Cosby Sweaters Drove Us to Native Ads

30 years of audience fragmentation has driven us to reworking brands’ connections with consumers

Much (heated) debate has been placed recently on whether native ads that walk, act and quack like editorial content are misleading and bad for consumers. The philosophical debate is the wrong one; the focus should rather be on what is driving the disruption in the “traditional” interruptive ad format. Taking a look into the causes of this turbulence reflects the current zeitgeist and how a successful native ad product can come to life.

Audience Fragmentation – The Heart of the Challenge

When television networks were delivering programming with audiences reaching 20-30% of the country, the advertising economics were pretty easy to stomach on the behalf of a brand:

1) Networks would foot the bill and pay producers to create content that audiences would willingly watch.

2) Networks would also foot the bill on acquiring the audience for this content (billboards, house ads across their channels, print ads, etc).

3) Cable providers would pay networks to acquire channels into their repertoire.

4) Brands would underwrite the remainder of the costs (and profits) by paying for the right to interrupt this content with their 30 second spot.

Unfortunately for all parties involved, these economics are becoming increasingly difficult to stomach, as audiences have been fragmenting rapidly over the past thirty years in consumer entertainment.

In less than thirty years, we have gone from the top rated TV show (The Cosby Show) reaching one in every three households with an average of 19 subscribed channels into a market in 2012 where the top rated show (Sunday Night Football) reaches a mere one in eight households with an average of 135 channels. That is over a 60% decline in reach in less than a lifetime.

The trend does not appear to be reversing any time soon as consumers’ choice in their media selection continues to rise, diminishing the ability to get “the big hit.”

As fragmentation has dissipated across the masses, this has increased the costs of audience acquisition for networks. Cable networks have grown their reach, increasing their pricing pressure on networks, which has left two parties left feeling the brunt of the pain: content producers and brands.

Left to Fend: Producers & Brands

The net result of audience fragmentation leaves producers pressured with producing more content for lower rates and brands paying higher prices for smaller audiences. This is the crux to understanding why brands have been investing in building their own audiences and acting like publishers: if they have to pay more for less, they may as well compete for consumer attention.

Paired with content creators and agencies, brands are investing millions into building out their own digital presence. The content is proliferating: Coca Cola, American Express, Gatorade, Ford, and even pet food giant Purina have all gotten into the game.

The challenge remains, you guessed it, in acquiring an audience for this content. This is where the native advertising story reigns.

The Plain Reasoning Behind Native Advertising

Publishers and developers have long been experts of value exchanges among one another: trading real estate on each other’s platform with the hope of cross-pollenating their audiences. These tactics rarely involved money exchanging hands as there were mutual benefits to trading links and content.

Brands, however, are willing to exchange money to generate an audience when partnering with a publisher or developer to grow their audience. Native advertising: welcome to the world of audience development.

When you treat native advertising as a mechanism for brands to partner with publishers and developers to grow their own audience, you start to blur the line between consumer and advertising product management.

Ad Products Must Do No Harm

The process of building advertising-based monetization into your product today needs to walk the line between promoting a brand and maintaining the rigor of your core consumer experience. While the initial onset of online advertising involved heavy standardization (and hence commoditization), the move toward native advertising yields a net positive for users and brands.

There are plenty of ways to go wrong with the native approach. The key to unlocking the native monetization potential of your user experience, however, is rooted in the idea that you are maintaining the flow of existing behavior.

While revenue is the ultimate goal of any ad product, a successful native ad product must remain cognizant of the levers that drive your top line. It’s not just about how much you charge; you must also focus on its impact to your user retention, session length and other key metrics. Do no harm to any of these.

A good user experience translates into a good brand experience. The introduction of native advertising removes the equation for commoditized currency like clicks, impressions and their love child click-through rate, and in turn focuses on your ability to drive reach and engagement for a brand’s audience.

Aligning your ad product with your consumer experience inherently focuses on delivering a high fidelity experience for the brand. With that in mind, you will be required to provide partnering brands with a currency conversion behind the metrics that matter most to you into the metrics that matter to the brand (target audience reach, awareness, purchase intent, etc).

Publishers and developers that can crack this currency conversion are the ones who are best poised to win at the native game. Facebook has done this with Sponsored Stories, Twitter with Promoted Trends, and at Pandora we are working on this with branded radio.

It’s still the wild west out here in building native advertising, but one thing is for sure: it’s all rooted with the goal of aligning media companies and brands in line with what users want. And in the end, you can’t argue that’s not a good thing.

How can you argue with the Cos’?