System1's Strategic Shift to RSOC: Navigating Ad Tech's Evolution for Long-Term Growth

The ad tech landscape is undergoing a seismic shift, driven by evolving user expectations, regulatory pressures, and technological innovation. At the heart of this transformation lies System1, a company navigating the transition from its legacy Ad Feed Display (AFD) model to a more sustainable and user-centric approach: Related Search on Content (RSOC). This shift is not merely a tactical pivot but a strategic repositioning to align with the future of digital advertising. As Google's policies increasingly marginalize AFD-a model reliant on parked domains and multi-click journeys-System1's adoption of RSOC represents both a response to external pressures and a proactive bet on long-term growth.

Strategic Rationale: From AFD to RSOC

The transition from AFD to RSOC is rooted in a fundamental rethinking of user experience and monetization. AFD, while historically profitable, has faced criticism for its friction-heavy design, requiring users to navigate multiple clicks to reach advertisers. This model, though generating higher revenue per click, suffers from poor conversion rates and declining user tolerance for intrusive experiences, according to a search arbitrage guide. In contrast, RSOC embeds search feeds directly into content pages, creating a seamless, contextually relevant interaction. This approach not only aligns with Google's tightening content quality guidelines but also enhances user satisfaction and advertiser ROI, as noted in the search arbitrage guide.

System1's leadership in RSOC implementation has positioned it as a pioneer in this space. The company's strategic timeline, spanning 2023 to 2025, reflects a deliberate acceleration of this transition. Google's 2025 policy changes, which have effectively curtailed AFD's viability, have further cemented RSOC as the preferred model. By 2025, System1 and its partners are increasingly prioritizing RSOC, signaling a broader industry trend toward contextual, user-first monetization, according to the same guide.

Market Reception: Challenges and Resilience

The market's response to System1's transition has been mixed. In Q3 2025, the company reported a 31% year-over-year revenue decline, missing analyst estimates by $12.9 million, according to a Reuters report. This shortfall was attributed to Google's policy shifts and the inherent challenges of transitioning to a new monetization model. However, the company's financials reveal a more nuanced picture. Adjusted gross profit margins surged to 59% from 42% in the prior year, driven by a shift toward higher-margin products and AI-driven cost efficiencies, as outlined in the Reuters report. Additionally, System1 reported adjusted EBITDA of $9.90 million, underscoring its ability to maintain profitability despite revenue headwinds.

Analysts remain cautiously optimistic. The lone analyst rating for the stock is a "buy," with a median 12-month price target of $10.00-nearly 76% above its November 4 closing price of $5.69, according to the Reuters report. This optimism is rooted in System1's strategic pivot, particularly its focus on AI integration and diversification beyond Google.

Competitive Positioning and Long-Term Viability

System1's competitive edge lies in its ability to adapt to ad tech's evolving dynamics. The company's Q3 2025 earnings call highlighted a 8% year-over-year revenue increase in its Products segment, alongside a 23% growth in sessions, according to a Seeking Alpha report. This segment, now the primary driver of gross profit, reflects System1's pivot toward higher-margin offerings, including AI-powered tools and partnerships with platforms like Bing.

The company's investment in AI is particularly noteworthy. By automating decision-making and enhancing user experience, System1 is reducing operating expenses while improving efficiency. For instance, AI agents are being leveraged to optimize ad placements and session management, creating a feedback loop of data-driven refinement, as described in the Q3 2025 release. This technological edge, combined with a diversified partner ecosystem, positions System1 to weather the decline of AFD and capitalize on RSOC's growth potential.

Moreover, System1's leadership in newer Google products-despite broader challenges with its largest partner-demonstrates its agility. The company claims to be the market leader in these emerging offerings, suggesting a capacity to innovate within constrained environments, according to the Q3 2025 release.

Conclusion: A Calculated Bet on the Future

System1's transition from AFD to RSOC is a high-stakes maneuver with significant long-term implications. While the near-term revenue volatility and reliance on Google pose risks, the company's strategic focus on user experience, AI integration, and margin expansion offers a compelling case for resilience. The ad tech industry is moving toward models that prioritize context, relevance, and compliance-areas where RSOC excels.

For investors, the key question is whether System1 can sustain its pivot while navigating the uncertainties of a rapidly shifting landscape. The company's financial discipline, technological innovation, and analyst optimism suggest a strong foundation for growth. However, success will depend on its ability to scale RSOC effectively and diversify its revenue streams beyond Google. In an era where adaptability defines survival, System1's journey offers a microcosm of the broader ad tech evolution-and a test of its leadership's vision.