The native advertising industry continues to boom. In the US alone, eMarketer predicts $4.5B in 2015 to go towards content sponsorships, native ad integrations, and programmatic native channels. What is particularly notable is the growth rate. The industry that piggybacks on the massive trend of content marketing, is expecting to grow 45% from 2014, and continue growing at the 25% rate for 3 years after.
It is not surprising that more marketers are catching up on the terminology trying to make sense of the ever-evolving landscape of digital advertising. It seems as though new companies claiming to do native advertising is popping up every week, and as more buyers starting to invest in it for content distribution, more clarification is needed to distinguish the two fundamentally different buying and selling concepts: Programmatic Native Advertising Platforms vs. Native Ad Networks.
Native Ad Networks
A natural stage in scaling new ad formats a.k.a. solving ‘chicken and egg’. It always starts the same way—buyers want to buy a new ad format which isn’t available on publishers’ sites since they don’t yet see the dollars for such ad formats. Ad networks help aggregate supply and demand to start pushing new formats forward.
Ad networks dominated early 2000s in banner advertising, and Native Ad Networks were brands’ go-to partner to buy and sell native until late 2013. Traditionally they are characterized by working directly with both publishers and advertisers. While this is certainly a step up from having advertiser directly reach out to publishers for advertising campaigns, Native Ad Networks are limited by:
- Conflict of Interest. Advertisers look to get the lowest CPM rates, while publishers look to get the highest CPMs possible. Ad networks have to constantly juggle the two sides without bringing 100% efficiencies to just one side.
- Arbitrage. Ad Networks don’t operate on dynamic CPM model, hence, there are opportunities for arbitrage and sky-high margins. An Ad Network negotiates the CPM price for ad inventory, which it later resells to advertisers.
- Limited scale and targeting. Because inventory price is pre-negotiated, impressions are not sold on impression-by-impression level. Which means advertisers also pay for users they aren’t interested in showing ads to.
Aside some obvious drawbacks, Ad Networks bring value in offering custom units that aren’t often sold through programmatic channels. They also are able to guarantee impressions, which platforms can’t do in a real-time bidding environment.
Programmatic Native Advertising Platforms
Unlike ad networks, platforms are characterized by:
- Focus. Represent either supply-side (publishers) or demand-side (advertisers). This allows a platform to have laser-focus on maximizing returns for the party they represent. Publishers make more money with supply-side platforms (SSP), while advertisers get stronger return on investment when working with demand-side platforms (DSP).
- Real time. Buying and selling of native ads happen on impression-by-impression level in a real-time bidding marketplace type of environment. This allows buyers to leverage 1st and 3rd-party data to bid only on an audience of interest. For example, being able to buy native ad impressions only for males 25-34 in Toronto who are actively looking for a new mid-size vehicle.
- Tight control over impressions. Programmatic platforms allow for frequency capping to ensure users aren’t overly exposed to the same message. This ensures good user experience on publisher site, as well as strong ROI for advertisers.
- Scale. Because programmatic platforms are heavily relying on technology, the buying and selling capacity is much more scalable. That mean DSPs can work with dozens of native ad exchanges to buy native ad inventory, and SSPs can plug into dozens of DSPs to sell native ads.