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How BuzzFeed is solving native advertising’s scale problem

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There was a time, earlier this decade, when it seemed that native advertising — the kind embraced by web native publishers like Buzzfeed and Vice —  would serve as the magic bullet to ward off the encroaching devaluation of web content. Because each native ad was custom built, the model couldn’t be commoditized with the turnkey ad solutions offered up by the Googles and Facebooks of the world, and some brands were seeing remarkably high engagement from the sponsored content.

But as I noted in a piece I wrote last year, it eventually became clear that publishers like BuzzFeed and Vice were stalling out as they tried to grow this line of business, eventually succumbing to layoffs and embarrassing news reports about revenue misses. Because each native ad was custom created, any growth in the client base meant that the publisher would have to hire more and more creatives to service those clients, thus creating a large, unwieldy workforce. The larger this workforce grew, the bigger the challenge publishers faced hiring new creatives while also replacing those lost through churn.

What’s more, the customized nature of native ads require a high barrier to entry for any potential advertiser, with brands having to commit hundreds of thousands of dollars at a time. Compare this to Facebook or Google ads, which small businesses can purchase for as little as a few dollars per day. With the cost of entry so high, native ad publishers were all competing for a relatively small pool of large companies that had the kind of marketing budgets that allowed them to drop a half million dollars on a single campaign. 

Recently, however, I’ve seen a new ad format emerging that allows native ad publishers to mitigate some of these scale issues. Specifically, they’ve been putting together hybrid deals that combine native advertising with ecommerce.

Historically, a publisher’s embrace of ecommerce simply meant it was taking part in affiliate advertising. A publisher would write a review of a product and then go to a third party online retailer — typically Amazon — to grab an affiliate link to include within the article. If a reader clicked on the link while reading the article and then ended up buying something from the e-retailer, the publisher would receive some small percentage of the purchase price. Probably the most famous example of a publisher leveraging this business model is The New York Times’s Wirecutter.

But these new hybrid ad models do something radically different. A specific brand will work directly with a publisher to create a custom piece of content, paying some upfront amount for the creative aspect of the campaign. But then the brand will provide specific affiliate links that measure some kind of actionable KPI — usually a purchase, but also sometimes a user signup — and the publisher is then paid based on how successful it is at driving that action. Instead of linking to a third party site like Amazon, the publisher often drives readers to a landing page on the brand’s own website.

We first started seeing the proliferation of this model in the form of podcast ads. If you listen to podcasts pretty often, you’ve likely noticed that many sponsors for these shows are direct response advertisers. The podcaster, after delivering their endorsement of the product or service, includes a code that, if used, provides the buyer with some sort of discount on their purchase.

While the deal structure for these types of ads vary, it’s not uncommon for the podcaster to receive some upfront payment for the ad, but sometimes they also earn additional compensation if purchases reach some predefined minimum. This gives the podcaster a lot of incentive to ensure that their ad read is effective.

We’re increasingly seeing versions of this hybrid model adopted by text-based publications as well. The first time I stumbled across it was while profiling a Florida-based publisher called The Penny Hoarder. Founded as a personal finance website, it had formed a sophisticated ad deal pipeline in which brands looking to market their products would approach the publisher. A team of staffers were then assigned to testing out the products to determine if they’d be a good fit for the Penny Hoarder audience. For my profile of the company, I interviewed Matt Wiley, who was then the Penny Hoarder’s branded content editor, about this process:

Wiley has three content writers under him, and someone on his team is often tasked with signing up for a potential sponsor’s service and giving it a trial run. Let’s say it’s a survey site,” he said. “There are tons of those out there. We’ll have someone in the office test it for like a week and see how many surveys they qualify for and what the user experience is like. We don’t want to recommend stuff to our readers that sucks.”

After Wiley’s team determined that a product would be a good fit for the Penny Hoarder audience, the publisher’s deals team would then negotiate with the brand, often charging some sort of upfront cost for the production of the content and then establishing a KPI and the monetary value attached to each action. The Penny Hoarder referred to this model as “performance marketing.”

Other publishers have begun embracing this model, perhaps none more so than BuzzFeed. In 2018, MediaPost reported that the publisher was “collaborating with clients to develop products for the audience it knows well: young people and millennials.” The brand would pay BuzzFeed to both design the product and then market it through native ads. Under these arrangements, BuzzFeed would also get a cut of the sales.

Over the past year, BuzzFeed has continued to build out this line of business. It’s specifically homed in on direct-to-consumer businesses, which are well-positioned for this type of marketing given that they don’t rely on third-party retailers like Amazon. And New York ad agencies have embraced the model. Digiday reported last year that “BuzzFeed is starting to see requests for commerce elements in some of the RFPs it gets from agencies as advertisers start to take a unified view of performance, customer acquisition, and brand advertising.”

So how does this hybrid model solve publishers’ scalability problem? For one, it lowers the barriers to entry. Because the publisher gets paid for sales it generates, it can afford to reduce the upfront cost for producing the content. This widens the net so that smaller direct-to-consumer brands can participate; under the old native advertising model they couldn’t afford it.

Second, it increases the potential amount that the publisher can generate from a piece of content. Under the old model, a publisher like BuzzFeed was paid a fixed amount for a native ad. But with the ecommerce factor added in, there’s no limit to the amount of income it can derive from sales. And as BuzzFeed’s backlog of content grows, that means it can continue to generate income from its archives long after the native ads were originally published.

In a recent speech, BuzzFeed CEO revealed that the publisher “will generate more than $100 million in revenue in 2019 from lines of business that didn’t exist for the company in 2017.” Given that BuzzFeed only generated $300 million in revenue in 2018, his quote is a testament to how successful the hybrid native ad/ecommerce model can be. Like all the magic bullets that came before it, it’s unlikely that this advertising model will overcome the harsh economics that plague web journalism, but it’s only a matter of time before the media industry at large embraces it.

Simon Owens is a tech and media journalist living in Washington, DC. Follow him on TwitterFacebook, or LinkedIn. Email him at simonowens@gmail.com. For a full bio, go here.


Photo by Carl Solder on Unsplash

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