Buzzfeed's recent progress report demonstrates that native advertising is demanding an impressive premium over display advertising. This is because Buzzfeed and other native ad publishers are delivering value to brands through captivating and shareable content. The question is: how long will publishers be able to demand these premium prices before native ads are commoditized?
Publishers are ecstatic about native advertising
Native ads are an ad unit that relies on content and is incorporated seamlessly into the experience of a website. Native ads allow publishers to sell a unique product at a premium price. This is exactly the opposite of the dominant advertising product – the display ad. Technology firms and ad exchanges have decimated the value of display ads and are directly impacting the financials of some of the largest publishers in the world. Even the most premium publishers are seeing their display advertising rates commoditized by technology. In a recent SEC filing, the New York Times, blamed digital advertising networks and exchanges, real-time bidding, and programmatic buying channels for continued declines in online display revenue.
New publishers are leading the transition away from display ads
On the other-hand, upstart companies that are rejecting display advertising and are focusing on native ads are exceeding their own expectations. One of the most effective and successful native advertising publishers is Buzzfeed. Jon Steinberg, the COO of Buzzfeed, and Jonah Peretti, the CEO and founder of Buzzfeed, are evangelists for native advertising and have famously rejected display ads as a revenue source since the early days of Buzzfeed.
Peretti recently released some very impressive stats along with projections for 2013. According to Peretti, Buzzfeed is expecting to sell 600 – 700 native advertising campaigns in 2013, and to complement that number, AllthingsD learned that Buzzfeed’s 2013 revenue projection was increased from $40mm to $60mm.
As a point of reference, the Huffington Post, which Peretti co-founded, earned $31mm in revenue the year before it was sold to Aol in 2011 and was projected to hit $60mm of sales in 2011. By that measure, Buzzfeed is now larger than the Huffington Post was in 2011. According to internal metrics, Buzzfeed accomplished this impressive success while tripling unique visitors to an astounding 85mm uniques in August 2013.
Are native ads worth the price?
If you use the numbers released by Buzzfeed as a barometer for the health of the native advertising ecosystem, there’s no doubt we’re in a supplier’s market. Based on averages from the publicly released numbers, Buzzfeed is charging approximately $92,300 per native ad campaign. According to eMarketer,
Another way to measure this would be to look at unique visitors. Again Comscore reports that Buzzfeed is averaging 11 page views per unique visitor over the last 3 months. If we were to measure native ads versus display ads, Buzzfeed would need more than 1.5mm unique visitors per campaign to match the pricing of a $5.40 CPM display ad. Averaging 1.5mm unique visitors to a campaign would be incredible.
Marketers are paying a premium price to reach valuable audiences through social media
Marketers are willing to pay a premium price because Buzzfeed and other native advertisers are experts in driving social traffic to engaging content. According to inside sources, Buzzfeed is getting more than 40% of its traffic from Facebook. Using Comscore data, you can estimate that Buzzfeed had 93mm visits in August come from either a sponsored or shared link on Facebook. Whether or not Buzzfeed is buying traffic from Facebook, which many analysts believe is true, they’re reaching a massive and valuable audience (18 – 34 year old affluent Americans) via Facebook more effectively than almost any other brand or publisher for one reason. This demographic loves Buzzfeed content.
Content is at the heart of native advertising
From a publisher’s point-of-view, one of the most exciting aspects of native advertising is its dependence on great content. Without premium content, you cannot effectively run a native ad campaign. Consumers will only flock to and share stories that feature content they love.
Great content and an effective social media strategy (disclosure: this is a link to a webinar hosted by the company I work for – Newscred) are necessary to deliver a branded native advertising campaign.
eMarketer believes native advertising will be a $4.57 billion market in 2017 versus the $6.40 billion market in display ads. It will be interesting to monitor how long publishers are able to charge a substantial premium over other ad units before technologists commoditize the content or brands find more effective ways to tell their story online.
