There’s a small problem with online ads: People hate them.
Actually, not everyone hates them; many just ignore them. And that’s bad news for businesses whose livelihood comes from people clicking on ads.
As rates for online ads decline, there’s been a push for new strategies that can upend the traditional model and re-engage the audience.
Nativo Inc., an ad tech firm in Long Beach, is hoping to cash in on the latest wave of hype and controversy known as “native advertising,” or ads that don’t feel like ads.
Rather than pop-ups or preroll videos, native ads are designed to fit seamlessly on a website, casting their paid material in fonts, designs and even tone that mimic the content that drew the reader to the site in the first place. That, in turn, makes people actually want to click on them.
It’s that link on Forbes.com that looks like every other headline but actually leads to sponsored post by Oracle. Or that tweet that comes up in your Twitter feed promoting a hair care product.
Nativo’s software lets Web publishers get in on the native ad game and deploy the paid spots across multiple sites. The concept has intrigued venture capital investors; the company recently raised $3.5 million in a series A round led by Santa Monica’s Greycroft Partners.The problem with old-fashioned online advertising, said Nativo founder Justin Choi, is the shotgun approach websites have historically taken. After years of visual onslaughts, web surfers have simply become numb.
“The banner ecosystem has not been good for publishers. And it’s only been good for users because they can ignore it,” Choi said. “Native is a user-initiated engagement that actually tells a meaningful message.”
By making an ad’s content more relevant than just another banner, a person might not only choose to consume it, but might even share it, which is a deeper (read: more lucrative) experience. People working in online publishing say native ads can command five times the rates as their non-native cousins, if not more.
The integrated nature also solves a big problem of advertising on mobile devices, where the screen’s limited real estate has bedeviled publishers.
Brian Fitzgerald, co-founder of Evolve Media LLC, has used Nativo’s software across his company’s wide network of sites. Though it is no longer a client, Evolve still participates in native advertising and Fitzgerald sees the virtue of Nativo’s commitment to the technology. To an extent.
“I think that a company like Nativo with a platform that can deliver scale has an ability to win in this native ad space,” said Fitzgerald, who puts Evolve’s spending on native ads at less than 5 percent of its budget. “I’m just not sure how big that space will really be.”
Third venture
Nativo is Choi’s third tech startup, which began with his Web design firm, Cie Studios, formed more than a decade ago. He followed Cie with Cie Games, which builds games for Facebook and mobile devices and had a hit with Car Town. The game features many car brands and partnerships, and served as a primer for product integration, leading the way into his next project – native advertising.
“The games were unique in that they were the first on Facebook to be licensed for the car companies,” Choi said. “Working with brands and putting them into content is in our DNA.”
Nativo, started last year, works alongside his other companies in downtown Long Beach’s Landmark Square, with windows that look out over the harbor.
The software Nativo has developed is designed to help online publishers – especially ones that own many websites – fit sponsored content across their portfolio. The goal is to make the process as automatic as possible, so the ads can blend into the page design of differently styled sites.
Ads are placed in a blocked-off piece of real estate, similar to banner ads. But with a few lines of code from each site, Nativo can make one ad look like native content across all the sites. The company doesn’t take a cut of ad revenue; instead it charges publishers a monthly fee for using its software. Executives declined to disclose revenue.
So far, ads serviced by Nativo are seen 40 million times a month. As native ads continue to gain traction, Choi thinks the category will boom.
“With more traffic moving to mobile, people will realize that native is the best solution,” he said. “People will not put up with pop-ups on mobile.”
Problems of Scale
However, Fitzgerald’s skepticism about the growth of native ads is still rampant in online publishing.
For one thing, it accounts for less than one-fifth of online ad sales revenue. In 2012, spending on sponsored content was only $1.5 billion, compared with $8.6 billion for banner ads, though native ads grew 39 percent from the previous year, according to a report by Pew Research Center.
One of the obstacles faced by native advertising is almost cultural, especially for publishers who worry that readers will be confused as to what content is editorial and what is advertising. (Native can be categorized under the hybrid term “advertorial,” a longtime scourge in journalism).
There have been controversies. Last year, online news magazine TheAtlantic.com came under fire when people mistook an ad for the Church of Scientology extolling the virtues of the organization as part of the site’s editorial content. The Atlantic quickly removed the ad and issued an apology.
Choi strongly advises clients to make it clear that native ads are different from the regular content. For example, he recommends placing a different color in the background of the articles and shutting off the comment section (something the Atlantic didn’t do).
But the biggest problem might be cost. As publishers try to convince brands to spend more on the Web, they’re fighting against fragmented audiences and inefficient spending.
Frank Addante, founder of West L.A. ad tech firm Rubicon Project, said rolling out an online advertising campaign is already far more expensive than a television one. And that’s not even for native ads, which are labor intensive and narrower in scope.
“If you’re trying to reach a large audience with a native ad, you’ve got to connect to 10 to 20 different sites and the different formats create different complications,” Addante said. “The cost of deploying it might be greater than the benefit.”
He acknowledged, though, that it’s still early days with native ads and most new technologies are expensive at first.
Choi’s hope is companies like Nativo, with its focus on automating the native ad process, can help with that cost. And even as it grows in popularity, that doesn’t mean the format will be the only option available.
“This is a new category and it’s not going to make another category go away,” he said. “But looking at how it solves mobile, you can’t dispute the fact it’s going to be very important.”
