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Over the past year, numerous “native ad exchanges” have emerged, including MoPub, my own company Sharethrough, Bidtellect, and OpenX (see the full native ad marketplace diagram from Lumascape here).

So how are these different from existing display advertising exchanges?

Native advertising differs from display because the good being exchanged is content. Content has a permanent home on the web as opposed to an image or rich media that is uploaded directly to an ad server. This basic difference requires a different type of platform to ingest, display, and measure the content once distributed.

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Also, unlike display ads, native ads by definition must match the form and function of each page on which they appear. The combination of differentiated content attributes and native ad elements has given rise to this new type of exchange.

Imagine you’re a marketer looking to gain an audience for your latest Vine video beyond the closed Twitter/Vine platform. Until recently your options to do that were limited. You could go to an ad exchange like DoubleClick or AppNexus, but you couldn’t use your actual Vine video as your ad unit. Instead, in the old model, you had to create an image that would link to your Vine page, where someone could then watch it. The same problem exists with a search exchange — you will only be able to buy an ad that links to your Vine, not distribute the Vine itself.

Then you come across the new world of native ad exchanges that give you:

  1. The control to promote any media format and distribute that content as the ad (not a link to it)
  2. The ability to automatically adapt your content to match the form and function of every site on which it is placed (so it always matches the visual design/UX of each site) and
  3. Media placements that are integrated within editorial sections, rather than the traditional display placements that sit above, below, or to the side of editorial.

Let’s take a look at how it works.

Native media formats

The key difference between a display or pre-roll exchange and a native exchange is the type of inventory being bought and sold. For example, if an advertiser uses a display exchange to promote an image or rich media file, they will be bidding solely on IAB standard Display ad inventory. If the advertiser outbids the competition, their ad is served on a publisher’s site within one of those standard IAB Display units.

Native exchanges abide by the same biddable auction structure, but the inventory being bid on is one of the newly recognized native ad formats, such as an in-feed ad or recommendation widget. The key benefit of these new native formats is that they are placed where audiences are already actively looking for content; a study from IPG Media Labs showed that audiences look at native ads 53 percent more frequently than display ads.

Native = matching form and function

If an advertiser buys media through a display exchange, their creative will appear exactly the same on every site on which they buy media. Regardless of the site the ad is served on, the image, rich media file or video will fit into the exact same box.

A native exchange works in the opposite fashion. No two placements will look alike because the advertisement will adapt to the form (fonts, colors, formatting) and function (user experience) of each page on which it is placed.

To get a better understanding of what this actually looks like try the Native Ad Generator (Dislosure: this is a tool from my company).

Measurement and quality

When dealing with content, new metrics are introduced that are not used in typical ad exchanges. Metrics like clickthrough rate (CTR), which dictate the success of a typical display ad campaign, are only one of the metrics taken into account for native ad campaigns. Metrics such as sharing, duration of engagement, and other behavioral data are fundamental to the success of a native campaign.

On the back end, the exchange also uses this data to gauge the quality of the brand content in the system and award a Content Quality Score (CQS).

Can native scale?

The emergence of native advertising exchanges is the next step in the inevitable process of bringing true scale to native advertising. The challenge ahead will not be building native advertising infrastructure to mimic what already exists for display advertising, but true innovation that enables new media marketplaces to be created.

The greatest opportunity may be in mobile media, where the rapid convergence to feed-based site layouts have opened up a huge new opportunity to scale native ads and change the paradigm of advertising from interruptive to native.

Chris Schreiber leads marketing and communications at Sharethrough. He has written extensively on native advertising and oversees the Native Advertising Summit and Sponsored Content Leaderboard. Prior to Sharethrough, Schreiber worked for Google. You can follow him @Cousinchris.

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