Updated: Oct 19
by AJ Agrawal
Today, digital advertising is expected to grow to an annual spend over $335 billion by 2020. The industry is booming, taking over search ad spend at #1 in 2016. However, with constant increases in ad volume and spend, what’s happening to returns?
The average clickthrough rate of display ads across all formats and placements is a miniscule fraction of a percent: 0.06%. Even of this small amount, over half of mobile ad clicks are reportedly accidental—and that’s if you can reach the user in the first place.
Conversely, ad blocking tools are growing explosively, with usage up 41% on the year globally. The number is even higher among younger generations: nearly two in three millennials report using ad block software.
Some predict an advertising Armageddon stemming from cheap or fake impressions, especially considering that Methbot, a Russian ad arbitrage fraud bot was amassing $5 million dollars in daily earnings. Others harp that the future is in engaging, rich content aimed at millennials seeking authentic brand experiences. However, neither is correct—entirely.
When real-time bidding (RTB) for ad inventory went mainstream in 2011, programmatic ads began their half-decade, exponential climb to domination. In 2016 alone, over 96% of advertisers reported using programmatic advertising, with over half of the digital ad market traded via programmatic exchanges.
Advertisers have now grown use to the ability to making automatic, data-based decisions with programmatic and buy at-scale from a virtually infinite ad inventory.
That’s a long way from when Advertising.com—then known as TeknoSurf—announced (what is credited with being) the first cost-per-click (CPC) model for digital advertising, in 1998, virtually inventing performance-based marketing. Prior to this, most Internet advertisers had simply adopted the age-old CPM (cost per thousand impressions) model used by print.
This created a dichotomy that has persisted for decades in digital marketing strategy: brand advertisers generate widespread awareness paying for low CPMs, while performance/direct marketers engineer sales funnels to fuel with CPC traffic.
Over the years, many corporations divided the roles into separate silos. It seems intuitive. Let PR and creatives handle brand messaging while sales focus on optimizing funnels and bidding. But this isn’t 1998. Since then, human attention spans have dropped by over half, despite a five-fold increase in average daily information intake.
Many of today’s youngest consumers grew up with the luxury of having digital content their whole lives. Avid Internet users are effective and unforgiving skimmers who demand high-quality content constantly.
The truth is that users don’t hate advertisements. Rather, they hate fragmented user experiences. As digital citizens, we’re caught in the midst of a frenzied paintball war over data: brand evangelists spray around blindly with CPM shotguns while performance geeks clamor over bids for CPC snipers.
As a result, the average website viewer is caught in a gaudy barrage of seemingly endless ad inventory, with no sense of design or unity to it.
And there lies the root of the issue: volume. The advent of retargeting & user-tracking technology promised better, more relevant ads for users around the world. However, it set off a flurry of ad inventory creation: with millions of target users to test, performance marketers could afford to run riskier experiments, at the cost of user experience.
The traditional digital advertising funnel incentivizes clicks (and subsequently, leads & sales), but not storytelling. According to Brian Morrissey, the editor-of-chief at DigiDay, “It’s telling of the sorry state of online advertising that ‘beautiful’ and ‘ad-free’ are paired together…display advertising for too long has been an ugly intruder onto pages.”
Enter, native advertising 2.0. At first, native ads simply meant a site or app had its own ad units or platform. Now, native ads will be entirely friction-free: part of the user-experience & often (if not always) contextually relevant.
This can be anything from Alexa recommending flowers for your girlfriend’s birthday to Spotify playing a local Adidas store ad during your run. Amazon and Spotify then would earn commissions on those later sales, and your user experience still would face minimal disruption.
This kind of philosophy marries the data-oriented focus of performance marketing with the creative experiential design key to brand messaging, breaking down the misguided dichotomy.
For the last several years, many names in tech have pioneered such immersive ads:
Search engines and social media sites alike incorporated native advertising that matched their product’s main UI to avoid disrupting user experiences (ie. Facebook’s Sponsored Posts, Google Search Suggestions).
Premium ad exchanges and networks, such as Carbon, The Deck, and Maingate, enforce strict creative standards to offer publishers a cleaner look.
Others have gone so far as to develop proprietary eye-tracking algorithms, like Apple’s “gaze detection,” and create interactive ads, like Pinterest’s Cinematic Pins. Most recently, the team at Explica has launched a native ad platform combining all of the above & more: patent-pending user interactions, eye-tracking algorithms, and visual, UI-friendly design.
Most impressively, all of these innovations in the presentation of ad content have produced significant increases in ROI. For example, native ads on Facebook double the average CTR elsewhere on the web, at 0.014%. In addition, interactive ads on Pinterest have also increased purchase intent by over 30%. Eye-tracking has helped optimize the colors & positions best for attracting attention.
Overall, users are 52% more likely to engage with such native ads. Ultimately, building ads around user experiences, rather than into them, will be the key to better ads.