There is a lot of attention around native advertising these days. Up-and-coming media companies like BuzzFeed and Vice are hauling in huge valuations against business models around branded content, namely writing content for advertisers that resembles stories on their sites. Venerable media houses like The New York Times, with its “T Brand Studio” and The Wall Street Journal with its “Custom Studios” are playing right along.
But despite the excitement, native advertising doesn’t pass my personal sniff test. I think the movement is just a bit too convenient an answer for entrenched players who have deep incentives for it to work. Ad-based media companies are desperate for a high-margin answer to scaled marketplaces on social media and search that are otherwise depreciating their businesses.
And, in a part of the debate that’s often overlooked, agencies are also desperate for native to work because it justifies their existence. At a time when media buying and creative is getting commoditized and boiling down to more science than art, pushing ads that are higher-touch allows them to generate differentiation, lock-in and higher margins.
In other words, agencies and media companies have a deep incentive to sell native advertising whether or not it actually provides the return on investment that brands want.
For both, it provides the banner of differentiation and lock-in to justify charging higher prices. But it also adds extra complexity that will lead to lower returns for brands eventually. For example, determining whether sponsored content drives sales is very challenging and requires brands to pay various middlemen to estimate effectiveness. Sponsored content also requires more investment in creative teams. Additional costs for an unclear payout.
First, let me define some terms. “Native advertising” gets stretched in a lot of different directions. For the purposes of this discussion, I am specifically talking about content that is produced by publishers or advertising agencies in the voice of a publication to exist on their platform. I am not talking about ads that run across multiple sites, nor am I talking about units like sponsored Tweets on Twitter that are online ads that follow the same unit as other content on the service.
This kind of custom content isn’t new. Advertorials have existed for decades, and proponents of native advertising like to cite this as evidence that the native advertising model works and is good for companies. But the circumstances of the historical advertising landscape were nothing like they are today, and this is one place where I find it unlikely that we will see a profitable return to the way things once were before the explosion of digital media.
Advertising agencies and brands became interdependent decades ago. With the rise of TV, advertising agencies consolidated power around creative, buying, and measurement over brands. They did this so well that the marketing capacity of most large brands to develop, manage, and measure their own marketing atrophied.
But the rise of globally scaled technology companies have driven their interests apart. Brands want return on investment, which they can now get through companies that can help brands reach exactly who they want across the globe without the historically painstaking job of sticking together smaller local outlets. They are also able to provide measurement solutions at an unprecedented level to help brands understand the effectiveness of the marketing they are buying.
Agencies, which generally work on fees, want clients that are locked in and profitable. Agencies want brands to spend more with them, and they want to own differentiated measurement, inventory and, ideally, creative to generate margin and locking. These are not aligned incentives.
This is a huge threat to publishers that don’t have the reach or technology. After all, why would I bother talking to the New York Times for that segment when I can just buy the same people on Google? It is also a huge problem for the agencies, whose ability to charge premiums was based on their ability to get and measure inventory and manage complicated contextually relevant creative.
Enter this wave of native advertising. It relies on the premise that the content context of a given media property is so valuable that seamlessly integrated promotional content, like an article about making quick dinners sponsored by Kraft Foods, will perform dramatically better, to the point that it makes sense for brands to pay much higher costs to reach potential customers in context.
I am sure that there are some cases in which this is true; however, what is lost in the footnotes of the story is that native advertising helps agencies and emerging publishers wrest back some of the control they’ve lost as Google, Facebook and others have commoditized their business. It’s done so by creating more complexity that brands need agencies to manage.
Native advertising makes measurement extremely hard for brands. (How much is a partial read worth? Does reading a story lead to a sale?) Google and social platforms have some ROI measurement baked into their products, and since they have global scale, brands can standardize around their metrics and systems. Not so for buying native ads, where there is a fragmented universe of publishers using different systems.
All of this complexity is extremely good for the fee-for-service agencies. It allows them to sell a deeper, stickier and higher-margin product to their clients. It is also great for smaller publishers that need to justify charging more than remnant rates. In turn, both have a huge incentive to convince the world that native advertising is effective.
I am sure there are some native advertising campaigns that work for brands and provide competitive ROI to the targeting and scale of large technology companies; however, at an ecosystem level, I can’t see how the math on native advertising can benefit brands at scale after you factor in the massive overhead of managing the complexity of native advertising operations.
In the end, native advertising is just too clever a strategy for the middlemen to be trusted with the future.