Ad-Blockers: A Blessing or a Curse?

58 Pages Posted: 2 Jan 2019

See all articles by Manmohan Aseri

Manmohan Aseri

Carnegie Mellon University - David A. Tepper School of Business

Milind Dawande

University of Texas at Dallas - Department of Information Systems & Operations Management

Ganesh Janakiraman

University of Texas at Dallas - Naveen Jindal School of Management

Vijay Mookerjee

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: May 15, 2018

Abstract

Users who have an ad-blocker installed present a genuine predicament for a website (a.k.a. publisher): On the one hand, these users do not generate revenue for the website; on the other hand, denying them access can shrink the user base and adversely affect the popularity of the website, ultimately reducing traffic over the long run. This has led some websites to require that ad-block users “white-list” them for obtaining access to an “ad-light” experience.

We model the decision problem for a website facing two user segments: regular users and ad-block users. The first-level decision or gating strategy is whether to allow ad-free access to ad-block users or require them to white-list the website for gaining access. When ad-block users are allowed ad-free access, the second-level decision is the level of advertising (or ad intensity) for regular users. When ad-block users are required to white-list, the second-level decisions are the ad-intensities for regular users and ad-block users. The net utility of a user from visiting the website depends on the intrinsic value of the website’s content, the value obtained due to network effects driven by the amount of traffic/popularity of the website, and the cost incurred due to the presence of ads. We derive an optimal gating and ad-intensity strategy for the website and also solve an identical model for a world without ad-block software. We show that the website can increase its revenue by discriminating between regular and ad-block users via the ad-intensities shown to them. More interestingly, we find that the discriminatory power bestowed on the website by ad-blockers can also benefit its users when their outside option is not very attractive. Thus, the advent of ad-blockers can lead to a win-win for both the website and its users. Finally, we propose a superior selective-gating strategy in which only a fraction of ad-block users are gated. We establish the robustness of our conclusions under several enhancements to our base setting: (a) heterogeneous profitabilities from regular users and ad-block users, (b) endogenous adoption of ad-blockers, (c) the presence of a subscription option, and (d) negative externality due to increased traffic. Our analysis ends with recommendations for three stakeholders in this problem, namely, publishers, web-browser developers, and policy makers.

Keywords: Ad-Blocking, Web Advertising, Rational Expectations Equilibrium, Revenue Maximization

Suggested Citation

Aseri, Manmohan and Dawande, Milind and Janakiraman, Ganesh and Mookerjee, Vijay, Ad-Blockers: A Blessing or a Curse? (May 15, 2018). Available at SSRN: https://ssrn.com/abstract=3299057 or http://dx.doi.org/10.2139/ssrn.3299057

Manmohan Aseri (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Milind Dawande

University of Texas at Dallas - Department of Information Systems & Operations Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Ganesh Janakiraman

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Vijay Mookerjee

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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