Why You'll Warm Up to Native Ads in 2014
In July of last year, the Online Publishers Association ran a study that found that about three quarters of its members offered some form of native advertising. The OPA predicted that by the end of the year, that count would change to 90 percent.
"As I look at the members of the OPA and what they’re offering, I would say the projections here, we’re very close to. As we ended 2013, the majority -- close to 90 percent -- were offering native adverting," OPA President Pam Horan told Inc.. Native advertising, as defined by members of the OPA, is an ad that's integrated into a site's or an app's design.
Until recently, many business owners have thought of a native advertisement as the ugly cousin of the banner ad. But for such a controversial form of advertising, it's been widely adopted in the past year. Here are a few emerging trends that explain why it's gone mainstream, and why its use will continue to accelerate in 2014.
Qualms Will Disappear
Traditionally, there's been a stigma associated with native advertising due to concerns that it might be used to trick consumers. For example, on editorial platforms, it can be difficult to distinguish what's journalistic content and what's marketing. However, after being embraced recently by several prominent organizations, the prevalence of native ads is set to take off.
Last month the Federal Trade Commission held a workshop "to examine the practice of blending advertisements with news, entertainment, and other editorial content in digital media." In the past, the FTC has published guidelines advising companies on how to make online advertisements clear and conspicuous.
Altimeter Group Analyst Rebecca Lieb interpreted the recent workshop as a sign of approval from the FTC -- so long as native ads follow those clear and conspicuous guidelines. "It’s going to accelerate the development of this entire segment of the industry. Simply by virtue of the fact that they’ve kind of anointed it by recognizing it," Lieb said.
Then just last week the New York Times debuted its first native ad in partnership with Dell. In a way, this came as a surprise since the Times has been squeamish about the idea of sponsored content. In the past, Times Executive Jill Abramson has said that she didn't want readers to be confused as to where content comes from. The news organization had tackled that issue by sticking a "Paid Post" label on its native ads.
Finally, if mainstream acceptance hadn't yet been declared official, JP Morgan predicted that native advertising would take over digital channels in 2014. "We believe native ads are quickly becoming the de facto ad format on mobile and increasingly moving into desktop," analyst Doug Anmuth wrote in the annual “Nothing But Net” report. And with increasing adoption will come increasing acceptance.
Opportunities to Scale Will Arise
There is an inherent problem with native advertisements since they are created specifically for the platform they appear on. This makes a native ad impossible to distribute as widely as a banner ad, causing some to believe that the ads are not worth the investment.
Naturally, both startups and advertisers are looking for solutions to the problem. Examples of these companies include OneSpot and InPowered. Generally speaking, rather than try to make advertisements look like content, these startups aim to do the reverse. For example, InPowered combs the web for positive mentions about companies from journalists, and then packages that content into an ad.
Another solution, Lieb suggested, is that native ads will be designed to be unique to a portfolio rather than a platform. For example, rather than create a custom ad just for Gawker, the ad could be made to run on Gawker's affiliate site Jezebel as well.
Native Ads Are a Viable Business Model -- At Least Temporarily
Twitter's IPO was huge for startups whose main source of revenue comes from native advertising, according to Lieb. At the time Facebook went public, it was experimenting with both tradition and nontraditional forms of advertising. But when Twitter went public it only offered native ads.
"Obviously the market has supported that IPO -- whether or not the stock market completely understands what native is," Lieb said. "Twitter will come out with other stuff, but they went public on native and that’s quite a statement."
Other startups to keep an eye on include Instagram, Tumblr and Buzzfeed. Like Twitter, these startups only offer native ads. Also like Twitter, they will probably later need to come up with another form of revenue in order to survive. But in the short-run, investors are more likely to take them seriously because of the example Twitter set in 2013.