Banner blindness is a well-known term among advertisers. It refers to the tendency of internet users to ignore, or even actively avoid, the traditional banner ad on a web page. Despite awareness of the concept, advertisers continue to use banner style display advertising to promote goods and services. This is changing however, with the growing popularity of native advertising.
A Jakob Nielson Study
The first person to suggest the concept of banner blindness was Jakob Nielson in 1997. His study, conducted using heat mapping technology that tracks the human eye, showed that users will often ignore the right hand side of a web page. It also showed that users will ignore anything that looks like an ad, regardless of whether it actually is one. In 2007 Nielson repeated the study. The results were the same, but its conclusion noted four exceptions to users' banner blindness. The first three exceptions were search engine results, classified ads and ads embedded in a video stream. The fourth was native ads. To quote from the study, "The more an ad looks like a native site component, the more users will look at it," and, "Not only should the ad look like the site's other design elements, it should appear to be part of the specific page section in which it's displayed."
Despite the availability of this research, figures show that banner ad spend increased from $7.5B in 2011 to $8.6B in 2012, and is expected to rise again this year to $9.6B. The same research suggests, however, that the growth rate of native ad spend will overtake the growth rate in banner ad spend by 2016. One of the major growth areas in native ads is paid social media advertising. Currently at $1.5B, spend on native ads running on social media sites like Twitter and Facebook (NASDAQ:FB) will reach $3.8B by 2016.
A number of the major social media companies have shifted focus to benefit from this industry trend.
One of the most notable is Facebook. During Q2 2013, Facebook reported that 41% of its total ad revenue came from native news feed ads on mobile devices, up from 3% during Q2 2012. The number of users accessing Facebook from mobile devices grew 51% from Q2 2012 to Q2 2013. This represents the fastest growing user base across the whole of Facebook, and as a result, revenue from native ads is expected to outstrip revenue from banner ads by the end of this year.
Another company embracing native advertising is Twitter. Promoted Tweets are native ads displayed in a user's Twitter feed. Reports suggest that the company will generate $583M this year from Sponsored Tweets, rising to $950M by the end of 2014.
One of the driving factors behind the shift from banner ads to in-feed native ads is the increasing number of users accessing the internet from a mobile device. During Q2 2013 smartphone sales totaled 435M units, compared to 76M PC sales. The screens on mobile devices are much smaller than desktop computers, and there is not enough space to place banner ads on-screen without impacting user experience.
These figures show that while banner advertising dominates the online ad industry at present, this will change over the next 1-3 years as users switch to mobile device internet access, forcing content publishers to switch to native ad display.
Figures also suggest that displaying ads in native format benefits advertisers. Research indicates the click through rate (CTR) for Sponsored Stories in a desktop Facebook news feed are 14 times that of standard banner ads, and 28 times better for the mobile equivalent. Native ads achieved this increased CTR despite 62% and 66% fewer impressions on desktops and mobiles respectively. Cost per click (CPC) for mobile devices reduced by 42% compared to desktop banner ads.
This improved effectiveness is not just limited to Facebook. Twitter's Promoted Tweets generate a CTR of between 1% and 3%. The global average CTR of banner ads is less than 0.2%.
Native Ad Platforms
Social media companies like Facebook and Twitter are not the only benefactors of the shift from banner ad display to native advertising. A number of other companies provide virtual marketplaces through which content publishers and advertisers can arrange sponsored publication. These platforms enable advertisers to pay media publishers for the production and publication of promotional content through their own social media channels or blogs. In such cases, the platform provider takes a small transaction fee from the advertiser.
Recently reported financials in the sponsored media industry suggest that advertisers are redirecting ad spend towards this type of promotion. IZEA, Inc. (NASDAQ:IZEA), a company that specializes in both sponsored media and sponsored influence, announced record earnings in its latest quarterly report. The company experienced quarter-over-quarter revenue growth of 42%, and an increase in net bookings of 56%. IZEA's founder and CEO, Ted Murphy, states the reason for the rapid industry expansion is that "Sponsored content delivers eyeballs and real, qualified traffic to your site," and that IZEA's "clients' demand for social media sponsorship is stronger than ever."
Native advertising is a cheaper, more effective alternative to traditional banner display advertising. The shift in online ad spend reflects this, and will continue to do so until native advertising is the most common form of advertising on the web. Social networks like Facebook and Twitter stand to derive great financial benefit from this shift, as do sponsored content marketplace providers like IZEA.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.