Ad Blockers and Ad Quality

Problem definition : There has been a fierce debate among practitioners regarding ad blockers. On one hand, ad blockers are considered a serious threat to content platforms because advertising is a key revenue driver. On the other hand, people argue that ad blockers improve the advertising industry by pushing the creation of more attractive ads. This paper investigates the impact of ad blockers on a content platform when the advertiser’s ad quality decision is taken into account. Methodology/results : We develop an analytical model with an advertiser, a content platform, and a mass of consumers. Consumer valuations of advertising involve three aspects: information value —the knowledge about product attributes, entertainment value —the engaging text/image/video included, and nuisance disvalue —the interruption caused during content consumption. The advertiser can invest in ad quality to enhance its ad’s entertainment value. Consumers are classified into effective and ineffective types based on whether they derive information value and potentially purchase the advertised product. We identify two effects of ad blockers: the consumer screening effect filters out ineffective consumers who cannot generate revenue for the advertiser; the quality adjustment effect may induce the advertiser to improve ad quality to better serve effective consumers. As a result of these two effects, the presence of ad blockers can lead to a win-win-win outcome for all parties. This occurs if nuisance disvalue is high with intermediate information value or if nuisance disvalue is low and effective consumers are few. We further examine six extensions that reflect various industry structures and market microdynamics to demonstrate generalizability of the all-win outcome. Managerial implications : Advertisers and content platforms should manage ad blockers strategically, which possibly makes the system more efficient and benefits every stakeholder. Always opposing ad blockers is not the best solution, and permission should be given, particularly when the ad features a highly interruptive format (e.g., embedded videos) but provides consumers with some useful product knowledge, or when the audience contains few potential buyers and the ad format is mildly interruptive (e.g., texts only). Grant: The work of J. Li was supported by the National Natural Science Foundation of China [Grant 72501063] and the Fundamental Research Funds for the Central Universities in UIBE [Grant 24QD13], the work of Q. Zheng was supported by the Major Program of NSFC [Grants 72091210/72091215], the work of J. Wu was supported by the National Natural Science Funds of China [Grants 72371232, 71971203, 72188101], and the work of D. Shi was supported by the National Natural Science Foundation of China [Grant 72102205].