Posted by Alex Kantrowitz on Thursday, November 8, 2012 ? Leave A Comment?
At New York City?s ad:tech conference yesterday, Fred Wilson, one of the city?s leading venture capitalists, heaped praise on native advertising, making the case that it is the natural ad format for the modern internet.
Wilson, the co-founder of Union Square Ventures, has invested in some of the country?s most successful startups including Twitter, Tumblr, Zynga and Foursquare. His choice of investments, he explained, were spurred by a philosophy that the web was moving to a more interactive format, Web 2.0, as opposed to one where internet companies tried to take one way communications tools, such as newspapers, and transplant them onto the web. For Wilson, native advertising is the path to advertising success in Web 2.0.
At the start of the Keynote, entitled ?Tomorrow?s Digital Landscape,? Wilson was asked to speak about his early investing experiences at Flatiron Partners, which he co-founded in the 1990s. Wilson then went into a few stories and spoke at length about Geocities, a do it yourself web development platform which he eventually sold to Yahoo! for 3.5 million dollars.
GeoCities, Wilson said, drew its revenue from display ads because it lacked a better alternative. ?The only thing that we could really figure out how to do on Geocities was run display ads,? Wilson said. ?Those display ads worked horribly, and CPMs were terrible and the only thing that was good about it was that there was so much scale that we could sell terrible display ads at low CPMs and still make a lot of money.?
Wilson described that business model as ?bad all around,? saying that everything from ads to click through to performance were all ugly. But, at the time, Wilson felt there were no alternatives.
Drawing a stark contrast, Wilson then spoke of one of his current portfolio companies, Tumblr, which is a much more interactive, two-way platform. ?At Tumblr, the business model is quite elegant,? Wilson said. ?If you?re a marketer and you want to reach the 80 million or 100 million monthly Tumblr visitors, you create a ?Tumblog? and you put posts in there. Those posts could be videos, rich media, text, audio, anything. And then you promote those posts to the Tumblr community either organically or through a paid vehicle.?
One of the differences between that native model, and the display ad, Wilson said, was that the ad unit on Tumblr is the Tumblr post? something he said is a more elegant and better performing option for marketers. ?I think that?s very powerful,? Wilson said. ?It?s great if you?re the creative agency, because you now have something you can go do something with, and make something beautiful with, unlike display ads.?
The problem, of course, is scale. Wilson explained something well known in the industry, that running an ad campaign on Tumblr is much more labor intensive than putting together a banner ad and running it across a number of sites.
The Tumblr ad, as opposed to the display ad, requires a marketer to set up a blog, create content specific to it, and have someone engage with the community built up around it. Wilson said this is something traditional agencies are not used to doing, and agencies that specialize in creating this type of content are starting to pop up to fill the gap. The growth of these shops, Wilson predicted, will only continue.
At the end of the day, the purpose of native advertising is to create a form of online advertising that is not disruptive to consumers. If advertisers can find such experiences on the web, they may be convinced to bring some of the money left in print and television over to digital.
?A lot of people I know hate advertising,? Wilson said, but explained that those people still keep close track of, and enjoy, the ads that run during the Super Bowl. ?So it?s not that they hate advertising, it?s that they hate bad advertising,? Wilson concluded.
Alex Kantrowitz is a staff reporter for The Op-Ed. His work has previously been featured in Forbes, Fortune, The New York Times' Local Blog and The Ithaca Journal. He also wrote a series of articles from Istanbul for the Cornell Daily Sun. Connect with Alex on Twitter, Facebook, Google+, and Tumblr.
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