The most well-known example from 2013 of how native advertising can go wrong is the ad published by The Atlantic of the Church of Scientology, mistaken as an editorial despite the highlighted label listing it as sponsored content. There were a number of things that went wrong, but some of the main concerns have been The Atlantic's unpolished grasp on native advertising at the time. What The Atlantic hadn't seemed to realize was native advertisement, also called sponsored content, can easily be confused as editorial writing.
How Sponsored Content Works
The method behind the madness of sponsored content or native advertising is to provide a "bigger canvas" as co-founder of BuzzFeed Jonah Peretti phrased it in Jeff Soderman's Poynter article How news organizations can sell sponsored content without lowering their standards. The possible problem comes from what David Carr in his article Storytelling Ads May Be Journalism's New Peril points out "the confusion that makes it work often diminishes the host publication's credibility," which is in part what happened in the Scientology advertisement as it wasn't labeled clearly as an advertisement rather than an editorial piece.
The Suggested Use
In the same article, Soderman suggests that sponsored content should "fulfill most of the same principles as regular content" and the tone and quality of the natural ads should reflect the publication's values.
The PRSA published The Ethics of Branded Content by Ann Willets pointing out a few guidelines for natural ads: allow disclosure (going along with Soderman's transparency), keep the readers' opinions and comments up on the page and unedited, keep in mind that earned media should be published as well, keep the published work up to date and finally keep the news staff working and the advertising specialists from crossing into each others' realms.
On April 15 of this year, the American Society of Magazine Editors (ASME) updated their editorial guidelines. Overall, the ASME recommended to avoid advertisements that could deceive readers and that labels such as "advertisement" and the likes should be printed horizontally at the center of the top of each advertisement in readable type. Further more, the ASME recommended that on social media and other websites that native advertising should be clearly labeled as "Sponsored Content" or "Paid Post". But they also make the reminder that "print and digital advertisements that resemble editorial content should be identified as advertising in compliance with Federal Trade Commission regulations."
One problem with sponsored content is that the publication may lack independence due to the sponsor's interaction with it before publication. Soderman's solution to this is transparency. He writes that "the reader deserves to know not only that this is sponsored content, but what role the sponsored played in shaping the content.
The Good, the Bad and the Ugly
BuzzFeed seems to have mastered this form of advertising early on. Here is an example of a native ad BuzzFeed created for JetBlue Airlines in 2012, a year before The Atlantic published the Scientology advertisement. Unlike the later, however, BuzzFeed clearly has JetBlue's brand name on the page with Brand Publisher below. The Atlantic has since made guidelines for their sponsor content.
Perhaps the most important things to remember with sponsor content are transparency and, whenever possible, independence to keep the line between journalism and advertising strong and healthy.