Native advertising isn’t scalable enough to save the news industry

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There was a brief time, probably about a half decade ago, when the media industry thought that native advertising could save it. After witnessing the explosive growth of sites like Buzzfeed and Vice, both of which rely heavily on sponsored creative content, media companies started launching branded content arms left and right, with The New York Times, The Atlantic, Forbes, and dozens of other journalism stalwarts getting into the game seemingly overnight.

For a time, we were treated to press release after press release about how native advertising was the fastest growing revenue stream at each of these publications (a low bar to clear given that they were starting from zero), and we as an industry thought we’d found our savior, a new form of revenue that was impervious to the harsh conditions that push display advertising yield ever downward.

But here’s the thing: you don’t hear as much industry talk about native advertising anymore. In fact, much of the discussion has turned to subscriptions, memberships, and e-commerce — the new shiny objects that will supposedly wean news organizations off the ever-diminishing teat that is display advertising.

To be clear, native advertising hasn’t gone away, and it continues to be a healthy revenue stream for plenty of publishers. But at the same time, media companies have realized that building out a native advertising division, especially one that can scale, is extremely difficult. And with early pioneers of the medium like Buzzfeed and Vice recently missing their own revenue projections — well suddenly the sponsored content model looks like it was a little too good to be true.

Why we fell in love with native advertising

It’s not hard to see why we found this new business model so appealing. Because native advertising is designed to mimic a site’s normal editorial content, it’s virtually impervious to browser ad blocking. And with even those who haven’t installed ad blockers increasingly subject to ad blindness, sponsored content often attracts much more engagement than your typical display ad, driving more than 10 times the click through rate.

What’s more, sponsored content, because it’s bespoke, can’t be easily automated by the big tech platforms. If there’s anything we know about Facebook, it’s that it hates employing actual journalists. In fact, social media platforms have actually helped the proliferation of sponsored content because they allow publishers to give their sponsored content a signal boost via targeted ads, and if the branded content is particularly well done, it can lead to organic social media shares from readers, something you’ll never see with a banner ad.

Why native advertising can’t scale

But though sponsored content, by the very nature of it being custom-crafted, is shielded from disruption from the big tech platforms, media companies have run into all sorts of problems when trying to grow this line of business.

For one, it’s eroded the lines between editorial and advertising. For all their weaknesses, display ads will never be mistaken for editorial content, and they also allow a publication to retain a certain level of emotional distance for any particular ad because they’re served up programmatically, often without the publisher’s knowledge.

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Not so for native ads. Back in 2015, journalism professor Jeff Jarvis noticed that sponsored content on Upworthy was denoted as “promoted.” Skeptical that the average user would understand that this was a form of disclosure, Jarvis ran a Google Survey that was answered by 500 respondents, a majority of whom didn’t recognize the article as an ad.

This can easily lead to an erosion of reader trust when the editorial is mixed in with the advertising. The most famous case of this was when The Atlantic ran an article promoting the Church of Scientology, a move that received so much blowback that the magazine removed the article and issued strict guidelines for what kind of native ads it would create. Vice, one of the most enthusiastic adopters of native advertising, was embarrassed after an editor it fired revealed that the magazine was routinely killing stories that could damage its brand partnerships.

The biggest problem facing the growth of sponsored content was summed up by AOL CEO Tim Armstrong back in 2013. “I think there’s a danger … that native advertising that’s not scaled is not going to solve the issue that publishers have in terms of monetization,” he said. Without this scale, it’ll “end up being too expensive to actually create native ads on all these different platforms.”

Why is it so hard to scale? Well, for one, unlike display advertising, there are no industry standards for native, and most media buyers just don’t have an interest in building custom ad products on a site by site basis. “It’s expensive and it doesn’t fit into the marketer’s spreadsheet of media buying,” said Forrester senior analyst Susan Bidel. “Publishers historically respond to the demands of their advertisers — remember, it’s the advertisers who have the money, so they are ultimately in control.”

But perhaps the biggest hurdle for publishers is they essentially have to build out a second editorial team to craft this sponsored content, and trying to scale the business means hiring more and more staffers. Say what you will about programmatic display advertising, but once you’ve installed the ad tech widgets, it pretty much runs itself. The custom work also ensures that a native ad is prohibitively expensive to produce; many publishers have a minimum buy-in of several hundred thousand dollars if an advertiser wants to work with them, meaning they’re limited to servicing only the very largest of companies that can afford them. Compare this to Facebook or Twitter, where you can start running an ad for as little as $5 a day.

Nobody understands this better than Buzzfeed and Vice, two of the earliest pioneers in native advertising. Both have missed their revenue targets by significant amounts, and executives have cited their struggles to staff and scale their native advertising staff effectively. After years of swearing off display advertising, Buzzfeed finally gave in and embraced it while laying off members of its brand marketing team in the process.

Look, I’m not saying that it isn’t a viable model. It’s certainly possible to build a business based on native advertising, but there will always be a limit to how fast that business can grow, and while it seems clear that some of the larger media companies can afford to grow out this line of revenue, it’ll probably never come close to replacing the display advertising business. That’s why you’re seeing publishers shift their focus to subscriptions and e-commerce.

Speaking of e-commerce, we have seen publishers test out innovative ways to combine native advertising and affiliate advertising so that, rather than brands simply paying a flat rate, the publishers get a piece of whatever business they drive. This has allowed publishers like The Penny Hoarder to create content for smaller brands, thereby expanding the number of potential partners it can work with.

Don’t get me wrong, I’m glad native advertising exists and that it provides the opportunity for brands to create informative content that’s actually engaging. But I think Jarvis was right when he expressed skepticism that sponsored content would rebuild an industry that the internet tore down. “I am dubious that native/promoted/sponsored/voice advertising will be the salvation of news any more than tablets, paywalls, apps, or moguls were,” he wrote all the way back in 2015. “The form is still new. Only time will tell whether 500-word stories will move product better than five-word slogans. The return on investment of this form of advertising is — so far as I’ve seen — still unproven.”

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Simon Owens is a tech and media journalist living in Washington, DC. Follow him on Twitter, Facebook, or LinkedIn. Email him at simonowens@gmail.com. For a full bio, go here.