Yahoo’s throwing in the towel on mobile banner ads

“Most consumption now is coming in the forms of streams like Yahoo’s mobile app,” said Leo Polanowski, Yahoo’s head of client services for the Americas. “So it’s not a leap to say, ‘Hey, we want to provide the ads in the form because you get increased click-through rates and conversions.’”

By the end of this year, Polanowski said, Yahoo will likely completely switch to non-banner formats for its mobile ads.

The effectiveness of banner ads has long been a point of contention in the ad industry, and the debate has only heightened as consumption has transitioned from desktops to smartphones. Reports concluding that consumers find mobile ads more interruptive than TV ads and that mobile banner clicks are mostly due to finger misfires — as opposed to purchase intent — have convinced publishers that there simply isn’t enough room on smartphones to serve display ads that don’t ruin the user experience.

Yahoo has long depended on the banner ad business. That strategy has not served it well, as its recent earnings reports attest. The portal giant has shown signs of falling out of love with traditional display ads. At the Consumer Electronics Show in January, Yahoo introduced new versions of its key technology and food verticals. Both eschew standard banners in favor of more “native” ad placements.

On mobile, Yahoo is looking to follow Facebook and Twitter in embedding ads into a stream of content.

Indeed, Polanowski pointed to Facebook’s and Twitter’s mobile ad success as examples of the power of native on mobile. Twitter sees a higher engagement rate (4 to 6 percent) on its mobile ads than its overall engagement rate of 1 to 3 percent, according to an executive with familiar with Twitter’s ad operations. More than half of Facebook’s advertising revenue during the fourth quarter of 2013 came from mobile, Mark Zuckerberg said during the company’s earnings call.

“I’ve asked hundreds of people in this industry, ‘When is the last time you clicked on a banner?’ and no one raises their hand,” said Jason Newport, svp of mobile at Carat. “And these are people who pay their bills by having people tap on banners,” he said. “It’s in the way of the Internet. We’re disrupting the flow of the content. We’re taking up a ton of space on a small screen.”

Still, Stream ads, despite supposedly being more engaging, have so far been a drag on the value of Yahoo’s ad inventory since they are priced lower. Still, they get higher engagement rates, so Yahoo is betting on them.

Ad rates may improve as Yahoo refines targeting capabilities for mobile Stream ads. Polanowski said that Yahoo is currently working to do just that, particularly with location-based targeting. If a user is near a Starbucks, for example, Starbucks would be able to send her a Stream ad on Yahoo’s mobile app, he said. Yahoo is also considering opening up its content-management system to advertisers so they can build native ads directly on its platform.

“If you can provide both contextually relevant and personally relevant ads, you get 40, 50 percent lift in user engagement,” he said. “That’s what we see in Stream ads.”