Google made almost all its money from ads. It was a booming business — until it wasn’t. Here’s how things looked right before the most spectacular crash the technology industry had ever seen.
The crumbling of Google’s cornerstone
Search was Google’s only unambiguous win, as well as its primary source of revenue, so when Amazon rapidly surpassed Google as the top product search destination, Google’s foundations began to falter. As many noted at the time, the online advertising industry experienced a major shift from search to discovery in the mid-2010s.
While Google protected its monopoly on the dying search advertising market, Facebook — Google’s biggest competitor in the online advertising space — got on the right side of the trend and dominated online advertising with its in-feed native display advertising.
In late 2015, Apple — Google’s main competitor in the mobile space — added a feature to their phones and tablets that allowed users to block ads.
Devices running iOS were responsible for an estimated 75% of Google’s revenue from mobile search ads, so by making this move, Apple was simultaneously weighing in decisively on the great ad blocking debate of the 2010s and dealing a substantial blow to the future of online advertising.
A year later, as the internet went mobile, so too did ad blocking. The number of people blocking ads on a mobile device grew 102% from 2015 to 2016; by the end of 2016, an estimated 16% of smartphone users globally were blocking ads when browsing the internet on a mobile device. The number was as high as 25% for desktop and laptop users in the United States, a country that accounted for 47% of Google’s revenue.
The people most likely to block ads were also the most valuable demographic: millennials and high earners.
Internet users had spoken, and they hated ads.
In early 2017, Google announced its plans to build an ad blocker into its popular Google Chrome browser. Google’s ad blocker would only block ads that were deemed unacceptable by the Coalition For Better Ads, effectively allowing the company to use its dominant web browser to strengthen its already dominant advertising business.
Even after making this desperate and legally questionable move, it would quickly become clear to Google that even though ads were getting better, ad blocking numbers would continue to rise. Google had given even more people a small taste of what an ad-free internet experience could look like.
The company discovered that it wasn’t just annoying ads that people didn’t like; it was ads in general.
A key platform where Google served ads was YouTube, which it bought in 2006 and quickly turned into one of its biggest entities. But even with a sixth of the world visiting this video-sharing behemoth every month, YouTube never became profitable. In an attempt to combat the effect of ad blockers, YouTube launched an ad-free subscription model in late 2015, but the subscription numbers were underwhelming.
YouTube’s already insurmountable problems multiplied in early 2017 as advertisers began to pull out amid ad placement controversies, and huge revenue generators began to leave the site.
Even those who weren’t blocking ads had trained themselves to ignore them entirely. Researchers dubbed this phenomenon “banner blindness”. The average banner ad was clicked on by a dismal 0.06% of viewers, and of those clicks, roughly 50% were accidental.
Research showed that 54% of users reported a lack of trust as their reason for not clicking banner ads and 33% found them completely intolerable. These figures painted a pretty grim picture for the sustainability of online advertising, but especially for Google’s position within the industry…..Read more>>