• by Tobi Elkin , Staff Writer @tobielkin, April 15, 2016

While native advertising remains a relatively small percentage of overall digital media spending—it’s estimated to reach $3.4 billion this year, according to eMarketer—many advertisers are showing a healthy appetite for native formats. Native advertising, put through programmatic pipes, can be a powerful combination, and publishers like Hearst have organized themselves around this vision.

Hearst's Core Audience Group is a digital network of content and audiences that connects advertisers to audiences at scale using programmatic technologies and data. The Group is comprised of three teams within Hearst: Hearst Exchange, powered by Core Audience, a premium programmatic marketplace that houses all of Hearst’s premium inventory; a Programmatic Services Group that provides campaign support for all programmatic activity within Hearst; and Audience Solutions, which offers data and creative solutions to continue to engage customers beyond an initial campaign.

For a publisher like Hearst with premium content and a direct sales force, does programmatic native threaten direct sales? Mike Smith, SVP, advertising platforms, core audience at Hearst, said that concern is “understandable, but misguided,” adding that if programmatic replaces any particular position, it would be ad operations.

“Programmatic makes servicing campaigns less hands-on, but in no way does that mean salespeople become unnecessary. They’re still needed to court brands,” he said.

Smith reports to Hearst’s chief technology officer Phil Wiser and also to Hearst Magazines digital president Troy Young. He said that Hearst’s current offerings stem from Young’s creation of a branded content suite called Shared Spaces in early 2015. Shared Spaces is a native ad product, but it’s not currently programmatic. Hearst experienced success in the U.S.with the suite and now, Shared Spaces will be marketed in Europe and Asia.

Smith said Shared Spaces will eventually go programmatic. “In November, Hearst retired its content recommendation system, Yahoo Recommends, and replaced it with licensed technology.” Hearst runs the auction itself. Native content recommendations started a decade ago, Smith said, and became programmatic only last year. For display auctions, publishers typically outsource the auctions to players like Google, OpenX, PubMatic or Rubicon. But Smith said the native ad exchange is an “in-sourced auction” even though it’s powered by licensed technology.  

What is Smith learning about running a native ad exchange in-house? “We have all our own data on every bid, on every impression at all times,” which is extremely valuable to Hearst. “Only in time will publishers realize the criticality of that data. The data lives in the auction system. Unless you can persuade Google, AppNexus, Rubicon and the others to provide you with all those details, the best you can do is statistically sample it. Having all that data is very useful,” he said. Hearst made the deals with native demand-side platforms so it can cut out intermediary fees. “We don’t have intermediaries setting up toll booths in our business,” Smith said.  

So what kind of data is Hearst getting that the exchanges don’t offer up? For example, in an auction scenario, if Company A wins the auction on Google, will Google offer a publisher access to all the other bids that were made?

It won’t. “It doesn’t save the information on every bid," Smith said. "And it’s useful to know every advertiser that bid so you can do data analysis to determine which advertisers are interested in your audience, in what context, and what they’re willing to pay in each context. Over time, you can develop a sales development strategy based on having full access to that data.” The results? Revenue growth on the Hearst Exchange from Q3 2015 to Q4 2015 amounted to 152%, according to Smith.

For Hearst, Smith said native is scaling in a material way. He attributes that to an internal alignment between departments—its creative studio, editorial collaboration and workflows that were set up as the basis of a branded content revenue development plan.

A year from now, will more publishers run their own auctions? Smith thinks so. “There are a lot of complaints in the industry about intermediaries. While they serve a very important purpose, as publishers become more technologically advanced, they’re going to take more risks,” Smith said. “Hearst has fully embraced programmatic and is making a lot of money as a consequence.  We’ve fully embraced native advertising and branded content, too, and we see our customers want to buy that way.”