Ad Tech Stocks Decline on iOS 9's Content-Blocking Feature

Advertisement, the lifeline of publishers, big or small, appears to be facing a new challenge. Ad technology companies, which offer digital marketing solutions including online ad tools, are apprehensive of Apple's AAPL latest take on prohibiting ads. Apple's iOS 9, which is expected to support "Content Blocking," can block cookies, images, resources, pop-ups and other content.

While this may come as a relief to users who are harassed by random pop-ups, it has caused some serious concern in the digital marketing world. In fact, some ad technology stocks plunged in response to the news.

Shares of companies like the Rubicon Project, Inc. RUBI, TubeMogul, Inc. TUBE, Rocket Fuel Inc. FUEL and Millennial Media Inc. MM, declined 8.2%, 7.3%, 5.5% and 1.8%, respectively, over the past 5 trading sessions following the news about iOS 9. Criteo SA CRTO, which gained 1.6% on Friday's closing trade, lost 8.2% over the past week. Not only the ad technology stocks, ad platforms like Google Inc. GOOGL and AOL Inc. AOL also dipped a respective of 0.3% and 0.01% over the same time frame.

While blocking advertisements on desktop remains a common practice, Apple has moved up a step by offering users the convenience of blocking unwanted banners and images on their mobile browsers as well. Currently, Apple's new ad blocking technology will help iPhone users — who upgrade to iOS9 — to block all ads on the Safari web browser through browser extensions.

In our view, however, Apple's recent strategy is not just about helping its users.The iPhone maker has an advertisement app called iAd, which currently generates a very small percentage of its revenue. Hence, blocking ads on its browser might be Apple's strategy to direct traffic through its own applications, if publishers wish to target iPhone or iPad users. This will, in turn, boost revenues and diversify Apple's revenue source, which primarily consists of hardware sales.

It will also enable the company to tap into mobile advertisement dollars, which have so far gone to third-party platforms. After all, mobile advertising is a rapidly-growing market (a $100 billion opportunity by 2018 according to eMarketer) and Apple's share in the smartphone space (18.3% as per the latest IDC report) is considerable and growing. So it is not surprising for the company to be taking this route.

Hence, it remains to be seen if small ad technology companies and startups can survive in an environment where big ticket companies that own key technology platforms (operating systems, social networks etc) like Apple, Facebook FB (read more: Will Facebook's New Search Engine Hit Google's Business?), Google GOOG and Twitter TWTR (read more: Twitter to Put Ads on Websites, Apps via Feeds) increasingly develop their own tools and block third-party interference.

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