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Alphabet after 1Q17 Earnings: Verily, Waymo, and Smart Speakers

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Part 11
Alphabet after 1Q17 Earnings: Verily, Waymo, and Smart Speakers PART 11 OF 17

Google’s Rationale for Building an Ad Blocking Tool

Advertising is Alphabet’s lifeline

Alphabet’s (GOOGL) Google could soon introduce an ad-blocking feature in its Chrome browser, according to the Wall Street Journal. However, this action reeks of irony considering that the entire Alphabet organization relies on advertising revenues. In 1Q17, advertising contributed ~86.3% of the $24.8 billion revenues reported by the company. Facebook (FB), Twitter (TWTR), and Snap (SNAP) also rely on ads.

Why would Google be interested in an ad filter if advertising is its lifeline? Google is trying to stem the rise of third-party ad-blocking tools so that can take control of the ad-blocking industry and potentially teach publishers acceptable ad standards.

Google&#8217;s Rationale for Building an Ad Blocking Tool

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The popularity of Chrome gives Google an edge in dealing with the ad-blocking problem, especially in pushing back against third-party filters. Chrome controls ~45.3% of the US (SPY) browser market and 53.7% of the worldwide market, according to StatCounter.

Paying to bypass ad filters

Third-party ad filters are a drag on Google’s advertising success. When people use these tools to block ads from displaying, they deny Google and ad-funded online publishers a vital source of revenues. In some cases, publishers are forced to pay providers of ad-blockers so that their ads are allowed to bypass the filters, but this eats into their income.

Tackling the cause of ad blocking

Offensive and annoying ads are a major reason Internet users employ ad filters. With its ad-blocking tool, Google would know how to tackle this problem and create a win-win situation for all parties. For example, the tool would only penalize sites whose ad formats fall below the acceptable standards. That way, Google would force publishers to adopt acceptable ad standards on their sites.

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