Can Three Force Google, Facebook to Share Ad Revenue?

Business models in the mobile business and ecosystem continue to evolve, and access providers continue to look for ways to increase their share of ecosystem revenue.\

The latest effort--with uncertain outcomes--comes from mobile operator Three, which operates in a number of countries including Indonesia and Hong Kong.

The ambitious gambit is an effort to gain leverage over the major ad-supported apps (Google and Facebook, particularly), and force them to share ad revenue with Three. That, one might argue, is unlikely to happen.

Three does not control enough of the whole mobile user base to prompt immediate reaction from Google, Facebook or other leading ad-supported apps. Advertisers do not pay for ads that are not delivered, so there is a nearly-immediate revenue issue for any big ad-supported app provider.

But the damage is not so extensive that any immediate Google or Facebook reaction will happen. Still, the decision does add weight to a growing issue that advertisers and app providers will have to face, namely the relevance of advertising, as ad blocking continues to grow.

Perhaps almost nothing will happen right away. But it is almost certain something will happen, longer term.

Still, the Three decision is momentous.

Three, after having instituted ad blocking at the network level, plans to add the capability on all of its networks, everywhere, in a way that notably will institute sponsored data for virtually all advertising content, across all Three networks, in a first for any tier one mobile operator anywhere in the world.

The universal ad blocking feature essentially means that all advertising will require that the advertiser pays for bandwidth consumed to deliver the messages, or that ads are blocked.

So Three customers will not pay data charges to receive ads. The policy also means that all advertising instantly becomes “sponsored data.” That is likely to affect developing thinking about sponsored content or sponsored Internet access more generally.

How advertisers react also is a key issue. The Internet Advertising Bureau warns that Three’s move could result in publishers being forced to charge users for content they currently enjoy for free.

The other issue is whether regulatory intervention might occur. Digicel, the Caribbean mobile operator, already has blocked almost all mobile advertising and demanded that publishers and web giants such as Google and Facebook share their revenue with it.

But that has gotten the attention of regulators, who might be looking at whether the practice is a network neutrality infraction. Digicel is not blocking the content, however, only ads, demanding a revenue share with the leading app providers.

Consumers might be affected in any number of ways. The unintended consequence might be that Three users find they have to pay for content that presently is provided at no additional charge, as advertisers pay on behalf of their end users.

In a policy that also should help shape the nature of advertising in direction it had already been moving, Three’s policy aims to promote advertising content that is “relevant and interesting” to each user.

At the same time, the new Three policy will seek to block “excessive, intrusive, unwanted or irrelevant ads.

This is a huge shift, with implications for all apps that are ad supported, which is to say nearly all the important and widely-used apps. The policy also will force advertisers to recraft their ads, and significantly, pay for the bandwidth used when consumers view those ads.

The ultimate implications are not clear, as it remains to be seen whether the leading mobile providers in any market will follow the example. If the other contestants do not adopt similar policies, Three might simply find it gains consumer subscription market share, at the cost of losing some attractiveness for ad-supported apps and advertisers.

Three might well consider that a reasonable trade off.

Three UK and Three Italy have implemented the Shine Technologies ad blocking system, with intent to enable the feature on all Three networks in all countries.

“Our objective in working with Shine is not to eliminate mobile advertising, which is often interesting and beneficial to our customers, but to give customers more control, choice and greater transparency over what they receive,” Three says.

Precisely how Three will work with the advertising community to achieve those goals is not yet clear.

“Over the coming months Three will announce full details of how it will achieve these objectives and will work with Shine Technologies and the advertising community to deliver a better, more targeted and more transparent mobile ad experience to customers,” Three says.

"Irrelevant and excessive mobile ads annoy customers and affect their overall network experience,” said Tom Malleschitz, Three UK CMO. “We don't believe customers should have to pay for data usage driven by mobile ads.”

The question now is how successful Three will be. Though few leading app providers are likely to block access to Three customers, they are going to have to figure out how to mollify advertisers, or simply forego some ad revenue earned from views on Three networks.

It will be complicated. Three is gambling, likely reasonably, that no leading app provider will block use of its apps by Three customers. But the new policy immediately raises revenue issues for all ad-supported app providers, with new cost issues for those app providers and their advertisers.