This Is the Year of the Native Ad, Says Yahoo! (NASDAQ:YHOO)

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Submitted by Aaron Maley as part of our contributors program.

This Is the Year of the Native Ad, Says Yahoo! (NASDAQ:YHOO)

Yahoo! (NASDAQ: YHOO) is pushing the native advertising industry forward as fast as it can. With a headline on its blog declaring 2015 “The Year of the Native Ad,” and claiming the industry will double in size within the next three years, Yahoo! CEO Marissa Mayer wants to move to #1 from her current #3 position in the mobile advertising business.

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Native ads differ from display (“banner”) ads in that native ads look like organic content: sponsored articles, endorsed photographs, or paid blogs. Native ads work particularly well on small screens, because they appear directly within the feed of content, rather than squashed into a small banner area. “Banner ads just don’t work on the phone,” says Mayer.

Mayer is banking on mobile and sponsored content to spark growth in Yahoo!’s struggling advertising division. As Trefis noted, Yahoo!’s legacy advertising revenues are declining about 1% overall annually, with banner ad revenues leading the decline at -5% annually.

To combat the decline, Yahoo! has made several acquisitions. It purchased mobile ad delivery platform BrightRool in December 2014 and is expanding its in-stream native ad platform Gemini. It was also eyeing native ad revenue when it acquired Tumblr last year for $1.1 billion. Tumblr’s short-form blogs are perfect formats for sponsored blog posts, and the audience at Tumblr is growing, up from 420 million in Q3 2014 to 460 million in Q4 2014.

“Native ads are hot right now,” says Mayer. Indeed, Yahoo!’s revenue from native ads doubled last year. Mobile revenue overall increased 23% in just a single quarter, with GAAP mobile revenue beating Yahoo!’s estimates by 10%. Trefis analysts expect continued growth in the coming quarters, “We expect the mobile user base to increase further as the company implements its strategy to deliver personalized content.”

Yahoo! reports that “more than 60% of consumers have a favorable view of native ads,” with 79% of its marketers planning to buy native ads in 2015. Yahoo! expects native ad spending in 2018 to reach $9 billion.This would equate to one quarter of the $36 billion U.S. mobile ad industry in 2018.

According to the largest native ad study to date, The 2014 State of Sponsored Social Study by IZEA Inc (OTC: IZEA), native ads are currently more effective than celebrity endorsements, online banners, TV radio and print ads. The same study found that a slight majority of U.S. marketers have budgets specifically dedicated to native ads.

One of largest native ad platforms, IZEAx, hosts 243,000 registered users with a combined fan and follower base of 2.3 billion people- about 1/3 of the world. Currently CEO of one of the world’s largest native ad platforms, IZEA’s Ted Murphy projects triple-digit sales growth for the platform in 2015. IZEAx has inferior scale to only the native ad platforms within the largest social networks like Facebook (NASDAQ: FB) or Twitter (NYSE: TWTR). Murphy founded the world’s first sponsored blogging marketplace in 2006.

A report by OPA/Sharethrough claims that mobile native ads are viewed 53% more frequently and generate 500% higher click through rates than mobile banner ads. E-marketer estimates that online mobile ad spending in 2014 totaled $19 billion, and Forester expects that number to double by 2019.

Things are looking up for Mayer, who has spearheaded a remarkable turnaround at Yahoo!’s mobile ad division since becoming CEO in 2012. E-marketer predicts that Yahoo! will finally overtake Twitter in U.S. mobile ad share this year, yet Yahoo! still has a long way to go to catch Facebook, let alone Google (NASDAQ: GOOG). Mayer’s strategy is clear, “For us, mobile, video, native and social — I use the shorthand MaVeNS — is the future.”

The debate continues. Critics claim that Yahoo!’s flat revenue over the past three years as a sign that Mayer is failing. Yet Mayer argues that although the revenue has not grown, “the sum no longer represents the dregs of a dying display-ad business, but, in part, the fruits of an entirely new mobile enterprise she has built from the ground up.”

The market will ultimately tell. Now that Yahoo! has finally detailed its multi-billion dollar Alibaba spin-off, Mayer will finally be able to stand on her own two legs and face the market’s valuation of her company alone.