Silicon Valley's Business Model In Jeopardy As Wireless Carriers Start Blocking Online Ads

Tyler Durden's picture

Until recently, ad blocking - the biggest threat to every Silicon Valley ad-driven business model - was largely a peripheral concern stemming from such companies as AdBlock, which was recently snapped up by a "mystery buyer" while ad-driven quasi-monopolies such as Google pay comparable adblockers to allow their ads through. That however is about to change because as the WSJ reports two Chinese-owned European wireless carriers are set to unleash online advertising blocking on their networks, which as the WSJ accurately summarizes, "threatens Silicon Valley’s prevailing business model."

However, instead of relying on potentially compromised third parties to block bandwidth-hogging ads, the networks will implement the technology within the actual pipe at the network-level: the operators, Three UK and Three Italia, are working with Israeli company Shine Technologies and plan eventually to roll out the platform to other wireless providers in their group. 

According to the WSJ, the two carriers are owned by CK Hutchison Holdings Ltd., which is controlled by Asian billionaire Li Ka-shing and also owns wireless networks in Ireland, Austria, Sweden, Denmark, Hong Kong and Indonesia. Shine is backed by Mr. Li’s Horizons Ventures tech fund.

We don’t believe customers should have to pay for data usage driven by mobile ads,” Tom Malleschitz, chief marketing officer of Three UK, said in a statement. “Irrelevant and excessive mobile ads annoy customers and affect their overall network experience.”

Shine’s platform prevents online-ad networks such as those operated by Alphabet Inc. from delivering display and video ads to browsers or apps. Unlike ad-blocking apps downloaded by customers to their devices, it works at the network level.

The CK Hutchison-owned carriers are not the first to take this aggressive step: last year, Jamaica-based wireless operator Digicel Group began working with Shine as the first operator to implement the technology so it could block advertising on its networks in the Caribbean and South Pacific. The carrier criticized online advertising companies, including goliaths like Alphabet and Facebook Inc., for not contributing to the costs of building the networks that deliver their ads.

More importantly, these are not some token networks: Digicel has about 13 million subscribers across the Caribbean, Central America and the South Pacific. Hutchison had more than 30 million customers across Europe as of mid-2015.

A comparable story from Bloomberg lays out the rising confrontation between carriers and ad-providers in more detail:

As Zuckerberg prepares to return to Barcelona for this year’s MWC on Feb. 22, phone executives say his company looks more like a competitor than a partner. Last year, WhatsApp introduced free voice calls—something Facebook already offered—and both brands have messaging apps. These so-called over-the-top services cut into mobile carriers’ voice and texting revenue because they’re offered over the Internet. Some phone companies say Facebook and its ilk are freeloaders that rely on carriers’ network infrastructure without spending any money to support it. “WhatsApp is competing with us, not only with messaging but with voice, too,” Telefónica Chief Operating Officer José María Álvarez-Pallete said in August at a telecommunications industry event in the Spanish coastal city of Santander. “The premise should be, same services, same rules.”

Think "net neutrality" but for wireless carriers, something Netflix has had significant issues with in recent months. And just like in the case of Netflix, where content providers and cable companies were slow to respond, so ad networks did not realize that they are handing out bandwidth to those who are being directly funded by bandwidth-hogging ads, in the process threatening the survival of the networks themselves. Having finally figured out the dynamic, the carriers are angry.

First, in Latin America:

Telefónica has huge operations in Latin America. And it’s in emerging markets where the tension with the messaging apps is most evident. Carriers there are more dependent on revenue from voice and text (in developed countries, data is the bigger moneymaker). A Brazilian judge in December ordered WhatsApp to suspend service in the country following a complaint from a telecommunications lobbying group, though the decision was soon overruled by another court.

Then in Africa:

In South Africa, carriers MTN Group and Vodacom Group contend that services such as WhatsApp, Skype, Google Hangouts, and the Viber messaging app cost the country billions of rand in tax revenue and compromise security because their encryption makes it easier for criminals to avoid government surveillance. South Africa’s telecom regulator has begun an investigation into the impact of over-the-top services, and Nigeria is considering regulating them. “Technology has outpaced current consumer legislation in many countries,” says Lisa Felton, who oversees regulatory issues for Vodafone, the controlling shareholder of Vodacom.

And soon everywhere else?

To be sure, the biggest "threat" is the FaceBook-owned WhatsApp, which be definition makes Mark Zuckerberg the number one enemy of the established industry:

WhatsApp doesn’t provide data on voice calls, but it claims 1 billion users, roughly double the number it had when Facebook bought the company. And Skype says it carries in excess of 2 billion minutes of calls per day. In Eastern Europe, where such apps are growing in popularity for national and international calls, mobile carriers’ voice revenue has dropped by a third over the past five years, a decline that hasn’t been fully offset by rising data usage, according to Bloomberg Intelligence analyst Erhan Gurses. Facebook declined to comment.

One suggestion is a war of attrition, where carriers lower fees to compete with WhatsApp; the problem is that for many WhatsApp remains free and funded by advertising - the same advertising which uses carrier bandwidth to be shown to consumers.

In the long run, say some industry analysts, WhatsApp and other alternatives shouldn’t be seen as a threat to the voice service of phone companies. The typically superior sound quality of the voice calls in the apps uses lots of data. “If carriers price their data offerings correctly, it could drive up revenues,” says John Delaney, an analyst at researcher IDC. And when people graduate to video apps like Skype, data consumption grows exponentially. Says Delaney, “What carriers resent is investing heavily and having others piggyback on their investments.”

For many, however, this is not an option, and instead they are rolling out the nuclear option: banning the very technology which makes companies like FaceBook and Microsoft's Skype profitable in the first place: online ads.

This answers any speculation about the possibility of rolling out network-level ad blocking in Europe,” said Roi Carthy, chief marketing officer of Shine, in a statement. “Shine now has boots on the ground.”

The only question is how long until most, if not all other carriers, already threatened by collapsing revenues and rising ad-supported competitors, follow suit and ban ads, that lifeblood of virtually every Silicon Valley revenue model, including 2 of the 5 biggest largest by market cap pure-play ad revenue-driven companies in the world.

h/t Manal

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becky quick and her beautiful mouth's picture

the problem is that they got greedy. i don't mind looking at an ad or 2, even on my phone. the problem is that they can't have a few static ads on page. instead, there's about 20 animated gifs, pop up video player ads, embedded audio ads, etc. there's lots of sites that have become completely unusable unless you have a t1 line or something, there's literally 100 megabytes of ads loading on every page.

Sandmann's picture

Often I simply cannot read an article because of aggressive ads sitting in the line of vision and some even override the sound muting

Father Thyme's picture
Father Thyme (not verified) Sandmann Feb 22, 2016 9:02 AM

I never see ads. But then I never bought a mobile phone, and on my computer here, I run Ad Blocker, No Script, and Privacy Badger.

dlmaniac's picture

Tech bubbles are going bust with or without this ban. Easily 90% of these hot internet companies coming online in the last 4 years are profitless. They can only burn their VC fund for so long. When the time is up there will be a chain reaction of one busting after another.

Nutsack's picture
Nutsack (not verified) dlmaniac Feb 22, 2016 9:21 AM

"Smart" Phones are for gullible sheeple.

eforce's picture

ZH has a vested interested as well.

I think the comparison to net neutrality is pretty poor, on wireless networks adverts can seriously rape your usage allowance, the system should have an opt-out though.

HopefulCynical's picture

Firefox for Android supports AdBlock Plus. I'm running it myself; just checked ZH. Clean as a whistle.

You're welcome.

PT's picture

My phone cannot display ZH unless I disable JavaScript.  Otherwise ads cover over 95% of the screen and cannot be swiped away.

Firefox+Adblock on my computer but recently it has not been screening out video ads.  I need to mute the sound.  Net is very slow and unreliable.  Currently looking to leave the net altogether.  (Yes, yes, I know.  But I can dream, can't I?)
Seriously, the net as a whole is too much stress and not enough return.  I often have to depend on it for work, but if I can find a system of finding work without touching the net, then I will take it.  (Obviously, phone contacts are the start.  And do you accept CVs on memory stick or hard copy?)

greatbeard's picture

>> Currently looking to leave the net altogether.

I've weaned myself from the net a great deal and switched to reading books of all things.  I struggled with my old eyes and drug my feet too long on getting a Kindle. I'm about 50/50 now, print books/Kindle, but I'm going more digital know.  With a good public library system (yeah, I know, fucking socialism, but I support socialism for the common man) a Kindle, or similar reading, is a wonderful thing.  No trips to the library, no late fees, nothing. Download, read, return, no matter if I'm in Alaska or Florida. I may be forced to eventually but so far I haven't spent a penny on digital books and I've yet to read a pirated anything.  For all it's potential, the net has become almost as worthless as commercial TV.

HopefulCynical's picture

I don't really see a public library as socialism, of the sort we free market folks like to condemn.

There are certain, narrowly defined tasks that are simply more efficient for the community to undertake. Community libraries would fall into this category, IMO, so long as the 1st Amendment is unfailingly upheld, regardless of who objects.

The problematic socialism involves handing out cash and food to people who don't pull their own weight. First, it winds up funding the lazy as well as the incapable, and second, both the lazy and incapable are subsidized; having their tab paid and lots of time on their hands, they tend to fuck a lot. This results in the lazy and incapable out-breeding the productive.

This is an inescapable feature of wealth redistribution. The productive are quite literally eaten alive by the unproductive.

And I submit that the Marxists knew this to be true when they first came up with it. There is nothing unintended about this consequence. Happy masses was never the goal. Suffering dependents was.

Power and control. The ultimate drug of psychopaths.

Manthong's picture

If you read up on Marx, the man (oops, I mean the schmuck) you will find that he was the antithesis of what he professed. He was a dirty, smelly, unwashed, unshaven, exploiter of his family, associates and society.

His legacy however, was his stupid book and a few newsletters that the dirty, smelly, exploiters of society use to this day.

The key phrase above…  “ exploiters of society “  think government and banks.

 

FringeImaginigs's picture

The "porblematic socialism" isn't in handing out cash and food to the people who don't pull their weight.  Line up all those single rotten welfare mothers and drug users and give them $1000 a day for life.  That's just a rounding error on the amount of transfer upwards to the .01%. Wealth distribution has never been downward wealth distribution. That's just a talking propaganda slogan. Wealth distribution has always been UPWARDS. Socialism is the best thing for croney capitalists.

Sokhmate's picture

Unlock then root your phone. Then install AdAway. Zero ads in the browser.

 

Edit: that's for Android. Don't know about iPhone.

unplugged's picture

as well as cable/satellite TV where it seems 25% of the channels are pure informercial bullshit

MalteseFalcon's picture

Don't worry, America.

You'll still be able to get your ads.

Durrmockracy's picture
Durrmockracy (not verified) Father Thyme Feb 22, 2016 9:42 AM

I never see ads. But then I never bought a mobile phone, and on my computer here, I run Ad Blocker, No Script, and Privacy Badger.

You need Ghostery too.  Soo many sites are using canvas identification for tracking too now...

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Durrmockracy Feb 22, 2016 11:16 AM

Just threw on Ghostery and its like a new internet (had adblocker already and Poper Blocker for pop ups that have learned to avoid adblocker).  Sites are much quicker. Thanks

Sokhmate's picture

Might I also suggest adding uMatrix? (works for Firefoxe)

pods's picture

I use the amount of ads on a page to determine the health of a website or business.  

News stations are dying.  I cannot barely read the local rag website (WRAL) as there are pop under audio ads as well as now pop up ads embedded in the stories.  When you scroll down a certain distance, wham!  It is like playing whack a mole.  They need $$ bad.  News website in my hometown is unreadable. You cannot tell what is news and what is ads.  Looks like fucking Yahoo.

The internet used to be a great place where you could find any information you want. Now, the information is still there, but if you don't have adblockers running it is dreadful.  Like going bareback in a whorehouse. Of course, adblockers for mobile browsers are few and far between (blackberry).

pods

Lurk Skywatcher's picture

“All the papers that matter live off their advertisements, and the advertisers exercise an indirect censorship over news.”
? George Orwell

BarkingCat's picture

For Blackberry download another browser and use it with JavaScript turned off. 

Unfortunately the native Blackberry browser does not let you turn it off.

You can also download Ghostery browser  for Android from Amazon.

Kickaha's picture

You cannot tell what is news and what is ads.

 

Let me help.  100% ads, 0% news.

SJEqualizer's picture

Apple's iOS has very effective ad blocking these days.

Twee Surgeon's picture

T.V. stations are the worst offenders! ABC, NBC, CBS have the worst web sites on the net.

It's as if these people are trapped in a business model and still, they just do not get it!

The advertising is the cause of their demise in the first place (along with the new worldy, globalist, global warming/bankers are good, B.S. Kardashian content, but that's another story.)

They literally just don't get it, two entire industries populated by people who still think it's 1980 and wonder why their ship is sinking.

HopefulCynical's picture

Oh, they get it. They don't care.

There's what, maybe 10 to 20% of the population who has checked out, unplugged? That means their trillion-watt PsyOp hammer is smashing the minds and souls of 80 - 90% of the populace into numb submission.

Media companies are all owned by multinational conglomerates that make money with other divisions. Media outlets are primarily mass brainwashing operations.

It's a long-term game these parasitic filth are playing. They've been at it for centuries...millennia, even.

Luckhasit's picture

wral eh?  a fellow zher in the carolinas hell yea.

StychoKiller's picture

I've practically given up using my Motorola Xoom (Android OS) to browse the internet, due to ads blocking actual content that I want to read.

BarkingCat's picture

Download Ghostery browser. It is what I use.

Makes the web safe again.

Groundhog Day's picture

it is unbearable at times.  especially when you get the audio ads on a loop and don;t know how to turn them off.  Yes that'll make me buy.  if anything its a name i remember not to buy

Croesus's picture

@ becky quick: 

Exactly. If I want to buy something, I'll find it on my own. I don't need "marketing companies to tell me what I want". 

"Buy this", "Save on that". Get fucked already. Couldn't tell you how many times I've wanted to use my television for target practice, or chase the paperboy down the street for throwing their "litter" in my driveway.

What part of "I don't need more crap" is hard to understand? 

Fuck off, with your sofa units and strine green stripe patterns. 

 

StychoKiller's picture

A properly installed hosts file (/etc/hosts in most Linux distros) short-circuits the browser into thinking that most advertisement IPs do not exist.  Check it out:  http://www.accs-net.com/hosts/

Orwell was right's picture

Thanks!!!!    I have a Linux machine that I use for online stuff....and I completely missed (or forgot) about this..

 

css1971's picture

And Google have updated the web download protocols specifically so that they can push ads onto your computer.

"HTTP/2 allows the server to "push" content, that is, to respond with data for more queries than the client requested. This allows the server to supply data it knows a web browser will need to render a web page, without waiting for the browser to examine the first response, and without the overhead of an additional request cycle"

https://en.wikipedia.org/wiki/HTTP/2

Infield_Fly's picture
Infield_Fly (not verified) Feb 22, 2016 8:48 AM

LMFAO!!!  Check mate Zucks!!!  Bye Bye Gewgle!!!

Groundhog Day's picture

if only they would do it in the states.  Farcebook going up in flames and freedom for all

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Feb 22, 2016 8:49 AM

Hold on did I miss something, when have tech investors cared about earnings?

spanish inquisition's picture

Yes they do care.. Future potential earnings based on exponential growth that are not currently realized.

Sandmann's picture

Good. Bandwidth Theft is offensive with the cost of data in Europe. 3 is about to merge with O2 also and that will no doubt allow speed to be preserved. At present there are times when 3G speeds drop to EDGE or simply drop out because of network loading. 

Never One Roach's picture

I'm gonna miss all those ads that slow my computer and phone down and cut off half of my messages.

 

Oh well, sigh.

Spungo's picture

Self-inflicted problems. The ads on ZH are so invasive that they automatically play videos with sound. Unless you have an ad blocker, you can't read Zero Hedge at work.

slightlyskeptical's picture

And half of them don't even load properly.

Not My Real Name's picture

You can configure your browser to disable videos from playing automatically.

zipit's picture

Die, spammers. Except you, Zero Hedge. Actually, it was all the ads on ZH, and their poor quality, that caused me to install AdBlocks in the first place. Oops. Isn't there an ecomomic law about this? Like there comes a point of diminishing returns. And beyond that, returns are negative. What's the name of that one, again?

DownWithYogaPants's picture

.....and if a site comes up saying "Ooooh we see you have adblock installed so we won't let you see the page........." 

I merely back out and won't return to the site.  So nobody should get any ideas.

pods's picture

Denninger's did that. I had no problem with letting edge ads be there. He has minimal ads though.

A lot of other places remind me of the old javascript popup ads of the late 90s. That shit was like playing missile command. Had to close them fast enough so they wouldn't crash your system. Good times.

I used to click on ZH ads, but they got too numerous.  

pods

BarkingCat's picture

people still read Denninger?

 

StychoKiller's picture

ZH still accepts donations (think of it as a subscription fee).

InsanityIsWinning's picture

I do the same . . . most content is crap anyway, I will only tolerate it if I can come and go as I please without interruption.  I do however want so see ads when I'm looking to buy something specific and initiate the search. But having an ad for feminine products thrown in my face . . nope, not doing it.  I mute the TV during commercial and would really just as soon burn the TV if it weren't for my TV addicted wife. 

greatbeard's picture

>> my TV addicted wife.

I know the feeling.  The living room is simply not an area of the house I use anymore.  The TV faces the master bedroom in our place.  I'm an early to bed early to rise type.  She watches TV til the wee hours of morning.  I moved into the second bedroom to blank out the sound and flickering lights.  It pisses her off but not enough to turn off the fucking TV.  And I spend 90% of my time outside.  It helps to live on property out in the country.  Truth be told, I'd still spend 90% of my time outside and prefer the spare bedroom even if she turned off the TV.