Mobile ad spend was up 83% last year, to $8.9 billion globally.
But it may not make sense to describe mobile as a separate, distinct ad market just yet.
How could that be?
Because the bulk of mobile ad revenue is still being driven by a desktop-based innovation: the search engine. Search accounted for 53% of global mobile ad revenues in 2012, up slightly from 51% a year prior.
Most mobile ads are made-for-desktop banners or search ads, that happen to show up on your mobile device. Their migration to mobile simply follows consumer usage habits.
What is missing is a mature market with a depth of cutting-edge ad formats.
That will necessarily change as the mobile ad market continues to evolve.
One of the most talked-about current trends is the emergence of native ads, on both mobile and the desktop.
What do different stakeholders mean when they discuss native advertising on mobile?
There's a lot of confusion out there.
Some market participants seem to refer to virtually any non-banner or non-search ad that appears on a mobile device (like a full-screen ad) as a "mobile native ad," while others define the term as referring to ad units created specifically for mobile.
Neither of these definitions quite does it. In our view, there are really two categories at play, which are sometimes confused.
There's native advertising on mobile, and within this larger category, certain types of native ads that are mobile-only, because they leverage activities only possible on mobile devices.
We don't consider an ad to be "native" simply because it's only possible on a mobile device, like an ad with a touchscreen interface. A native ad has to be an integral part of a site or app experience. These are the native ad formats we'll discuss:
Native ads on mobile: Native ads are ads that integrate with the flow of the user experience on a website, online service, or app. These might be on desktop or on mobile, but the stakes are higher on mobile. The screen is much smaller, so native ads that don't disrupt engagement tend to drive much better performance than non-native experiences.
Some of the main types of native ads on mobile are: in-stream, activity-triggered, and branded content.
Mobile-only native ad formats: These are native ad formats that have grown up around mobile apps and mobile experiences. They're native to mobile in that sense, but they're also native in the broader sense of being seamless with the overall experience, such as in-app ads tied to certain app activities or features.
We'll also review the hindrances to native ad growth, and examine how native ads affect the various pieces of the mobile ad ecosystem.
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What Is Native Advertising?
Once you step inside the vortex of a vaguely-defined buzzword, you quickly realize that it has been imbued with a slightly different definition by every stakeholder.
"A native ad on mobile is an ad which organically appears to be part of the content that is on the device. The ads are seamlessly integrated into the experience and appear to be part of that content," says Greg Crockart, co-president at mobile marketing agency Joule.
Notice that Crockart says a native ad on mobile. He's referring to the general definition of a native advertisement, and how that translates to the mobile sphere.
A few other definitions:
Chris Cunningham, CEO of appssavvy, provides a slightly more expansive, and publisher-centric definition. Native ads are "leveraging the natural behavior of a site or publisher for inventory creation," he says.
George Bell, CEO of programmatic and mobile-first ad network Jumptap, thinks of native in terms of scale: "I think of native ads as being those ads that are endemic to a particular publisher that are basically non-standard and can't be replicated."
Others take a more technical view. Victor Milligan, chief marketing officer at mobile ad exchange Nexage, views native ads as those that result when a "publisher has defined an ad format very specific to the environment they're in."
Bill Clifford, chief revenue officer at SessionM, offered the definition that most closely approximates our own view, "It's an ad that is naturally integrated into an endemic experience of a mobile site or mobile application. It's not on the periphery."
Native ads are seamlessly integrated into the ebb and flow of a site or app's mobile experience. It also, generally speaking, puts advertising front-and-center, meaning banner ads are almost never native ads.
Therefore, banner ads that utilize location data, although perhaps unique to mobile, are not native ads.
There is one more important distinction.
"This is about inventory creation," says Cunningham, of appssavvy.
This is a key point. Much of mobile advertising to this point has been focused on slapping banners on existing content, like an article or a game.
Native advertising is focused on carving out new inventory altogether. In the mobile context, this may mean in-stream content or figuring out ways that user activity on a certain mobile site or app might offer opportunities for non-disruptive ad units.
Native Ad Formats And How They Translate To Mobile
Branded Content
Also called sponsored content or sometimes just referred to as native advertising, it has become something of a buzzword in the past year.
It refers to content that is sponsored by and created for advertisers.
BuzzFeed is a pioneer of sorts in branded content, although most major publishers — including Business Insider — employ some form of it now.
Branded content usually looks something like this BuzzFeed post, "10 Beautiful Places In The World That Actually Exist," which was sponsored by Pepsi Next.
The post runs on the site's main content stream, whether on mobile or desktop, just as any story would.
The sponsored post is then archived in the brand's very own BuzzFeed page, which carries further promotional material — like prompts to like the brand's page on Facebook — or even ad banners. (See image, above right.)
Branded Content On Mobile
On BuzzFeed, these sponsored posts appear on mobile devices within shaded boxes to distinguish them from non-sponsored content.
(See the image to the right for a mobile sponsored post created by U.S. broadcaster Univision.)
There's nothing particularly mobile-first or mobile-native about sponsored content presented in this manner. But it is important for a very basic reason: A mobile screen can't comfortably present a large banner ad.
Branded content is one of the best ways to land your brand front-and-center on a mobile screen.
Branded content comes with its own set of risks.
Audiences may push back when they see sponsored content that appears to be manipulative, misleading, or sponsored by unpopular entities. The Atlantic, for example, was widely criticized for running the Church of Scientology's branded content.
This underscores a key point about native advertising: The deep integration with a site or app's content gives native enormous upside, but it also means that failures and gaffes can have a deeper impact on the publisher's reputation.
"The danger with native ads is, when poorly executed, the potential harm is maybe a little higher," says Crockart of Joule. "You are in the consumer's personal space, even more so than traditional mobile advertising."
In-Stream
Social networks are increasingly standardizing around in-stream native advertisements because of their transferability across desktop and mobile, as we discussed in our report on social media advertising.
Advertisers can pay to promote their own Facebook posts, Tumblr posts, and tweets.
With the aid of various targeting tools, advertisers are guaranteed that this content will appear in certain users' streams, and be virtually indistinguishable from the other posts and tweets that surround them.
Increasingly, there is a convergence between "social" and "native" ads.
This is in large part due to mobile, where social media apps are generally organized around a single-column stream of content, leaving little room for conventional ad placements. Promoted tweets and Facebook posts are in-stream in the timeline and so appear front-and-center on mobile devices.
Mobile now accounts for 40% of Facebook's ad revenue.
Last year, Twitter CEO Dick Costolo said that mobile ad revenue now outpaces desktop ad revenues on some days.
Until recently, much of what passed for "social ads" were display advertisements on social networks. The in-stream ads are altogether different, since they integrate seamlessly into the user's experience and often carry social ingredients, as when a user is shown a brand post on Facebook that was liked by a friend.
As a result, in-stream ads are substantially more effective that their forerunners, as the chart to the right shows.
In-stream ads are essentially run on a freemium model. Advertisers only have to pay for these ads if they want to amplify the reach of their message, i.e. promote them. Otherwise, they can try to create tweets and social media posts that their audiences will want to share organically with their networks.
Activity-Triggered
The third form of native ads are triggered by user actions on a site or app.
It's in this category where the most mobile-only ad formats have emerged, and where further innovation in mobile-native ad formats may take place.
appssavvy delivers relevant ads during natural breaks in consumers' mobile content consumption. For example, after a user reads five articles on a news site or finishes three levels of a game, they are delivered an immersive ad experience. It's a truly mobile-only native ad format because it's dictated by mobile interactions that wouldn't be possible on a PC.
Activity-triggered ads — and native ads generally — are a response to the perceived intrusive and ineffective nature of mobile banner ads.
Proponents argue that these activity-triggered placements more naturally correspond to how users interact with a site.
Advocates say these are also a natural home for brand advertising and immersive experiences. After all, magazines and television channels don't have ads hovering over every article or every minute of a show.
"The reality of mobile advertising is that it's largely distrusted or despised by consumers, it's an obvious thing the buy side-understands, and they're eager for the market to move beyond the lowest common denominator of banners," says Clifford of SessionM.
SessionM straddles the line between action-triggered and branded content ads.
Users earn for "mpoints" reaching a certain milestones on a publisher's app or website, like watching five videos. These activities trigger an ad by a brand sponsor celebrating the milestone, with the opportunity to gain further points by opting into branded content.
The points can then be redeemed for gift certificates and other goods. Similarly, mobile video ad specialist AdColony has designed an ad product that awards users in-game or in-app with virtual rewards (after they've achieved certain milestones), in exchange for watching brand video content.
Proponents of activity-triggered advertising argue that it reconciles traditional brand advertising with mobile usage habits, while avoiding some of the pitfalls associated with branded content.
"It's pure brand advertising," says Cunningham of appssavvy, "You know it's a brand. It's not mixed with editorial. It's closer to rich display."
Other Native Ad Formats
There are a number of native formats that leverage mobile-only features.
Click-to-call: Perhaps the most commonly used is the click-to-call Google search ad extension, which are useful for local businesses and chain retailers and restaurants. These appear "in-stream," so to speak, in user mobile search results. So they are also native to the Google search experience.
Mobile app install ads: Mobile app install ads that appear in-stream on platforms like Facebook or in the course of in-app gameplay might have a click-to-install button.
These ad formats can be particularly effective since they tie in with activities that can't be performed on any other device.
But again, just because an ad leverages a mobile hardware feature — like the touch interface — doesn't necessarily make it native. The above are native ad formats because they appear alongside natural search results, "in-stream," or in the natural course of app usage.
The Scale Issue
An unavoidable issue when discussing the emergence of native ads is scalability.
First, however, we need to define what people usually mean when they talk about scale. Broadly, scale is the ability to deliver ad units efficiently across a range of mobile apps and sites.
Native ads, by their design, clash with this ideal. Often they are conceived for specific publishers with specific aims.
This, by nature, does not transfer very well.
Reuters writer Felix Salmon addressed these issues in an April column. While he concedes that natives ads do have the potential to upend digital advertising, he doesn't foresee a major upheaval because "[native ads] reach a small audience, rather than a mass audience. As a result, any brand wanting to reach a mass market is going to have to use native as just one part of a much bigger strategy."
George Bell, of mobile ad network Jumptap, echoes this criticism, "If the ad can only run on a particular type of publisher, unless that publisher has unusually massive scale, you're going to run into reach issues quickly."
Bell thinks there are only a handful of publishers in mobile that have this sort of reach, and Jumptap works with one of them, Rovio, to provide integrated sponsorships.
To meet Bell's criteria for scale, a publisher's reach must match the scale of the Web's demographics.
Greg Crockart, co-president of mobile ad agency Joule, issued similar worries, "There are a fairly small number of key players able to deliver the reach we are looking for."
If you're building a custom ad unit for a specific publisher, this necessarily drives up the cost of creative. Anything that could help standardize creative variables across publishers would give native ads a big boost, but Bell believes that it's a bit of a stretch technologically.
Others believe the focus on scale misses the point. An obsession with scale is what has driven mobile CPMs to rock-bottom levels and led to the perception that mobile is a low-quality ad environment, they say.
Chris Cunningham, of appssavvy, believes simplistic definitions of scale are exactly the problem with the mobile ad industry. He believes the scale conversation should be refocused on quality and strategic placements.
"If you define scale as something that's not valuable or has a low perceived value then maybe it's not the best solution," he says, "What if we redefine scale by the placement, quality of the impression, etc?"
SessionM's Bill Clifford agrees, "There's been such a focus on creating tonnage of inventory on mobile that people think of that as scale."
How Does Native Affect The Broader Ecosystem?
The emergence of natives ads will not ripple out evenly across the mobile ad ecosystem. Should they break through, it would clearly benefit a few players in the ecosystem more than others.
The biggest winner would be publishers and the native-focused advertising companies that serve them. Native ads are generally appealing to publishers because they draw higher ad rates. They also present unique challenges, as the Atlantic found out with its Scientology debacle.
Native ads also give publishers greater control over the mobile ad process. "It’s a lot easier for publishers themselves to introduce native ads because they control the content, they control the experience," says Crockart of Joule, "Creating and establishing a native ad is a lot easier for them."
However, this means there is a greater onus of responsibility on the publisher to define and demonstrate their value proposition.
For brands, native ads are a mixed bag.
On the one hand, if executed well, they hold the promise of increased engagement and performance. This would seem especially important in mobile, with its reputation as an ineffectual ad medium.
On the other hand, in addition to the aforementioned potential pitfalls and increased cost, it requires brands to shift their advertising strategy.
"The brand has to go the extra mile on native ads, in that it sometimes requires a shift in mindset," says Crockart. "They have to think of a content framework more than a traditional ad concept."
Additionally, Crockart points out that native advertising lends itself to some brands more than others. It may make a lot of sense for movie studios, which have an entertaining and appealing message built into their product. But it may require more of an effort for car insurance companies.
What about mobile ad networks? The consensus is that mobile ad networks are largely left out of the native ad equation.
Part of the problem is that mobile ad networks aren't as tightly integrated with every app they serve, especially as they increasingly draw their inventory from mobile ad exchanges instead of via integration with each individual app (as we discuss in our mobile ad ecosystem report).
Mobile ad networks are very focused on audience profiling and targeting, but with less insight perhaps on how they interact with a specific app or site.
More fundamentally, the native paradigm clashes with their business model: to deliver a massive amount of mobile ads efficiently at scale.
Additionally, much of mobile ad network's business has traditionally been performance-driven advertising, such as cost-per-install (CPI) campaigns.
Many observers sense that the CPI bonanza of the past few years is coming to an end. "A bunch of companies make a lot of money in the short-term ... [but later] ... quality suffers, then value falls," says Cunningham, "What was a growth period is sort of turned upside down."
While performance advertising is often set up as being on one end of a dichotomy with brand advertising on the other end, Bell says the lines are increasingly blurred because many brands also run performance-based campaigns.
Mobile ad executives also indicated that ad networks were likely to latch on to the other major trend in mobile ads: programmatic buying and real-time bidding.
Programmatic approaches have begun to completely take over the buying and selling of non-native mobile ad placements.
“If you're not bought in a programmatic fashion, you're considered rogue," observed Cunningham.
Bell told us he expects 40% of Jumptap's revenues will come from RTB exchanges by the end of the year.
For more information about programmatic buying and real-time bidding, please read our report from earlier this year.
So Will Native Bring Brands Into Mobile?
Most observers concur that brand spend in mobile is crucial to jumpstarting the size and scope of the market. And most also agree that brand spend in mobile is minimal at the moment.
The consensus around brand spend in mobile is increasingly "when," not "if."
Unsurprisingly, everyone has a slightly different view of what will ultimately open the floodgates.
Advocates of native see it as a natural outlet for brand spend as it moves into mobile.
Advocates of native say that measured in terms of cost-per-engagement, traditional banner ads are much more expensive than they seem to be. Native may be more expensive up front, but on a cost-per-engagement basis it outshines existing opportunities.
Brands are "stuck behind banners, and cost-per-engagement is through the roof," says Clifford of SessionM.
Crockart of Joule believes that native ads will help brands get their heads around mobile, but that the biggest opportunity is closing the tracking loop. The big general problem in mobile advertising — the lack of a fixed set of clear technologies and standards for tracking and measuring ad performance — also drags on native.
Some say mobile's tracking problem is well on its way to being solved — Bell says brand spend is 40% of revenues on Jumptap's network. He views scale, attribution — consistency of measurements and metrics — and gradually cohering standards as the primary drivers of increased brand spend on mobile.
Native is undoubtedly a brand play and will predominately be populated by brand dollars. However, it is very unlikely that all brand dollars will be spent on native. Brands are interested in sophisticated tracking and data whatever the ad format.
Finally, broadly speaking, tablets are probably the most promising avenue to amplifying brand spend on mobile. The reason is fairly straightforward: They have larger screens and so offer a more amiable creative environment to brands.
However, given the divergent usage patterns, it may not even make sense to group tablets with smartphones in the same mobile advertising ecosystem, even if they do share operating systems and many features.
THE BOTTOM LINE
Native ads are tightly integrated with a mobile experience, placing the advertising front-and-center. Native advertising focuses on inventory creation, not monetizing existing inventory.
We see three major mobile native ad formats emerging: branded content, in-stream, and activity-triggered ads. None of them are wholly unique to mobile per se.
Scale is the most oft-cited problem with a native approach: Very few publishers have the reach advertisers want. Also, native is often more expensive in up-front costs than more run-of-the-mill ad units.
The mobile ad market will likely bifurcate into premium native inventory, and programmatically bought scalable inventory for reach. Brands will likely dabble in both.
Some incumbent players, like mobile ad networks and exchanges, will largely be bypassed by native ads, and instead will focus on programmatic buying and real-time bidding.
Native ads will kickstart some brand spend on mobile, but it is hardly the only factor in play. Just as important is the emergence of deeper data and performance metrics.
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