Despite industry concerns, spending on native advertising is growing at a rapid clip. Here’s why.

Native advertising has historically gotten a bad rap. John Oliver, host of Last Week Tonight, did a particularly poignant segment on why native advertising threatens the very fabric of journalism. In a recent study by the University of Georgia, “fewer than one in five users recognized native advertising as ads.”

And yet, despite industry concerns, spending on native advertising is growing at a rapid clip. Globally, native advertising “is expected to almost double over the next three years, rising from $30.9 billion in 2015 to $59.35 billion in 2018,” according toAdyoulike. In the U.S., Business Insider says, “Native ads will reach $7.9 billion this year and grow to $21 billion in 2018, rising from just $4.7 billion in 2013.”

So what’s fueling the substantial growth of native advertising? I sat down with Henry Lau, co-founder of Instinctive, a leading native advertising and content syndication firm, to better understand. He broke down the cause into three succinct drivers:

  1. Digital advertising’s shift from intrusion to storytelling. For well over a decade, we’ve followed the steady decline of the banner ad click-through rate. Interruption tactics may have worked early on, but consumers have become savvier at avoiding them. “Lately, it’s gotten ridiculous,” says Lau. “Consumers have never wanted to be interrupted, but with the rise of auto-play video advertising and aggressive retargeting, people are getting annoyed.” And consumers are doing something about intrusion via an increase in ad-blocking technology. “Today, as much as 30 percent of all digital ads are being blocked,” says Lau. “As interruption technology has grown, so too has ad-blocking technology.” Last year, The New York Times covered a report from Adobe and PageFair that claimed almost 200 million people worldwide now regularly use ad-blocking software, and that “the levels of ad-blocking activity now top more than a third of all internet users in some countries, particularly in Europe.”Instead of ads, consumers are actively seeking out great content in the form of storytelling. “When done well, native advertising provides real value to consumers,” Lau explains. “By putting the consumer’s needs first, brands are finding compelling ways to engage with the power of stories.”

    Essentially, companies are turning to the laws of attraction with native advertising rather than attempting to interrupt their audience. Great content will attract while aggressive ads will repel. This leads to the second driver of native advertising.

  2. An increased focus on quality time versus tonnage. Programmatic advertising, projected to represent 63 percent of total digital display advertising, has created a market for tonnage (see related article “Problematic Programmatic Media Buying“). Companies that leverage programmatic media buying are looking to maximize media impressions at the lowest possible cost. But there’s a catch. “When it comes to programmatic, there’s simply too much junk and not enough value being delivered,” says Lau. “Everyone is passing the buck, because no one wants to be responsible for the actual result of the digital ad. This is not to say that programmatic couldn’t work in the future, but today, in its current state, it isn’t working that well.” So I asked Lau what he believes the alternative is to a growing tonnage model. “Time,” he answered. “I think time spent is a great way to measure how compelling your advertising and content truly is.” Agreed. Time is the most precious commodity we all have. If your company has something to say that is truly valuable, your intended audience will listen. And Instinctive, Lau’s company, is putting its money where its mouth is by creating an entirely new way to bill clients, by time spent rather than impressions, which have a host of viewability challenges, including the claim that more than half of all digital ads are not seen.
  3. Publishers reaping premium pricing. And last, but not least, are the publishers themselves. While initially attracted to programmatic platforms because of the promise of maximizing profits, many publishers feel that their value has been greatly diminished. The downside of the growing programmatic media trend for publishers is that much of their inventory has been commoditized. To try to combat that trend, many publishers have exacerbated the problem by increasing the amount of available inventory. Native advertising provides an attractive alternative with a limited inventory (by design) and premium pricing. “Native advertising promises premium pricing for publishers amidst downward financial pressure on a cost per impression basis,” says Lau. “Publishers like native advertising because our content is seen as adding value to their site while also providing premium revenue when compared to display ads.”

For these reasons, native advertising is a growing trend and likely to continue to be for the foreseeable future. So before you resign yourself to following the well-worn path of programmatic display advertising, consider what metrics are most valuable to your business. Are you looking for cheap impressions or are you looking for quality engagement time with your target audience?

Lastly, when it comes to the ultimate arbiter of success, native advertising is succeeding there too. In a recent Nielsen case study, native advertising drove “an overall 88.6 percent increase in brand awareness among those exposed to the campaign.” Lau also notes that “beyond brand awareness, several of our clients are leveraging native advertising successfully to drive sales.” These clients include Lenovo, NetApp, Jack in the Box, BlackBerry, and Sky.

The bottom line is that native advertising is a growing trend. While you need to follow the FTC guidelines to stay compliant, you’re going to want to put more of your marketing dollars toward compelling content that can be featured via native advertising versus investing in a fire hose of tactics in an attempt to interrupt your audience.

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