August 19th, 2006
Everything Is Media: The Online Retailer Edition
Folowing the 2.0 maxim that “everything is media,” online retailers have woken up to the media value of their website traffic and have started selling advertising on their sites (from WSJ, sub required):
Last week, Amazon.com Inc. quietly began testing the sale of display ads on its home page to companies such as Ford Motor Co. and Fidelity Investments. The move comes a month after Home Depot announced it was running ads on its site. Wal-Mart, meanwhile, is selling space on its main page promoting everything from Motorola cellphones to Kleenex tissues.
The retailers want to exploit their heavy traffic, which makes their pages prime real estate for marketers. But they are taking different approaches to their ad sales. Amazon will run ads from companies that don’t sell products on its site, such as Ford, while Home Depot Inc. and Wal-Mart Stores Inc. only take ads from their suppliers.
The moves come with relatively little risk, analysts said, as long as retailers find ways to incorporate the ads so as not to annoy shoppers. By taking ads from major vendors, retailers gain not only additional revenue, but they can also improve their chances of selling the manufacturers’ products.
The retailers are embracing Web advertising at a time when marketers are shifting more of their ad budgets to the Internet from newspapers, television and other media. U.S. sales of Internet advertising rose 30% to a record $12.5 billion last year, according to the Interactive Advertising Bureau, a trade group for marketers.
The challenge for Web retailers will be balancing the amount of advertising they run with maintaining sites that shoppers find easy to use. “I don’t think anyone wants their site to look like Nascar ads, because it really distracts from the shopping experience,” said Heather Dougherty, a retail analyst for Nielsen/NetRatings.
Here’s an example of a Delta Faucet ad running on Home Depot’s main plumbing category page:
This type of advertising is as intuitive as search advertising — target consumers when they have indicated an intention to shop, in this case by visiting an online retail site. It’s strange that it took this long and that everyone isn’t doing it yet.
Of course, this is still the same “interruptive” advertising model — just because I went to the Home Depot plumbing page, doesn’t mean I’m looking for faucets, although the chances that I might be interested in a new faucet are a whole lot greater than if I were just reading news online. At the deeper category levels and with site search, these ads can become more granular and targeted, like search keyword advertising.
The other problem with display advertising on retailer sites is that it’s unclear whether any value goes to the consumers, despite claims that the sites are sharing the economic benefit:
Amazon, which sells everything from books to lawnmowers, drew 37.6 million unique visitors in July, making it one of the 10 most popular Internet destinations, according to Nielsen. The Seattle-based company began testing ads on its site last week because the revenue “allows us to even further lower product prices for customers,” said a spokesman.
Amazon may very well use ad revenue to lower prices, but we have no way of knowing — there’s no transparency to the system — at least not for the consumer.
If consumers could actually see how this type of advertising on retail sites was effectively lowering their prices — and not just interrupting their shopping with unsolicited brand messages — that would be way cool.
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Hmmm. Remember buy.com in the late 90s?
The original business model was to sell stuff at a loss, and make it up by selling ads on every page of the site. Sounds reasonable if you come from the “Cosby Show†school of broadcast advertising.
They were selling electronics at a loss. Attracting targeted advertising deals meant that the people most interested in buying ads would be people selling electronics at retail prices. How many do you suppose signed up?
Buy.com was a spectacular failure.
If Amazon can attract “brand” advertisers who don’t sell through the Amazon discount channel, more power to them. Maybe buy.com wasn’t stupid, just way ahead of it’s time.
Or maybe not. We’ll see.
Brian,
Good point about Buy.com. But then most people had given up on the over-hyped promise of accountable online advertising until Overture and Google figured it out, so “didn’t work the first time” doesn’t necessarily equate with “can’t ever work.”
I don’t know that branding is the opportunity here — I think it’s more akin to search marketing, i.e. bringing consumers targeted, relevant messages when they are likely to be shopping for something. And I’m intrigued by Amazon’s claim that they use ad revenue to lower prices — some transparency might go a long way to making that compelling.
i think the pitch that they will use ad revenue to lower prices is just that a feel-good pitch for the consumers… it could work if they can generate a significant base of ad inventory perhaps but in that case they will just figure hey we are a media company too so let’s add advert. revenue line item to our income statement to show the stakeholders how we are successfully diversifying…
[…] Scott Karp, over at Publishing2.0, writes about the new development of destination retailers carrying advertising for other retailers or products on their sites…Scott’s article is here and it’s a good, succinct read so I won’t quote from it (or I’d just be replicating his post!). The difference that comes from the story is that sites like Amazon only allow advertising from people who don’t sell on their site (ie they’re trying to take a slice of items they don’t stock, continuing their desire to ‘virtualise’ their stock holding and let others carry the warehousing and fulfilment costs) while HomeDepot, the other example, only takes advertising from manufacturers whose goods are stocked by them (turning this into an extension of supplier support for retailers). Amazon’s logic is clear: they’ve spent money (or ‘brand juice’) getting people to the site and so they want to have a part of satisfying their every consumer urge, need and desire - whether from their own stock or by picking up a referral commission from another vendor. I’m not sure that this approach will be attractive to general retailers outside the top 20 in the UK, but for specialist etailers - who are closely in touch with their suppliers and other specialists - this could be a good area to develop as part of customer satisfaction. This said, the last thing that customers need is more confusion, animation, distraction and loss of focus, so the adverts will need to be carefully considered and managed to maintain usability and purchasing conversion. Not every site can be a portal - there have to be some destinations!Ian Jindal […]
sold by Home Depot and paid for by the manufacturer. Some questions have been raised about whether this practice could turn into another form of slotting fees. Amazon is another retailer to get into the practice, as discussed in Scott Karp’s post here. Now, I realize that given the traffic Home Depot and Amazon have on their sites, these ads could produce a nice small revenue stream. Theoretically, since the cost of displaying these ads is very small, the profit from the ads would allow these
Maybe we are thinking about this from the wrong world. Isn’t advertising on a transactional site/retailer site, the same as point of purchase advertising at a b and m retailer? Wonder bread buys retail space to gain more of the shoppers “share of mind” than its competitor. And if that shopper is walking down the bread aisle? You now have your “contextual” advertising. I don’t see a difference.
Mike,
You’re right, it’s just like point of purchase advertising — the difference is that online it came be more relevant, contextual, dynamic — and have the efficiency of a financial market rather than a supermarket.
Stuff I ReadThe Politically Incorrect AlphabetFailure to FailA False Sense of Insecurity [PDF]50 COMMON INTERVIEW Q&AEverything Is Media: The Online Retailer Edition
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