooner.

For example, about 50% of Norwegian media students -- that's kids who intend to go into journalism! -- admit to using some form of Adblock in a recent documentary (start at 6:47):

Advertising-supported content seems stuck between a rock and a hard place, and I'm not sure what the solution is.

That said, even if you don't yet know how to cure the disease it's important to properly diagnose it so that you can at least stop making it worse. I think the "Four Currencies" theory exposes some of the internal tensions in play here, and as a bonus, validates the competing claims of both sides.

So although I can't tell you today how we're going to fix this, any solution to this problem is going to have to find a way to put the total four-currency costs in balance again, or else this will simply end in market failure.