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Native Advertising and Online Innovation

· October 4, 2013

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Yesterday was a big day for tech company announcements.  Much attention went to Twitter’s IPO, and all of its newly disclosed financial data.  But Instagram and Snapchat had some significant news that should not be overshadowed.  Instagram is “growing its business” and will be rolling out occasional “natural” ads to users in the U.S.  And Snapchat introduced new feature called Snapchat Stories with a clip from a band’s music video, a move that some think suggests revenue is in its near future.  Both of these announcements involve sponsored and branded content that is visually consistent with their service.  This technique, referred to as “native advertising” is increasingly common for Internet businesses.

With native advertising, brands can work with companies to create sponsored posts, formatted like and placed alongside regular posts, and marked as advertisements with a different color background or text labels such as “Presented By ___” or “Featured Partner.”  Social networks and publications face different challenges with native advertising.  For the former, people are unlikely to be excited about seeing ads in their stream, but posts are attributed to brands, rather than appearing as though they originate from friends or accounts they follow.  Instagram particularly is taking its time to introduce ads to ensure they don’t disturb the consumer experience, and maybe even enhance it; their blog post talked of “beautiful, high-quality photos and videos” that they want to be “enjoyable and creative.”  With respect to publications, there is a legitimate concern of content seemingly endorsed as accurate and objective, when it’s really an ad, such as The Atlantic’s noteworthy misstep regarding a post on Scientology.

In a recent article on innovation in journalism in the digital age, New York Times Public Editor Margaret Sullivan, discussed experiments in native advertising.  Sullivan cited David Carr’s article from a few weeks ago about challenges with native ads, in which he contrasted their promise with their potential to betray readers’ trust.  Many publications, like Forbes and Huffington Post, have embraced native ads, while others have explicitly declared that they will not do so.  A Wall Street Journal editor recently decried the practice, for example, and Andrew Sullivan (who has experimented with different funding practices) told the Times he is “aghast at this.”

The Federal Trade Commission (FTC) announced a few weeks ago that it is holding a workshop on December 4 to “explore the blurring of digital ads with digital content.”  They’ve previously had other inquiries on Internet advertising, disclosures, and endorsements, so this is far from their first inquiry into consumer protection and potential deception online.

As the FTC examines these issues, it will be necessary to balance the potential harms of consumer deception with the benefits of native advertising, which is helping spur innovation and paying for content that consumers want.  Regulation is challenging when business models are changing rapidly; lines between traditional media, Internet media, and social media are blurring as user-generated content and editorial content are mixed on the same platform.  Overly rigid rules without room for experimentation could prevent business model evolution and potentially even expose new companies to liability for legitimate commercial behavior.  Should this result in a lack of choice and competition, the harm would fall on consumers, the very constituency the agency is bound to protect.

Innovation

New technologies are constantly emerging that promise to change our lives for the better. These disruptive technologies give us an increase in choice, make technologies more accessible, make things more affordable, and give consumers a voice. And the pace of innovation has only quickened in recent years, as the Internet has enabled a wave of new, inter-connected devices that have benefited consumers around the world, seemingly in all aspects of their lives. Preserving an innovation-friendly market is, therefore, tantamount not only to businesses but society at large.