Operators Should Block Ads to Get Their Cut, Startup Says
Israeli startup Shine has the noble goal of turning wireless operators from dumb pipes into bright pipes, but its methodology, which is dependent on the legality of ad-blocking programs, has been dubbed everything from insane to egregious to "never-gonna-happen."
The reactions are interesting considering CMO Roi Carthy says the level of operator interest is so sky-high his 23-person team can't keep up with the demand.
So, first, the backstory: Shine Technologies was founded in 2011 to reinvent the mobile anti-virus sector with algorithms so good Carthy says it attracted a $20 million acquisition offer. Shortly thereafter, as a courtesy to a friend at an operator, Shine's team used its real-time tracking technology to look into who was using the operator's bandwidth and discovered background signaling from mobile advertisers on its network.
Through its technology, it could see down to what ads were riding its network and how many clicks they were getting. Carthy says another set of algorithms let it then calculate current rates for the relevant media and project the total worth per day, week, month and year. He isn't giving up any numbers, but said they were significant enough to upset the operators that were not getting any cut. It's a situation they're used to with many over-the-top apps, but Carthy says it was a shock to them to realize the extent of ad network's so-called "abuse."
"Being outsiders, we didn't realize this was so traumatic to them," Carthy says. "They knew they were being abused; they knew there was a party in their background, but now there's a dollar value. It's a bunch of money."
This knowledge caused Shine to shift its focus dramatically. It still offers its anti-virus software, but its primary focus is on a new enemy: advertising. Its technology, being marketed as AdSight, now essentially treats ads as if they were malware allowing operators to entirely block them -- whether in-app or in-browser -- at their discretion, forcing the ad network to strike a deal with the operator if it wants to be displayed.
Carthy calls this operators regaining control of their own destiny, but it is easy to see why it would raise the ire of regulators, consumers and, of course, the ad industry, especially in the US, where net neutrality discussions are well past heated. But Carthy maintains that, even in the US, mobile ads don't fall under any type of regulation. (See Obama Backs Net Neutrality, Stuns Industry.)
The CMO says the company hired a European firm to look into this for them, and it determined that if a subscriber chooses to opt in or out -- depending on the region and its requirements -- it is perfectly legitimate to block an ad. That is the key loophole.
Legal or not, however, not everyone agrees it's justified. What Carthy calls abuse from the ad networks, JackDaw Research analyst Jan Dawson calls "misinformation about carrying content carriers always harp on about -- that is, that they're somehow not being paid adequately for carrying the content already."
Dawson doesn't see the startup having much luck in the US, but says some European operators may be "desperate enough to try this" in their quest to take a cut from Google (Nasdaq: GOOG) and others.
Shine is, in fact, counting on this desperation for business and has so far seen it play out in its meetings. Carthy expects deployments in Europe first, but says he's in talks with all the major US operators as well. And, rather than focus on regulation, he says they are concerned about, one, how blocking ads might affect the user experience, and, two, how they can position this as an amicable agreement with the ad networks rather than an act of war or revenge.
As for the first priority, Carthy says the user experience is not disrupted. In fact, it may be even more positive without so many ads cluttering the small screen. As for the second, the operators are exploring what they can offer in return -- things like better targeted ads or guaranteed quality for video ads. The ad industry may not be so amicable, but Carthy maintains they knew this day was inevitable.
"There will be some push-back, but it's not as militant as some could imagine," he says.
Carthy says his last remaining challenge is existential, simply convincing the carriers to commit to the transformation from dumb to bright pipes instead of maintaining the status quo.
Operators have to have the confidence to jump in the water, though you can imagine why they'd be reluctant. Many have experimented with mobile advertising in the past, selling customer data to advertisers to better target their ads, hosting ad networks even offering their own location-based ads. There's almost always backlash from consumers and regulators. (See Verizon Rewards Customers for Their Data.)
"I can only imagine the outcry from both users and content providers if ads started being blocked or replaced by the carriers," Dawson tells Light Reading. "It's a pretty egregious bit of interference in the free flow of content between content providers and users, especially if the carriers aren't transparent about it."
That said, Carthy is confident -- cocky, even -- that his technology is legally sound, mutually (more or less) beneficial and completely necessary. Now the operators will have to decide if the potential payback is worth the inevitable backlash.
"This is the moment in carriers' lives, the end of a chapter and beginning of a new one, moving from a dumb to bright pipe," Carthy says. "It won't slow down, so do it now or give up entirely."
— Sarah Reedy, Senior Editor, Light Reading