An ad-supported internet isn’t going to be sustainable in emerging markets

Mark Zuckerberg visiting startups in Nairobi last year.
Mark Zuckerberg visiting startups in Nairobi last year.
Image: Red Media
We may earn a commission from links on this page.

Can you imagine an internet without advertisements?

It’s difficult. Since the web’s genesis, advertising has been the reigning business model. The vast majority of online content and services — from entertainment and journalism to search engines and email — are supported by banners, displays, and leaderboards. Today, two of the world’s largest companies—Google and Facebook—earn the bulk of their revenue through advertising.

Put simply: The phrase “ad-supported internet” can seem redundant.

But as the internet expands into emerging economies like Nigeria, Kenya and Rwanda, this may no longer be the case. As billions more digital citizens connect this decade, a critical question arises: Does the internet’s current business model work in newly-connected regions?

The answer is “no.” Increasingly, research and practice show the ad-supported internet of developed economies isn’t sustainable in regions like Sub-Saharan Africa, South Asia and Latin America. And so billions of new users face an inflection point: miss out on the richness of the internet. Or, develop new business models to ensure the web remains open and accessible.

In the United States, the UK and other regions with lengthy access pedigrees, the success of an ad-supported internet maps to a handful of factors. Digital advertisers are operating in robust economies with ample consumer spending. Users are typically equipped with modern hardware and abundant data plans, allowing them to effortlessly stream video and navigate thickets of tabs and browser windows. This lets publishers track activity and show lots of targeted, high-value advertisements. As a result, Facebook earns a quarterly average revenue per user (ARPU) of $19.81 in the U.S. and Canada, compared to just $1.41 in Africa and Latin America. Indeed, almost half of Facebook’s revenue comes from just 12% of its users, many in North America.

In emerging markets, low disposable incomes make audiences much less valuable to advertisers. Audiences in Nigeria will pay 1/10 or less for an ad compared to one in the U.S. And many low-income users have feature phones or low-end smartphones that struggle to access modern websites and apps. These are further limited in their use by the high costs of data. The result is that for much of the population in Sub-Saharan Africa, “going online” and engaging with digital content and services is a fundamentally different experience than it is in the West.

Compounding the problem is ad blocking. In the U.S., thwarting ads is a choice — a way to make the web less cluttered. But in emerging economies, thwarting ads is more of a necessity. Steep data costs and sluggish network speeds make ads expensive obstacles. As a result, proxy browsers that block ads, like UC Browser or Opera Mini, are commonplace. According to a report by PageFair, more than 309 million Internet users deployed mobile ad blockers in 2016, with nearly a third of that number hailing from India.

The newest digital citizens also produce significantly less information. Digital footprints in Nigeria and India are smaller: fewer web site cookies, fewer online purchases, fewer search engine queries. And new users often create multiple social media accounts, fragmenting already limited profiling data. The result is a scarcity of personal data for targeting ads, making it harder for advertisers to see an ROI on their campaigns.

What does this mean? Can the internet only flourish in developed economies? Are the next billion destined to limited access? In Paying Attention to the Poor: Digital Advertising in Emerging Markets, new research by Caribou Digital and Mozilla, we explore the reasons why digital advertising isn’t thriving—and what it means for the future of the web and internet-based businesses in the Global South.

A key concern is that the global internet platforms, especially Facebook and Google, earn so much revenue in developed markets that they can afford to grow their user base in the less profitable markets of Africa and South Asia. Indeed, our analysis of Facebook’s business suggests that there are dozens of markets — primarily in Africa — where the firm isn’t making money. If a company with Facebook’s scale and market dominance isn’t able to build a strong ad business in these markets, the outlook is bleak indeed for smaller, local firms who don’t have revenue streams from lucrative Western markets to subsidize their efforts. As a result, innovation and competition is stifled, and the major players become further entrenched.

But there are reasons for optimism. The same access and affordability constraints that limit ad revenues are sparking innovation. Companies are offering users free data in exchange for watching ads or engaging with a sponsor. For example, with companies such as Gigato or Jana, advertisers will pay for the data if the user downloads and installs their app, or performs an action like sending a message or playing a game. This gives the advertisers (often an app developer) downloads and installs, which help build their visibility. Another venture, BRCK in Kenya, asks users to watch video ads in exchange for limited time access through Wi-Fi hotspots, but uses locally cached content to help cut down on its bandwidth costs.

Barriers to an ad-supported internet may also force changes that are ultimately beneficial. Fundamentally, the inability to follow the typical Silicon Valley path — grow the user base at all costs using VC money, then flip the switch to turn on ads and monetize the base — may yield more disciplined, sustainable businesses. And the dearth of personal data profiling and targeting by advertisers may provide more opportunity to business models that better respect user privacy.

It’s heartening to see innovative, local solutions emerge. But internet users should be cautiously optimistic: New business models also present new obstacles, like threats to net neutrality, or the deepening of digital divides. In an ideal world, the new business models that bring billions more online will value principle alongside profit, and preserve an internet that’s open, equitable and healthy.