Third-Party Ads as an Incremental Revenue Stream for Etailers
U.S. total Internet media advertising—consisting primarily of banners, keyword search bidding and email—continues to grow like crazy, expected to reach $332 billion in 2012, according to eMarketer. Etailers are aggressive spenders online, advertising to attract customers to their online stores, so they can sell them something. But why not turn the tables, and get a piece of that ad spending for themselves?
Several major e-commerce operators in the U.S.—among them Wal-Mart, Home Depot, and NetFlix—are experimenting with selling display (banner) ads on their websites, both as a new revenue stream and as a way to encourage visitors to buy.
But this is a controversial move. Let’s look at the arguments, pro and con.
The rationale for accepting third-party ads
- Only a fraction of site visitors convert to sales, so why not monetize that site traffic?
- Manufacturers of the products you offer at your site can help you sell. Their advertising can provide the additional product information that may improve conversion rates, especially on considered purchases.
The arguments against it
- The revenue is going to be minuscule compared to your e-commerce sales.
- Why risk annoying or confusing your customers?
The direct marketing agency SendTec has recently developed a specialization in organizing ad sales for etailers. SendTec handles not only the ad creative, but also the selling, trafficking and serving of the ads.
NetFlix, the online DVD rental company that revolutionized DVD distribution and struck fear in the hearts of established retail rental firms like Blockbuster, has been offering ad space to third parties since June 2006. Netflix has over 8 million members, and expects to grow its membership to 20 million in the next 5 years.
Their first foray into online ad sales was a campaign for the Sony Pictures animated feature Monster House. A series of banners featured various monster characters, and responders could find out more about the movie. The banners were served up to Netflix members based on a data-driven statistical model to identify the most likely prospects for the movie based on their past movie rental behavior and their movie preferences expressed through the Netflix movie rating system.
Sony was also advertising its new movies on the postal envelopes Netflix uses to ship the DVDs to members. Clearly, Netflix is taking steps to both monetize its website traffic and to promote movies to its customer base at every opportunity.
Wal-Mart’s strategy has been purely about stimulating its own sales. They sell ad space only to suppliers, and expect the additional product information to increase visitors’ understanding of the products, in hopes of higher sales-conversion rates.
Home Depot, the housewares and do-it-yourself retail chain, took a similar tack with advertising at its e-commerce site, offering manufacturers a way to provide richer product information to end-buyers. Starting in July 2006, Home Depot knew that revenue from online ad sales would only represent a tiny fraction of its $280 million from e-commerce.
But they were sure that web shoppers would appreciate the opportunity to visit a manufacturer-controlled micro-site with up-to-date product information to help them make a purchase decision, including streaming videos and product demos. Manufacturers could place ads on the same pages where their products were featured, or select product category pages, how-to guide pages, and even the e-commerce home page.
However, April 2007, Home Depot discontinued the program, saying that they felt their resources were better used by focusing on the core business of selling products online and at retail. Part of the reason may have been political, stemming from the reorganization that moved Home Depot Direct into its merchandising group.
Lessons learned
Some clues from these ad-sales experiments:
- Test the waters carefully. Set up control and test groups, so you can be sure the ads are not harming the core business.
- Control selection of ad partners. Begin with your suppliers, and ensure that the ad copy and landing pages or micro-sites are well-written, informative, and honest.
- Measure the ROI. With banner ads priced as low as $1 to $5 CPM, you’ll need to sell quite a bit of inventory to make up for any lost e-commerce sales. Also factor in the opportunity cost of what revenues you could have generated from putting that space to other uses.
The latest development in e-commerce ad sales
A new direction in banner advertising for e-commerce comes from aCerno, which has put together a network of 375 e-commerce sites and product manufacturers to offer ads across the network as a more efficient way to buy and sell media. Because most retailers have actual purchase data, aCerno is able to offer targeted ad serving based on models suggesting the most likely prospects. ACerno keeps participation in the network, for both hosts and advertisers, confidential.