Ad Replacers and the Future of the Internet

A company named Phorm (formerly 121Media) has introduced a new product for ISPs.  The idea is that the ISP installs this product (basically a transparent proxy) on their network, and as their customers surf the web, the OIX  proxy replaces advertisements on web pages with advertisements on the Phorm network.  To make it more palatable, they also provide some minor anti-phishing services (the sort of thing that’s built into IE7 anyway.)

They make a big deal out of their privacy practices.  They do not maintain histories on browsers the way Google does — they just replace ads on pages based on the page’s content, kind of like Google AdSense but for image and rich-content ads as well.   Customers, unsurprisingly, don’t really care either way about this service — what’s it matter if I get CNN’s own banner ads on their pages or my ISP’s banner ads?  They’re still ads, and nobody likes them, but whose ads they are isn’t high on a consumer’s priority list.

However, products like this (generically called “ad replacers”) are going to be extremely important to the future of the Internet.  The linked article talks about how ISPs’ profit margins are narrow given their customers’ increasing appetites for bandwidth, and how this advertising revenue will help them recover.  What it doesn’t mention, though, is where this revenue comes from — it’s the ad revenue that would otherwise be given to the sites you browse.

In other words, ubiquitous use of ad replacers would boost ISP revenue while destroying ad revenue paid to web sites.  This is a tremendous threat to Google as it eliminates their sole revenue stream!  For that matter, if an ad replacer can substitute ads, why not substitute the first page of Google search results?  Google won’t sell you #1 placement in organic search… but with an ad replacer, Comcast (for example) could sell you #1 placement on Google for Comcast users.  In addition, all the small niche websites that currently pay their hosting bill (and their owners’ salaries) off of advertising revenue may find themselves unable to do so.  People hate advertising, but what happens to the Internet without it?  The free, ad-supported Internet goes away, replaced with paid, subscription-based walled gardens.  Nobody wants that, but that’s the world ad replacers lead to — and ironically, it’s a world that has no room for them, as they would then have no ads to replace.  This is difficult to fight economically, though — an ad replacer can be a tremendous source of revenue so long as there aren’t many of them.  There’s lots of incentive to make them, even though in the long run they kill the ecosystem.

What this will lead to is a new security arms race.  Publishers will have to start finding ways to “hide” ads in their pages, so that ad replacers do not recognize that they’re ads and replace them.  This will be particularly hard for the large ad networks like Google’s where the ads must be embedded in thousands of dissimilar web pages.  As the publishers come up with better ways to hide ads, the ad replacers will be updated to find them.  The result is likely to be quite a mess, and result in neither the ISPs nor the publishers getting as much revenue as they’d like.  In addition, while Phorm may promise not to build up profiles of private information on you, an ISP who did engage in Google-like privacy invasion would be able to do it far better than Google can — after all, they have all your billing info since you’re a paying customer.  Unlike Google, they really do know who you are, personally, and not just by your browsing habits.

In the long run, international backbone providers could even start replacing ads in order to avoid local legislation, though this would lead to the ridiculous situation of the same ad on a page possibly being replaced several times on its way to the user.  I don’t see any solution to this other than legislation — the same sort of “net neutrality” laws  that forbid content-based traffic shaping or Comcast-like protocol tampering could also forbid ad replacers.  Unfortunately, economic incentives aren’t likely to have much effect, since the actual end users won’t change ISPs to go to one that promises not to run ad replacers — as only the publishers, not the end users, care whose ads are seen.

industry, legal, privacy

If you enjoyed this post, please consider to leave a comment or subscribe to the feed and get future articles delivered to your feed reader.