Online advertising is about to be 'fundamentally restructured' by Apple, Google, and Facebook

Online advertising is about to be "fundamentally restructured" in a way that will result in "massive consolidation" among among platforms and content orders, according to a report published Wednesday by Goldman Sachs.

Goldman Sachs' analysts say there are three main drivers behind the shift: The growth of mobile, user experience, and the rise of ad blocking.

What's most interesting about Goldman Sachs' "New Ads on the 'Block'" report isn't so much its findings on what's happening now, but rather the potential outcomes its analysts believe could soon come to fruition, which will completely change the shape of the digital advertising market.

Ultimately, Goldman Sachs expects "the infrastructure underpinning the digital ecosystem to likely go from the fragmented oversupply of largely recycled or undifferentiated content sites supported by a massive ad tech ecosystem toward consolidation around platforms and content owners."

Here are a few of the scenarios Goldman Sachs is predicting:

Apple will begin controlling a closed advertising system

Goldman Sachs predicts that Apple is starting slowly with ad blocking, but that it could soon bring the capability in-house. The report compares the situation to how Apple approached music (emphasis ours):

Apple's foray into digital music started in a meaningful way with the introduction of the iPod in 2001. Apple then launched the iTunes Music Store 2 years later, selling songs for $0.99 each and accelerating its music ecosystem and iPod sales. By the time the iPhone was launched in 2007, Apple had become a significant digital music seller and Apple's closed music ecosystem accelerated with a pre-loaded iPod app in iOS 1, a pre-loaded iTunes app in iOS 2, replacement of the iPod app with a Music app with iOS 5, the launch of iTunes radio with iOS 7, and the launch of the Apple Music streaming service with iOS 8. With each incremental step, we view Apple at once enhancing value of its music ecosystem and encouraging users to fully adopt its closed ecosystem - an analogy that could be applicable to Apple's process with content blocking.

Apple could also make a big move to ensure the advertising on its platforms align with the way the company views use of personal data. Apple CEO Tim Cook famously took a potshot at the way other Silicon Valley tech companies gather user information in order to monetize it, saying: "We think that's wrong. And it's not the kind of company Apple wants to be."

That said, Apple does sell advertising itself, through its iAd platform. It's not a core part of the business - it has less than a 3% share of the US mobile advertising market, according to eMarketer - but Goldman Sachs believes it could become more important.

Goldman Sachs suggests Apple could pivot iAd to offer advertising that is "completely untargeted, or targeted based on non-personal data like interests or context of the content" and that the company could extend iAd from apps and content initiatives like Apple News (where it operates currently) to the mobile web. That could be a gamechanger, because Apple controls "the most coveted audience for advertisers," according to Goldman Sachs.

Google could become the mechanism for change in improving acceptable ads on the web

Some premium publishers have already begun improving their advertising experiences to offer more "acceptable" ad formats, particularly "native" ads - ads that are clearly marked as paid-for, but fit with the general style and context of the site and don't interrupt the experience. It's a format pioneered by Twitter with its sponsored tweets and Facebook with its news feed ads, and has since been adopted by the likes of Yahoo, BuzzFeed, and Vox Media.

Other publishers are also looking at and investing in tech that improves the creative or speeds up load times.

But this isn't happening universally. The smaller players in the market "don't have the resources or incentive to adapt," and it's these kinds of sites and their annoying ads - pop-ups, autoplay video, interstitials that interrupt the reading experience - which are driving up ad blocking adoption, according to Goldman Sachs.

But Google could change all this.

"Google operates the largest ad exchange and ad server through DoubleClick and could become significantly more selective not only on ad types and formats permitted, eliminating those with large file sizes, but also publisher standards on page load times. This could be a catalyst for publishers to streamline the number of third party scripts and tags embedded in the site and accelerate the shift to higher quality ad formats," the report says.

Google has already forced huge industry changes before. Remember "Mobilegeddon," when it began punishing website owners who didn't have mobile-optimized sites in its search results? Or more recently, when Google turned off support for Flash in Chrome?

And Goldman Sachs has a good reason why Google would become the mechanism for change: "In one word: Android. Should performance and cost of ownership on iOS dramatically improve as users adopt ad blockers and Apple gain[s] incremental hardware share, Google could be forced to respond to remain competitive."

"Significant" consolidation among publishers - and those that stick around will become more reliant on platforms like Facebook Instant and Apple News

Publishers that simply recycle other content will begin to struggle, and will see consolidation. Goldman Sachs says a subset of publishers with scale and unique content will begin forming deeper partnerships with companies like Facebook, Google, and Apple to improve distribution, they may begin charging for access through subscriptions or micro-payments, or start restricting access to users with ad blockers turned on. Or all of the above.

Publishers were once extremely wary about distributing their content across third-party platforms. Chris Duncan, the chief marketing officer of the UK's biggest newspaper publisher News UK, once described Facebook's Instant articles (a way for publishers to distribute their content via the Facebook app) as a "tax on navigation" and a "tax on audience."

But now more publishers are warning to the idea. BuzzFeed CEO Jonah Peretti recently outlined how the publisher views everyone that views its content - whether they see it on Facebook native video, or Snapchat Discover - as BuzzFeed traffic, even if they're not on BuzzFeed.com.

That kind of thinking about distribution will continue to become more widespread around content owners, according to Goldman Sachs. It believes the most significant push will likely be toward in-app or platform distribution.

"The value proposition to publishers is a faster page load time and better consumer experience while retaining existing advertising revenue ... We expect these to be structured as revenue share deals, though some are initially not taking a fee from the publishers," the report says.

What this means for ad tech

This will all have an impact on ad tech, resulting in consolidation within this industry too as publishers increasingly work with a smaller group of trusted partners (many of those aggregators they work with like Facebook and Google have their own ad tech too.)

Goldman Sachs believes this could have two outcomes for ad tech: another wave of ad tech M&A, and that "the attrition of sub-scale, outdated or undifferentiated companies could increase the value of the remaining companies, particularly those with unique data assets like Datalogix (part of Oracle) and Criteo, among others."

Over time, the value of ad tech companies will begin shifting from media buying, to "data enablement," as Goldman Sachs calls it.

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