Why banner ads are dead and native ads are the future

By Tim and Elizabeth

The Rise

Native ads are all the rage these days, seamlessly blending engaging content into the property’s environment. But to really understand why, we need to take a look at the history of online advertising.  In the 90s, when the dot com boom was starting to take off, I was just entering high school in the Silicon Valley and I had the opportunity to briefly help (if you can call it that) at a banner ad company.  They were rocking it, seeing very high click-through-rates (CTR) and charging just pennies per click.  Back then, everyone and their mother was clicking, so even at just pennies, this company was rolling in the dough.  They later sold for hundreds of millions of dollars before the dot com bust in the early 2000s.

But they weren’t the only ones raking it in.  Just about every banner ad company was doing the same.  Banner ads were seeing anywhere between 50-90% CTR!  It was an insane time!  As a result, the effective CPMs were also very high. For example, let’s say you ran a website with a 70% CTR on one banner ad and only made $0.05 per click. For every 1000 visitors, you were still making 1000 * 70% * $0.05 = $35 eCPMs!

The Fall

Fast forward to today.  The CTR on banner ads has plummeted to about 0.1%.  So your eCPM is now 5 cents instead of $35! Advertisers are getting way fewer clicks and publishers are hardly making any money at all.  Why?  Consumers have banner-blindness.   Banner ads are now standardized, so they look the same on every single site.  It makes it easy to ignore ads even if they are relevant and well-targeted.

The Resurrection

We see banner-blindness in our own network since we offer both banner and text ads.  The latter looks native to the look and feel of a given newsletter, while the former is a traditional banner ad format.  In our controlled studies, time and again, the text ads will always win doing 2-10x greater CTR than banner ads.  Think about it — an order of magnitude difference in CTR is an order of magnitude difference in revenue.  In other words, instead of making $10 with banner ads, you could be making $100.  At first, this difference astounded me, but now it seems obvious.  Native ads have high CTRs for a couple of reasons:

1) They look like they fit the content.  Since users are actively reading the content, they are more likely to read the ad.  

2) The look-and-feel required to be a native ad will differ from property to property, so users are not able to learn to ignore ads.

The Epiphany

Advertisers get more engagement with native ads compared to banner ads on an eCPM basis. If you are a publisher and can choose your ad format, it’s a no-brainer to run native ads.  Since they are more effective, advertisers should also be willing to pay more for these on an eCPM basis.  Everyday, we hear about online newspaper companies struggling, because banner ads are just not paying them enough to make their business model work.  By adopting native ads, media companies should be able to increase their revenue by an order of magnitude, and advertisers will pay for this, because it works better than banner ads.

Get ready for a new world. There’s a new way to get customers now, and everyone — marketers, agencies, ad exchanges and networks — will need to be prepared for this big change.  Have questions or thoughts about what this new world will look like?  Type them below.

Image used with permission from Microsoft

  1. Owen McGab Enaohwo says:

    Personally I see Native Advertisement as a means to scale the promotion on ones content marketing efforts. What is the point of writing a great content for your business blog and only promoting it once manually after it has just been made live on the blog?

    What if once places it into several of the Native Advertisement platforms and pay per click. This will be promotion at scale.

    The caveat is the your blog posts each have to have a call to action to get folks on your email list so that you can marketing to them via email or sign up for a free trial or something.

    So far these are the Native Advertisement platforms I have come across:

    Outbrain
    Zemanta
    Taboola
    Onespot
    Gravity
    Nrelate
    SocialReactor
    Adroll
    ShareThrough
    Virurl
    ThoughtLeadr

    Elizabeth which other notable ones are not in my list?

    • Elizabeth Yin says:

      Hi Owen,

      Good point. I think native ads are still quite nascent that different people have different definitions of what “native” means. But, in my book, I think it basically just means that it looks like it belongs/fits into the medium.

      Additional networks are Buzzfeed and Nativo. But, I think it’s still very new.

  2. John says:

    Your article is good, but relies on one key assumption that is not necessarily true ! Not all Ad campaigns are run for click throughs !!! The core objective of many ad campaigns is brand lift, and CRT isn’t an effective measurement – audience panel testing is! Sorry, but broad brush & incorrect statements don’t help our industry develop!

    • Elizabeth Yin says:

      Hi John,

      You’re right that advertisers will differ a lot in what they want. There are brand advertisers. There are performance advertisers. And, each advertiser will want different things. But the vast majority of advertisers would like engagement of some sort (sales, clicks, interactions, etc). And, if people are completely ignoring banner ads, that’s not engagement in any form…

      • Steve B says:

        I agree. Blindness means that the user isn’t even looking at the banner, which means branding doesn’t even come into play.

  3. Joe B says:

    We have stopped automatically judging our display ad performance by solely click through rates. For us, we find it more insightful to review our campaigns success by cost per sale. Whilst not particularly relevant to brand marketers just looking for exposure, we have found that a quality scent trail and a custom and carefully considered landing page can still have a sales conversion rate that proves the worth of display advertising. We have detailed our own views on succeeding with DA’s here, so if you guys fancy it, take a look. http://www.zeta.net/display-ads-arent-dead-learn-how-to-succeed-with-your-display-campaigns/

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>