The days of relying on a couple of key revenue streams are over for the publishing industry; Hearst’s David Carey told the Economist back in 2013 it takes ‘five or six revenue streams to make a business really successful’. As traditional display advertising and subscription revenues continue to shrink, from events to eCommerce, publishers are testing out new ways to make money.

With US spend set to grow from under $8 billion this year to over $20 billion by 2018, native advertising has elbowed its way to the front of the ‘alternative revenues’ line-up.

“Native is no longer a buzzword, it’s a huge opportunity,” says Chris Quigley, UK Managing Director of Sharethrough. “In the last quarter Facebook generated close to $4 billion in ad revenue from native advertising revenues; Twitter close to $500 million. Publishing start-ups like Quartz and Business Insider have built the fundamentals of their business around native,” he says. 

Sharethrough is a software company that works with more than 400 publishers — including Forbes, Time Inc., and Hearst — to power in-feed “native” ad placements for brands and Quigley explains that, with native, the feed has become everything.

“If you walk down the street you see people looking down at their phones, scrolling through the feed, consuming content in the feed, whether that’s user generate content from Facebook or editorial content from Sky Sports. The feed is now the design paradigm for content consumption, and native is the monetisation paradigm.”

In Quigley’s experience, every publisher’s native advertising business looks different in terms of relative values and volumes, but a classic native revenue stack would have three layers:

Direct Sponsored – Sponsored content created by the publisher for an advertiser.
Developing this layer can be resource intensive, but it gives the publisher full creative control over content and, with content tailored to suit specific audiences, can command premium rates.

Direct Brand Owned – Brand creates content, publishers provides distribution platform.
With brands creating their own content, the publisher has reduced control of content quality, but can capture native advertising budgets without committing a great deal of resource.

Third Party – Content comes from third party content networks or exchanges.
The third-party layer gives the publisher the least control of content, but with a very low resource requirement, and as programmatic native takes off, it gives publishers a profitable way in while they build their own native advertising sales and production capabilities.

Whatever your native revenue stack looks like, it’s all about distributing brand content through the feed alongside your editorial content. And if you get it right, Quigley says, you’re looking at the Holy Grail of digital publishing: Less ads, more revenue.

”Facebook have had native baked in from an early stage and they’ve nailed it. In the last 12 months or so, they had less ads and a lot more revenue. Last quarter, they reduced ads by 60 percent and increased revenue by about 300 percent, largely due to creating scarcity of ads, and creating a lot more value in their ad units.”

But making the most of your native revenue stack isn’t just a question of taking on a technology platform like Sharethrough and firing out a media kit telling advertising clients that you’re open for business. Quigley says that besides supply side software, Sharethrough provides clients with support to help then think through how they are going to build out their native advertising strategy.

This can involve consultation at the front-end and the back end of a project. One of Sharethrough’s leading UK clients is Sky Media where the software company has a member of staff committed permanently to the publisher’s native advertising team. “We have one of our team sat with Sky ongoing; it’s part of the deal we have with them. We are incentivised to make it work – the more they sell the more we make,” he explains.

Quigley says dealing with the cultural changes native advertising can brings can be a challenge, famously for content teams concerned with editorial integrity, but also for sales teams.

“The difference between native advertising and traditional display is nothing philosophical, it’s just a different product with different metrics,” he says. “But people are used to the other stuff, and sales people will default to what they know best if they are not trained in the new stuff.”

Other training issues come in the area of pricing to ensure that native is sold at a premium. “At Sharethrough we sell on a vCPM. If you’re delivering content you need to be sure that content is seen, it needs to be viewable, and that can be a culture shift.”

Returning to technology, Quigley warns publishers away from thinking they can just push out sponsored content and that’s them got a native solution; technical integration is important. “There’s an added level of complexity,” he explains. “Publishers think they can do native on their own, inside their CMS, but it’s not scalable.“ 

That issue of scalability in native advertising is only going to get more and more important – Quigley sees the future of this alternative revenue stream in native programmatic where achieving scale is crucial. “We’re trying to work out what it means for publishers and advertisers,” he says. “With programmatic native we’re dealing with content, a premium product that we don’t want to go the same way as display.

Thankfully for publishers seeking out that all important alternative revenue stream, Quigley is confident there are safeguards that Sharethrough can put in place to make sure that doesn’t happen.

Image used courtesy of Lee Coursey via flickr under a Creative Commons license.