Digital advertising may have to turn to a subscription model
As ad-blockers surge in popularity, making it harder for digital advertising to reach all corners of the internet, professors from Wharton School of the University of Pennsylvania suggest that the future of digital advertising might include subscriptions, similar to that of television. Professor Kevin Werbach said it is "better to have the opportunity to generate revenues from both sides of the market: users and businesses who want to reach those users". Bigger sites like Google and Facebook could package up ad-free content from publishers, or even charge users for a premium, ad-free version, added Professor Peter Fader.

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by Guest contributor

Presented here for discussion is an excerpt of a current article published with permission from Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania.

With the popularity of ad blockers just one of the newer hurdles facing digital advertising, internet publishers may have to band together to offer bundles that can justify subscriptions, argue two Wharton professors.

Wharton legal studies and business ethics professor Kevin Werbach likens the potential change to television’s shift from a predominantly advertising-supported model to subscriptions. He said, “It’s ultimately better to have the opportunity to generate revenues from both sides of the market: users and businesses who want to reach those users.”

In the end, large sites such as Facebook and Google, would be aggregators capable of bundling ad-free content from publishers similar to the way cable TV does. Prof. Werbach states, “A fair number of users might be willing to pay for ad-free content on high-quality sites like newspapers, but they don’t want to pay each of them individually.”

Peter Fader, a marketing professor at Wharton and a RetailWire BrainTrust panelist, notes that Facebook could charge for a premium ad-free experience similar to Spotify. “Facebook Premium could charge $6 a month, have an ad-free experience and offer more control. Facebook could make so much more money,” he says.

What remains to be seen is whether consumers will go for an à la carte subscription approach in which every company has relationships based on data.

“Look at the over-the-top [direct internet-delivered content] companies like Netflix, Hulu and Amazon. They’ve managed to go it alone,” says Prof. Fader.

Novel models that revolve around using data and customer relationships may give internet publishers more control over their destinies. One risk is that Google and Facebook would secure massive clout from their control over data.

Meanwhile, Forrester Research recently found that one third of U.S. online adults use an ad blocker and 48 percent actively avoid ads on websites. Prof. Werbach believes the biggest issue with digital advertising is that there are “divergent incentives between users and advertisers.”

“We’ve clearly reached the point where many users feel the proliferation of ads has gone too far,” says Prof. Werbach. “Right now we’re seeing a technological arms race behind the scenes between the advertising-dependent sites and the ad blockers. That’s not a healthy or stable situation.”

DISCUSSION QUESTIONS: Would a subscription model likely work better to support online and mobile services than advertising? Do you share doubts about the long-term effectiveness of digital advertising?