The Rise of Native Advertising

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The digital world continues to disrupt the traditions of publishing media. With decimated rates for display ads and more players in the field, it gets more complicated to find decent revenue streams for publishers in the digital sphere. We spoke with Brian Morrissey, editor-in-chief of Digiday, about the current trend towards native advertising and the challenges publishers have to face.

Digiday covers the transitions the media industry is undergoing from analogue to digital including perspectives from publishers, agencies and brands. In your view, what are the most interesting trends within this field today?

For the publishing field, I think the most interesting trend around there is native advertising. The concept is not particularly new, advetorials have existed for a while. However, there's a supply and demand imbalance in the media system right now: brands have so many different options to place ads that publishers need to figure out new ways to provide value in order to survive.

Another really important trend that is related to this development is the rise of programmatic advertising. These automated ad systems are making advertising very efficient for brands because they can find specific audiences no matter where they are. This efficiency on the other side ends up challenging publishers a lot. They have to adopt these automated systems, yet they often lead to lower ad rates. So while the standard banner ads are mostly handled by automated systems, the real value for the publishers has to be in providing something that machines can't do and that's where the concept of native advertising comes in.

What are the biggest challenges publishers have to face in the context of native advertising?

I think the biggest challenge is first of all doing it in an ethical and transparent way. The attraction for many advertisers is that the format doesn't exactly feel like advertising. However, as a publisher you have to make sure, it doesn't fool the readers. Another big challenge is to develop the internal capability to create it. The editorial staff typically can't do it. So we see more and more publishers that build up their own internal creative service departments to create the content on behalf of advertisers. A company like Vice Media is pretty much half an advertising company, half a publishing company. It is what publishers have to do today. And the final challenge will be pricing pressure. Right now native advertising is like a new bright and shiny object that allows publishers to charge pretty good rates for it. However, the rates will naturally come down when more and more publishers offer these kind of advertising opportunities.

Some publishers charge native ads based upon how many posts and display space you get. Does native advertising offer the opportunity to break away from CPM-based rates?

In the field of regular display ads, there is a lot of pressure on CPMs, the price is going down. Native advertising right now has an advantage of being new so publishers are able to charge a premium for it. Right now the metrics aren't totally set. A lot of publishers want the advertisers to judge the success based on publisher metrics like pageviews and shares. The problem is those can be easy to gain. You can charge someone based on the number of pageviews for a sponsored post. And you can just buy those pageviews through different networks for much lower cost so that it becomes an arbitrage game. Those views might not be from the type of people the advertiser wants. So we are in a weird situation right now where publishers are buying advertising for their advertising.

Brian Morrissey

Looking at the way native advertising is implemented today, do you think users clearly understand which posts are paid for or do we need a new set of standards to assure transparency?

We recently had hearings here by the Federal Trade Commission that looks into these matters. Right now everyone is labeling native ads differently and there are a lot of euphemisms around there. Some call it "featured partners", some say "associated with". What is interesting is that the New York Times is about to start running native advertising and will actually just call the posts "paid". I think the standards will come. When you look at search advertising, Microsoft called their ads "featured links" first, Google used the label "sponsored" and eventually changed it to "advertising". As they got really good at making sure the ads were very high quality, the label didn't really matter anymore. So I think over time we will see the pendulum swinging towards just calling these things what they are which is advertising.

Apart from the labeling, by its very nature native advertising seeks to mimic its editorial surrounding. So isn't there still a risk that it blurs the distinction between content and advertising that has been part of the journalistic code of ethics for quite some time?

There is always a risk of that. But I think there is a way to mediate that risk and make sure you try to balance by following the same kind of ethics that have governed journalism for a long time. However, you got to operate within the reality of a truly challenging business climate. I think there has always been a push and pull between the business and editorial side and this won't stop. The only thing that has changed recently is that the voice of the business side probably wins the day more often because it is a very challenging environment.

And the shift to mobile has added to that environment.

Yeah, it's funny because if you look at the shift from analogue to the desktop Internet, publishers have struggled to figure out new content and business models. And now on top of that there comes this shift from desktop to mobile that has hit them. Ad rates are starting to come up, but a reader of a newspaper is still worth less than a half on the desktop and the value is decimated again for a user on the mobile. The majority of digital advertising is still banner ads and they don't translate very well to mobile. Most of them are not even readable. And that's another attraction for native advertising: it's easier to translate to mobile.

Do you think we will see new content models evolving in the near future?

I think we will see all sorts of new formats striving. And this is a good thing, it's an age of experimentation trying new models and figuring out what works and what doesn't. It will be interesting to see if anyone can come up with a real publishing model for mobile. People like Circa are trying to do that for news, USA today recently created a sports section for mobile that runs articles with less than 50 words. These are interesting models. And I do believe that there will be a flight to quality. For the most part media brands have always been build on quality. And I think we will going to end up seeing that.

Brian Morrissey will speak at DLD14. Tune in on the beat of our community on the DLDpulse and find regular updates on the DLD14 programme and speakers here.

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Brian Morrissey
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