The secret sauce of native ads — the next wave of advertising

It has become commonly accepted that content marketing represents a significant revenue opportunity for publishers. What most people don’t realize, however, is that revenue generation is a secondary benefit of content marketing — done right, the practice not only makes money but actually enhances the audience experience. Unfortunately, many publishers still rely on banner or sponsored text link ad units occupying coveted, high-engagement positions, like footers or sidebars.

The time has come to consider swapping these units out for a native advertisement that displays content.

For the sake of definition, a native ad unit will display either links or thumbnail images that will direct to a real piece of content — meaning an article, video or slideshow (one can argue that a slideshow is not of the same ilk as an article or video, but that’s for another post). A trusted native ad unit does not serve a link to an advertisement or hard sell page.

Native ads complement the editorial environment. Any unit that powers a positive experience helps to increase stickiness and retention on-site. A content unit, positioned in the right place, as a potential extension of a content consumption session, is far more likely to help increase audience satisfaction than a banner or other more typical ad unit.

The math behind why trusted native ad units work for publishers from a revenue perspective is revolutionary for the digital advertising space. Here’s why: When it comes to revenue, a publisher’s lighthouse is Revenue per Thousand Impressions (CPM) for any real estate it dedicates to an advertising unit. Meaning: For every thousand page views, how much money will this unit generate? Herein lays the big promise behind native ads: Content marketing units make the math work because of increased click-through rate. It’s fairly intuitive: Would you rather click on a real piece of content or an ad for teeth whitener?

Because folks like you and me would rather click on real content, the CTR on a native ad unit far outpaces the CTR on other types of ad units. There are also big differences in cost-per-click rates between native and sponsored links/display/banner units. For example, direct response marketers or banner advertisers pay a much higher cost-per-click, often $1 or more. They need to do this because the CTR for their ads is abysmal, often in the tenths of a percent. These units hardly get any clicks compared to clicks on content, but the clicks they do get justify the real estate on the publisher pages, even though the clicks come at the expense of the audience’s overall experience on the site.

Content marketing and native advertising flips this lame equation around. To start, the cost-per-click rates content marketers pay are lower, in most cases much lower ($.50 and under) than their interruptive ad unit cohorts. That’s okay: the increase in CTR makes up the difference and then some.

Let’s look at an example that compares the differences in terms of revenue when a publisher serves either a traditional text link ad or a real piece of content that is distributed on a paid basis on 100MM page views. The below model assumes only one of each link appears on each pageview and does not consider revenue share or other deal points.

Traditional Text Link Ad:
$.50 CPC on a text link ad gets .02% CTR = $.10 net CPM = $10,000 net payment to the publisher if served on 100MM page views.

Native Link To Content:
$.06 CPC on a real piece of content gets a .40% CTR = $.24 net CPM = $24,000 net payment to the publisher if served on 100MM page views.

This math is exactly why most premium publishers are swapping out traditional, interruptive ad units for content marketing units, especially in highly engaging positions on their pages, like footers and sidebars.

Here are three reasons why the math makes sense:

1. Internal links that point to high-value assets like video may carry higher CPMs, but they can also generate significant revenue and simultaneously drive up audience metrics.
2. By allocating some of the content links to point back into their own content, publishers create a series of positive cause and effects that are great for stickiness and audience satisfaction in the long term.
3. Enabling audiences to discover more content will have an effect on social sharing, as readers and viewers will share the content that they find most interesting.

So what’s the catch? Two of the most common questions we get from publishers around this topic are “Can a publisher control what kind of third-party links show on the pages?” and “Do site metrics decrease if third-party content links are added to the site?”

The answer to question number 1 is yes. Any provider of third-party content links should offer publishers the ability to block certain kinds of content by domain, keyword, subject, category and direct competitors. So by way of example, a publisher may not want to display links and drive traffic to a direct competitor, despite the revenue opportunity.

Regarding question number 2, site metrics may decrease slightly, but the net impact on lifting internal traffic and generating revenue from a positive reader experience makes the proposition worthwhile. A good native advertising partner won’t force audiences to leave your site, but rather open another window where the third-party content is delivered. The reader or viewer can consume the content, close the window and come back to the hosting site.

Content marketing as a movement is fulfilling on its promise where brands and publishers can actually brand online. The revenue opportunity for publishers around native advertising is great for all parties as the publisher, the marketer and the audience can all come away happy and satisfied from a good content consumption experience.

John LoGioco is SVP, GM Americas at Outbrain. John is responsible for creating strategic partnerships for the company across all channels. Prior to joining Outbrain, John held sales and management positions with Time Inc. and Reuters in New York, Los Angeles and South Florida.

Crowd watching ad photo via Shutterstock