Apple Inc’s iOS 9 Ad Blocking: Winners and Losers

On this episode we break down Apple’s (NASDAQ: AAPL) controversial decision to allow content blocking in iOS 9 – we cover who it hurts most, why users should love it and how you can enable it on your device.

A full transcript follows the video.

 

Sean O’Reilly: Apple has something against mobile ads, and we want to know what it is. On this tech edition of Industry Focus.

Greetings, Fools! I am Sean O’Reilly here from Fool headquarters in Alexandria, Virginia. It is Friday, October 2, 2015 and with me today is the coolest cat out there, Dylan Lewis. How's it going there, Dylan?

Dylan Lewis: Love that intro.

O’Reilly: I aim to please.

Lewis: That's fantastic.

O’Reilly: Just so everybody knows, hurricane Joaquin is not going to rain on this parade.

Lewis: No, we're going to keep going and that way you can listen to it when you're sheltered up.

O’Reilly: Exactly. We're all trapped. I don’t know if you heard the energy show yesterday, but I told my strawberry Pop-Tart story about Wal-Mart (WMT 0.57%) and how statistically people buy strawberry Pop-Tarts when there's a hurricane.

Lewis: That's bizarre.

O’Reilly: I don’t know what to tell you.

Lewis: I would think it would be cinnamon, first of all.

O’Reilly: I agree. I am a cinnamon man and anyone that hates cinnamon hates America. We've got a lot of ground to cover. We need to talk about Apple's latest moves. I just updated and they're totally blocking things now. They're helping to block mobile ads in Safari. Dylan, first off, what is Apple doing exactly to make advertisers' lives difficult?

Lewis: While I may be the coolest cat, Google (GOOG -1.96%) (GOOGL -1.97%) does not think Apple is the coolest cat.

O’Reilly: They definitely do not.

Lewis: yeah. They are not a fan of them. A new feature in Apple's new operating system iOS 9 allows users to download these apps that strip the web of advertisements when they're on their mobile browser.

O’Reilly: I had never heard of it. One of them was called Crystal.

Lewis: There are a whole bunch of them. Crystal is one, Piece is another one that came out and was then pulled. We'll get into that, but much like desktop ad blocking there are some clear benefits to end users here. Ditching ads makes sites load faster, it makes them easier to read.

O’Reilly: Way faster as I understand it.

Lewis: It makes your experience streamlined. If you're on your cell phone and you're not with Wi-Fi, mobile ad blocking might decrease the amount of data you're using. Something that was interesting that New York Times did was looked at the 50 biggest news outlets and the breakdown of load time on the pages between editorial content and ads.

For some of the major outlets, more than half of the load time and the data usage was coming from ads. It wasn't from the content itself.

O’Reilly: This is a big deal for me because I do not have unlimited data. I think it's silly to pay for that much because I'm usually on Wi-Fi, but that's crazy. I saw the graphics on these things and it was taking 60% to 70% of the load time off.

Lewis: Yeah.

O’Reilly: This is another blow to news outlets though.

Lewis: Yes. Those are some of the clear benefits. Also, some of these apps can block tracking software that people are wary of. People are very sensitive to their privacy online and this is another way to block cookies and things like that form tracking you. It's always so creepy to be browsing and you go to Amazon (AMZN -1.65%), you look at a particular pair of boots and then a day later you're on Google and you see the carousel on the side.

Its' like "You looked at these boots, you must want them." It's creepy. It's like mom having your Christmas list.

O’Reilly: For our listeners, I wanted to give everybody a glimpse into last week's events in the life of Dylan Lewis. He got a new, fancy iPhone 6S and you were a kid on Christmas morning.

Lewis: I was psyched.

O’Reilly: You were skipping.

Lewis: I held off for a while to upgrade because I had the 5, and the 5 was my first smartphone and I got it two years ago. Not knowing the upgrade cycles I got the 5 right before the 5S launched. So I was starting out in the ditch in terms of the upgrade cycle. I got the 6S, running iOS 9 and have had the opportunity to download one of these ad blockers and give it a try.

O’Reilly: Which one did you use?

Lewis: It was 1Blocker.

O’Reilly: 1Blocker?

Lewis: Yeah, 1Blocker.

O’Reilly: That's probably not important, but go on.

Lewis: Yeah. There's a whole range of them out there. Some of them you pay a couple bucks for, some of them are free. To walk you through my experience, I Googled 'boots' on Safari just before I downloaded anything and my experience that is everything that is above the fold. Before you would scroll, there's a sponsored result being served up by Google.

I then went to the app store, downloaded 1Blocker which is one of the many ad blockers that are available, and then you simply go to Settings > Safari > Content Blockers and enable the app that you downloaded. Whichever ad blocker it is, it will pop up in there and you swipe to enable it.

Then I decided to go back to Google and search Safari again for boots and there were no sponsored results. All in all it took me about 80 seconds go through the process of…

O’Reilly: Now you're saving money on data, you're not being offered boots constantly.

Lewis: Yes.

O’Reilly: Did they offer you female boots? I'm curious.

Lewis: Yes, I think they were women's. I didn't specify. I just said "boots". I think if they were to guess they'd rather serve up women's results. The important thing to remember here is that this is all specific to Safari. This is not something that's available on Chrome right now.

O’Reilly: That's my main browser on my phones. Apparently I need to switch over.

Lewis: Many people are using that. When you're talking about the potential impact of it, that's definitely something to keep in mind.

O’Reilly: The Verge did a poll of what people are going to do.

Lewis: Yeah. The Verge polled their readers to gage their opinions on mobile ad blocking. Not surprisingly, about 78% of folks that read The Verge said "I would be willing to pay a couple bucks for an app that blocks ads for me."

O’Reilly: It's just a poll though.

Lewis: Yeah, it's just a poll. I think there's a major caveat that…

O’Reilly: This doesn't take into account human laziness.

Lewis: Yeah, human laziness and the fact that The Verge has an extremely tech literate audience. I think that dramatically overstates what the impact could be. I think more realistically -- I think last time when we talked about desktop ad blocking three or four months back on the podcast -- you cited that roughly 10% of Safari users run ad block on their desktop.

O’Reilly: That's so low.

Lewis: I think that's probably more in line with what we might see.

O’Reilly: We need to do our own poll and go to the national mall.

Lewis: Yeah. Just walk around with the phone crew.

O’Reilly: Ask 1000 people or something? I don’t know.

Lewis: Just to give you an idea of market share globally for the various mobile web browsers, more recently…

O’Reilly: We covered this a few months ago. Chrome was definitely gaining ground.

Lewis: Chrome was gaining ground. As of September Safari had 39% global market share, Chrome had 36% global market share. A year ago Safar had 45% global market share and Chrome had 21%. We're starting to see that gap narrow, and this is definitely something that will play an interesting dynamic.

O’Reilly: I wonder if Apple did this to give people a reason to use Safari again.

Lewis: I think you're right. That's something we could talk about when we get into the implications within the smartphone market within the next segment.

O’Reilly: Okay. Before we move on to the implications for the ad market I wanted to point our listeners to our newly designed focus.fool.com. There you'll discover a special offer to join The Motley Fool's Stock Advisor newsletter for all Industry Focus listeners. You'll also see an awesome photo of Dylan and I. All loyal IF listeners have access to a special discount on Stock Advisor that works out to $129 for a full, two year subscription. Just visit focus.fool.com to take advantage of this offer. Again, that's focus.fool.com.

Dylan, what are the immediate implications for the smartphone market? Should I just short everybody that lives off mobile ads? What are we doing here?

Lewis: I think it's a little more nuanced than that. Like we talked about with the landscape of users, this only impacts Safari specifically, and people that are willing to adopt this; it's probably a fraction of the overall Safari users. Like we said, the market share gap between Safari and Chrome has been narrowing over the past two years.

More than anything else, I think this might stop the bleeding for Safari a little bit and give it a competitive advantage. Ad blocking software is Google's worst nightmare. It's how they make all their money. It's not a solution that they're too keen on offering people. I think, historically, tech savvier folks have tended to use Chrome.

O’Reilly: Because even though it's made by Google that makes all this money off ads, it's easier to manipulate and use.

Lewis: Yeah. I think it's a better browsing experience. I think it works for more people. I think we might see that change. This is the kind of thing that tech savvy people are going to latch onto. You'll have your die hards that want to support ad based business, but I think by and large you could see a lot of people that were using Chrome defect over to Safari, if they're the people that are inclined to be doing ad blocking.

O’Reilly: We chatted briefly; you don’t think this will affect cell phone sales at all?

Lewis: No. I don’t think this is going to be a big deal for hardware. I think people that are going to be Android users are going to continue to use Android. People that want to be on iOS, it's a nice perk for them. More than anything else I think we'll see a difference in what's going on with browser decisions for people.

O’Reilly: Okay. Moving on to the super useful portion of the show for Foolish investors -- everyone get your pens and papers out and turn up the volume -- this seems to have a pretty solid ramification for people that have their own apps and things on our phones. Like, Facebook (META -10.56%). What's going on?

Lewis: I think the clearest impact anytime you talk about ad blocking is what's happening to businesses that are extremely ad reliant. I think this will probably pinch Google a little bit, but I don’t know that it's a death blow by any means. I think that would be totally overstating it.

O’Reilly: As we stated in a previous episode, the money they get for mobile ads is less because people don't click on them as much as they do on their desktops. As long as people are still using PCs they still have a business.

Lewis: Something that I was surprised about when we were researching the show is that mobile browsing isn't as big as it used to be when it comes to how people are using their phones. People are not using web browser as much as they were in the past. Part of that was the push that outlets like Twitter (TWTR) and Facebook were moving their users toward with having their dedicated apps.

O’Reilly: The new 'website' is apps?

Lewis: Yeah, particularly for mobile. Flurry is a mobile analytics firm and they track how people are using their devices behaviorally. In Q2 2015 American consumers spent an average of 3 hours and 40 minutes per day on their mobile devices. That's insane. That probably sounds about right. I don’t know about you.

O’Reilly: People have families. You could be reading a classic book.

Lewis: Maybe they're reading a classic book on their phone.

O’Reilly: Really? Actually, supposedly Elon Musk uses his phone to read classic books. I read an article about how he was reading the autobiography of Benjamin Franklin on his phone on his free time.

Lewis: Sounds like eye strain to me.

O’Reilly: Yeah.

Lewis: This is a 35% increase from time spent a year ago. I think something that's important for this conversation is the portion of time spent on mobile web browsers is declining. While in aggregate it's increasing, in 2013 about 20% of time was spent on web browsers with about 80% coming via apps.

Now in 2015, according to Flurry, 10% of time is spent on web browser and 90% on apps. I think that's really the result of all these outlets pushing these people toward dedicated apps.

O’Reilly: I'm just reflecting on my own experiences and I use my phone, but it's all apps. The only time – if I need to find the doctor's office to find their phone number and I use Google Chrome. Facebook is an app, Twitter; they're all apps on my phone.

Lewis: Right. I think that's what we're going to see with extremely online reliant platforms.

O’Reilly: Of course, these apps don’t block ads.

Lewis: Yes. That's the important thing to know here. If you are on Facebook's app it's not going to impact your browsing session at all. Having something like 1Blocker on.

O’Reilly: Oh, good. Facebook can keep pitching me t-shirts for people that are born in Ohio and living in Virginia.

Lewis: The people that are using Twitter and Facebook aren't using it on the web browsers. I don’t think those businesses are going to really be impacted. I think, unfortunately, the businesses that are going to be affected the most are the ones that we're already seeing die off, which is media.

I think one of the most interesting things about this announcement is, you see Apple roll out this feature around the same time they introduce the news app.

O’Reilly: Highly suspicious, if you ask me. It's actually very attractive. I've uploaded it.

Lewis: We're on it. Come check us out: The Motley Fool, on Apple News.

O’Reilly: Nice plug there.

Lewis: Yeah. I set it up so I felt like I had to. I feel obligated to get people to use it. Their news app does allow ads and they serve them up through their iOS platform and depending on the relationship, Apple might get a cut of that. It seems like this might be, in part, an effort to cattle publishers into becoming more comfortable using other people's apps to distribute their content.

If you're offering them these avenues of having the mobile browser experience for your readers and if ads get blocked they get blocked. We're turning a blind eye and enabling it, or you can put your articles on this app, or Google News or something like that, that is not being ad blocked and you're going to gain revenue on it and you'll be fine.

O’Reilly: And we'll take our cut.

Lewis: Yeah. You see that push and I think that's where you're going to see that play out the most. Google will get hit a little by this, but if we talk about the historical rates of ad blocking with Safari users on desktop being at 10% and Safari's footprint in the mid-30s for mobile web browsers, that doesn't factor into a huge population of people. I think we see it more with traditional news media.

O’Reilly: To Google's credit, before we sign off here, as I recall, Amazon and Google are each other's main competitors. People either go to Amazon for a price or research a product, or they use Google. In addition to that, I happen to love -- there's this great, generational photo of my dad and I.

He visited family and he happened to bring his local paper from Cleveland he's sitting there reading the paper and I'm next to him on the couch with the iPad reading Google News. Need I say more? I'm wondering at what point Google will start creating apps because they realize they need to create some apps for people.

On my phone I'll have a Google News app, a Google Shopping app; I don’t know at what point.

Lewis: Yeah. They have a lot of that suite available right now. Right now it's more of 'which provider do you want to go with?' I think all the buzz surrounding Apple News and some of the more visually rich elements of it, in a lot of ways, Google is more of an aggregator at this point. Some people wanted to play around and test out Apple News. It will be interesting to see what shakes out there because they're really competing on serving up content at that point with Apple potentially making ad revenue on it, whereas Google is just keeping people in an attractable system to them.

O’Reilly: I wonder if Sergey Brin and Tim Cook, when they run into each other, if they avoid each other.

Lewis: Yeah.

O’Reilly: "I didn't see you! I'm sorry!" Very good. Thank you for your thoughts, Dylan.

Lewis: Always a pleasure, Sean.

O’Reilly: Have a good one.

Lewis: You, too!

O’Reilly: Stay indoors this weekend.

Lewis: Stay dry.

O’Reilly: Yeah. If you are a loyal listener and have questions or comments we would love to hear from you. Just email us at [email protected]. Again, that’s [email protected]. As always, people on this program may have interests in the stocks that they talk about, and the Motley Fool may have formal recommendations for or against those stocks. So, don’t buy or sell anything based solely on what you hear on this program. For Dylan Lewis, I’m Sean O’Reilly. Thanks for listening, and Fool on!