Fred Wilson is one of the leaders of the New York tech scene, which has grown exponentially over the last five years. Over three years ago, Wilson, a seasoned venture capitalist, coined the term ‘native ad’, that described a new form of advertising. This new form of advertising is essentially an organic ad that appears as a natural and intrinsic part of the content in which it appears. The rest, as the saying goes, is history. The term became deeply rooted in the industry and even got its own category in the overly saturated space called digital advertising. Over the past few years, the term ‘native advertising’ remained the hot buzz word among industry players but it was not until about 18 months ago, when it found a home in mobile apps, that it started to reach its true potential. It is erupting ever since.
2014 was the first year in which the majority of web consumption originated in mobile devices, smartphones, and tablets. Of course, this was an obvious trend with the proliferation of mobile devices growing among the younger generations, and particularly the increasing usage of mobile apps.
Mobile real estate
This new transition to mobile presents a challenge for Internet giants such as Yahoo and AOL and for large content and media companies like the NY Times, Conde Nest and CNN who sustain themselves by selling ad space. These entities are finding that most of their content is now consumed on mobile, which means that their entire business model and pricing structure to advertisers must fundamentally change. The bad news is that many advertisers still think of the mobile environment as less effective and less efficient when it comes to targeting and reaching specific audiences. The even worse news is that the content of those legacy media giants is consumed primarily in a mobile web environment and not in that of a mobile app. This means that the same real estate is sold for often as little as a fifth of the price of that on a PC. The monetisation of mobile real estate has been largely viewed as broken and the future of those traditional giants taken into question.
Marissa Mayer, CEO of Yahoo, understood long ago the implications of these trends and upon accepting the new position, labeled Yahoo as a mobile company. While many laughed at her declaration, since, at the time, Yahoo had approximately 30 mobile developers and little to no presence in the app stores, Mayer had a clear plan. Through a series of acqui-hires, Mayer replaced and renewed the DNA of Yahoo to enable a more contemporary vision of a superior mobile app user experience. This strategy was quickly translated into dollars and cents. In 2014, almost 20% of Yahoo’s revenues ($1.2B) originated in mobile. While it is true that a large part of that amount came from search ads, another, significant part came from native ads that appeared as a natural extension of the content in Yahoo’s new constellation of apps.
Mayer did not invent the wheel here. She often receives her inspiration from the valley’s newer generations of super powers, in this case Facebook and Twitter. These companies, who had zero revenue from mobile in 2011, are now (Q4, 2014) seeing 69% (Facebook) and 88% (Twitter) of their revenue coming from mobile. Most of this revenue came from native ads that appear in the feed of apps. The first generation of these ads were served by app developers who wanted to promote their apps and the native mobile environment was the most natural place to do so. This changed over time this and today native ads are served by not only small/medium businesses but also by the biggest brands, all interested in reaching highly targeted audiences.
It is interesting to note that the native ads on Facebook, Twitter, and Yahoo have something in common. They are all pretty far from Wilson’s original vision. Wilson spoke of ads that are not only visually similar to the content around which they appear but also contextually similar - ads that are similar and relevant to the content surrounding them.
Some of the largest media players like The NY Times and Forbes fulfilled Wilson’s vision in its entirety by producing the marketing content for advertisers and embedding it as part of the organic content on the site. Besides the obvious ethical challenges, the model of producing customised native ads is not very scalable, another fundamental problem facing these large publications. On the other hand, the current mobile app versions of native ads may only be native from a visual standpoint but they are also served in an automated and scalable fashion. The standardisation of native in general and in an RTB environment in particular completed recently by the Interactive Advertising Bureau (IAB), will boost the scalability around the format, especially in its mobile version. Finally, consuming or engaging with a mobile native ad is highly intuitive and it is therefore no surprise that the click through rate (CTR) for a native ad on mobile is 3x the CTR of the same unit running on desktop.
The expectation is that the growth and development of m-commerce sites alongside the development of technologies like mobile retargeting and deep linking will help native ads increase in popularity. Of course, mobile developers, especially ones developing apps with in-feed environments, are beginning to understand the potential of native ads and are implementing them in their apps as well. All these facts and more are already contributing to the fulfillment of the vision of mobile native advertising going mainstream and maximising its full potential.