Ad indus­try leviathan Fed­er­at­ed Media has just announced that it’s putting its direct dis­play ad busi­ness out to pasture.

In news guar­an­teed to grab the atten­tion of every adver­tis­ing sales man­ag­er and busi­ness devel­op­ment man­ag­er work­ing in Adland, FM’s move her­alds a major change in the face of online adver­tis­ing sales.  The adver­tis­ing Goliath, which boasts 145,000 con­tent (pub­lish­ing) part­ners and 180 mil­lion month­ly unique page views, has seen the share of rev­enue attrib­ut­able to direct ads slide from 15 per­cent in 2010 to 11 per­cent in 2012.

Ban­ner ads gen­er­al­ly take pride of place on web­pages and are usu­al­ly lim­it­ed to a small num­ber of stan­dard sizes.  Until now, they’ve com­mand­ed pre­mi­um prices when sold to busi­ness brands and mar­keters, and web pub­lish­ers have tra­di­tion­al­ly depend­ed on com­pa­nies like FM to root out firms to adver­tise on them.

The times they are a‑changin’

But the times, they are a‑changin’, as Bob Dylan might put it.  Fed­er­at­ed Media says demand for ban­ner ads is falling.  In a recent blog, its founder, John Boy­er, wrote that the dis­play ban­ner mod­el of “box­es and rec­tan­gles” is fail­ing to sup­port tra­di­tion­al con­tent web­sites “beyond a hand­ful of exceptions.”

He went on, “A new gen­er­a­tion of “native” ad units are on the rise, which live pri­mar­i­ly on large social sites that curate and aggre­gate con­tent.  Exam­ples include Twit­ter, Face­book, Tum­blr and of course the grandad­dy of them all, Google’s AdWords.  Big sites like Huff­Po and fast social com­ers like Buz­zFeed are also employ­ing native units.  Pin­ter­est is expect­ed to roll out some­thing sim­i­lar soon.”

Going native

Direct sales will, he pre­dicts, become vast­ly more com­pet­i­tive with the grow­ing strength of Google Adwords and the com­ing gen­er­a­tion of native ads.  These trends will of neces­si­ty force a change in the way ad agen­cies func­tion in order to cater for the grow­ing num­ber of adver­tis­ers who are embrac­ing more conversational/social ad campaigns.

FM is spear­head­ing the evo­lu­tion because the writ­ing is on the wall; it just doesn’t make sense any more to hire teams ded­i­cat­ed to find­ing and track­ing adver­tis­ers look­ing for ban­ner ads.  Instead, FM is chan­nel­ing all its resources into two areas only, con­ver­sa­tion­al and native adver­tis­ing, which is the rel­a­tive­ly inex­pen­sive field of “pro­gram­mat­ic” adver­tis­ing that allows sites to dis­play ads auto­mat­i­cal­ly all the time.