Native Ads vs In-App Purchases: Context is King

New Google Nexus 7 appsAs powerful as mobile apps are for distributing content and capturing user engagement, the fact that most are offered free of charge puts publishers at risk of losing money on them. According to a recent report from Gartner, there will be 102 billion apps downloaded this year worldwide. Of those, 91 percent those will be free.

Aside from those free apps essentially written off as marketing costs for larger brands, publishers have two monetization options to choose from: in-app purchases or advertising. While Gartner (in the same report) expects in-app purchases will grow from 11 percent of free ad revenue last year to 48 percent in 2017, there remains a strong case for the continued use of advertising, particularly for video publishers.

In-app purchases, while lucrative, have their share of challenges. They rely on the smallest number of users doing the majority of the buying (in the high single digits, according to one report) and face a bit of an ethical minefield, in terms of targeting children who don’t understand the cost. Apple lost a $100 million class action lawsuit this year over this very issue.

Mobile ads, meanwhile, offer a more straightforward revenue channel and are growing in both sophistication and effectiveness. In addition to the traditional pre-roll and banner ads, the rise of native advertising is a welcome addition.

Native advertising is the practice of more intelligently placing ads against relevant content in such a way that the ad seems more a welcome content or service, rather than an intrusion. Types of native ads include the in-stream ads now seen in various social media channels, activity triggered ads, and branded content that works like a sort of product placement.

Like in-app purchases, native ads rely on the context of the app/site to function properly. Also like in-app purchases, native ads only work if the user is engaged with it on a content level, requiring a balance between the publisher’s desire for revenue with viewers’ desire for a pleasant experience. In other words, native ads don’t feel like ads. They just feel like content; like they belong.

As with anything else of higher quality, native ads take more time and effort to produce. This translates to higher costs, which naturally invites concerns over the cost-per-engagement figures that result. But I’d argue a native ad is actually less expensive in the long run, due to their efficiency.

Unlike regular ads, the effectiveness of native ads can’t be measured in scale, but rather in engagement. By definition, native ads are created to specific content (and in turn specific viewers) so the scale measurement doesn’t apply. See, for instance, this excerpt from a report by IPG for Sharethrough, who found that:

  • Consumers looked at native ads 53 percent more frequently than display ads.
  • 25 percent more consumers were measured to look at in-feed native ad placements (the most common editorial native ad format) than display ad units.
  • Native ads registered an 18 percent higher lift in purchase intent and 9 percent greater lift for brand affinity responses than banner ads.
  • 32 percent of respondents said the native ad “is an ad I would share with a friend of family member,” versus just 19 percent for display ads.

In other words, native ads are meant to capture a specific audience, while banner ads and pre-roll ads are designed to blast to a far larger audience. Native ads tell a story, while banner/pre-roll ads are meant for branding. Together, they represent a strong one-two punch that complement each other nicely.

The reason in-app purchases are leading the way in this contextual monetization revolution is simply because they’re easier. Creating options to buy an extra move in a game, or buying extra videos, is a relatively simple matter, while creating contextually relevant advertising content is harder, given the smaller screen sizes of mobile devices. Yet it’s also more necessary; the smaller the screen, the more important it is that ads are not disruptive to the user experience. Those that are best implemented drive the best performance.

This is where content publishers have the advantage. Video publishers, for example, have a great deal of control over the content of their app, which puts them in the catbird seat as it relates to the creation and sale of native ads.

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