Major online retailers are turning to ad revenue to supplement slumping sales. Will it pay off?
Unless you've been living in a cave these past eight weeks, it should be no surprise that it's been the worst shopping season on record for decades.
Brick-and-mortar suffered -- the International Council of Shopping Centers reports retail sales in the United States fell 2.2 percent overall in November and December (though large retailer chains and department stores claim declines ranging from 7 to 25 percent). Online retailers didn't fare much better, with comScore reporting overall holiday shopping sales down by 3 percent.
With this kind of news, it's no surprise retailers are seeking alternative revenue channels. Online, some retailers are turning to selling ad space.
Best practice in the e-commerce space used to dictate pretty clearly, "Don't distract your potential buyer from transacting...and for goodness sakes, don't do anything that might take them away from your site before they have a chance to buy."
Now, however, major online retailing sites like Buy.com, Amazon, Wal-Mart, and AmericanGreetings.com have begun selling display advertising on their sites. If these leaders succeed, chances are other e-tailers will follow suit.
Early Trials, Today's Successes
Online retailers have been experimenting with selling ad space for a while. In 2007, Home Depot trialed and discontinued selling online ad space, saying it wanted to remain focused on supporting its online store. Wal-Mart has also been offering online advertising for some time, though now display advertising seems to be appearing more prominently (home page banners, for example).
During the early experimental times, e-tailers offering online advertising took a more subtle approach. Display advertisers were typically limited to only those selling products through the e-tailer and the ad click led to internal content pages on the site or dedicated microsites.
Now with growing demand for ad space and pressure to create other revenue streams, however, e-tailers who offer online advertising have embraced the opportunity more whole-heartedly with multiple Web site and e-mail newsletter placements, sponsorships, various targeting capabilities, and even advertorial. They've also fully invested in technology and personnel to support these efforts.
"In my personal opinion, online retailers are really becoming publishers because relying on the cart model alone, with average conversions of about two percent, leaves a significant amount of visitor sessions going unmonetized," said Drew Green, SVP of sales for Shop.com. Couple this fact with how much e-tailers spend to attract traffic to their sites in the first place, and it's even more important in tougher economic times to find ways to otherwise monetize this traffic.
And unlike the failed 2007 Home Depot experiment, e-commerce "publishers" have now found their ad sales efforts successful. Green said Shop.com's ad sales effort -- which only fully launched in September -- has been hugely successful: "We now view this as a significant revenue channel."
Cooking.com, which has been offering advertising for about 18 months, sees ad revenues as not as large as product sales but definitely more profitable and by far experiencing greater growth.
"In these economic times, advertisers are demanding better ROI (define) for their ad spend, and we're seeing agencies looking to partner with e-commerce publishers who can deliver this," said Cooking.com's Vice President of Advertising Joseph Tripp.
Alternative Monetization Options
One difference between most ordinary publishers and e-commerce ones is their discrimination when it comes to the types of advertisers they allow on their sites. They want to retain creative approval rights and therefore most e-tailers don't broker their ad space through networks. They want the advertising appearing on their site to be relevant to (and not compete with) their own product content. As an example, on the commerce side of Cooking.com's site, most advertising will be from consumer-packaged goods brands; Shop.com only accepts family-friendly advertising.
E-commerce sites might be able to monetize traffic without even offering display advertising on their own site. I stumbled upon this opportunity in a discussion with ContextWeb's Shanthi Sarkar.
Through its Reach Extension program for publishers, in theory the e-tailer could build a typical user profile against which advertisers could buy on ContextWeb's Adsdaq exchange. Ads sold against this profile on the exchange are served off-site, but sales made would be credited to the e-tailer. Of course, if the e-tailer also offered advertising on its site, it could still participate in the Reach Extension program and bundle its own ad sales along with the exchange's for even greater ad revenues. Seems like an interesting win-win.
Will the economy spur more e-tailers to embrace the publishing model? Are they likely to succeed? Send me feedback with your thoughts or comment below.
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