The e-retailer reports a $126 million net loss, stemming from a $640 million year-over-year increase in spending in the quarter on technology and content ...
E-retailers are exploring selling ads for film campaigns, hardware promotions and basic brand awareness.
When it comes to Internet retailing, the bottom line is, well, the bottom line. While e-retailers focus on boosting conversion, improving marketing campaigns and other strategies to increase sales, most are ignoring a potential pot o’ gold that’s staring them right in the face: selling advertising space on their e-commerce sites.
There are billions of e-commerce site page views, each of which contains an opportunity to connect consumer brand manufacturers and other companies with shoppers, says Eric Obeck, president of SendTec Inc., a direct marketing firm that manages online ad sales programs for numerous companies, including multi-channel retailer The Home Depot Inc. “Offering advertising spots on e-commerce sites is a huge opportunity that’s just not getting much attention, especially relative to its size,” Obeck says.
However, some retailers, both pure-play Internet stores and retail chains, have been giving this opportunity ample attention. Merchants including Home Depot, DoItYourself.com, Netflix Inc. and Wal-Mart Stores Inc. have introduced advertising programs that are reaping them additional revenue.
It’s a start
At Home Depot, which began selling online advertising in July, ad sales so far represent only a fraction of its total e-commerce sales, which last year hit $280 million, says Greg Foglesong, director of web sales and marketing. Part of Home Depot’s strategy behind selling ads is having product manufacturers provide more of the information customers crave. When web shoppers click on an ad, they are sent to branded microsites within the Home Depot site that display that advertiser’s products. Advertisers also have the option of buying space on the home page, category pages, product pages and numerous “how to” guide pages.
This set-up gives shoppers plenty of additional information-including interactive demonstrations, streaming videos and more in-depth product content-and keeps them on the Home Depot e-commerce site. And, of course, adds dollars to the retailer’s coffers.
“Our customers want to learn as much as possible about the home improvement and home-related products we sell,” Foglesong says. “We concluded that selling online ads is an opportunity to bring together vendors looking to tell their stories with customers looking to hear these stories.”
Telling home improvement stories is what DoItYourself.com Inc. has been doing for more than a decade, and its ad sales total millions of dollars every year, reports CEO David Goldsholle. But DoItYourself.com, which launched in 1995, is an exception-it’s a publisher of free home improvement online content against which it sells ads on products related to that content. Only more recently did it add an e-commerce site, DoItYourselfWarehouse.com, where the company sells advertising space next to the products it sells. The vast majority of its ad sales still comes from its free content site as opposed to its newer e-commerce site.
Like Home Depot, Wal-Mart offers an advertising program that it positions as a way for product manufacturers to provide more information to customers. Wal-Mart views selling ad space as a cost-effective online marketing vehicle that provides suppliers a way to enhance brand awareness and understanding of available products, a company spokesperson says.
And this is the case for virtually all e-retailers selling online advertising, experts say, though the strategy still is in its infancy in the industry.
Snakes on a site
Such is the case for video rental behemoth Netflix. Its ad sales represent a tiny portion of its total sales, which last year hit $239 million. “Ad sales do not amount to a material amount of revenue that we’re generating, but they certainly are positioned to grow,” says a Netflix spokesman. He adds that Netflix is predicting it will reach 20 million members in the next four to six years compared with 5.2 million today, and this should definitely push revenue from ad sales higher.
Netflix launched banner advertising on its site in June with an exclusive campaign for Sony Picture’s animated feature film Monster House. Sony created a series of animated banners-each featuring a different character and message-that rotated throughout the Netflix web site. That marked the second round of advertising from Sony Pictures, which promoted the films Memoirs of a Geisha, Snakes on a Plane, and The Da Vinci Code on the envelopes Netflix uses to mail DVDs to members. The merchant ships seven million envelopes a week via first-class mail.
The company developed in house a set of complex algorithms that mine customer data to determine DVDs members most likely will be interested in renting, the spokesman explains. Advertisers can target Netflix members based on this data, derived from the members’ rental and 5-star film rating histories.
For manufacturers, be they home improvement suppliers, film studios or any number of other companies, advertising on an online retail site makes sense, especially in categories like home improvement, where consumers tend to do a lot of research before making a purchase, industry observers say.
“How many people today would renovate a kitchen without doing research online,” DoItYourself.com’s Goldsholle contends. “Years ago they would buy old magazines and newspapers and read various articles. Today they’re going online to figure things out.”
As a result, selling ad space to vendors is a natural extension of online retailers’ practice of using text and graphics provided for free by manufacturers to aid customers during the product research process, says Peter Kim, senior analyst at Forrester Research. “Advertising is just another step in the direction of better merchandising products on an e-commerce site,” Kim says.
However, e-retailers should maintain a sharp focus on the kind of advertisers to which they sell ads. Netflix, for example, limits ad sales to vendors with entertainment-related products. “As long as it’s in keeping with the movie enjoyment experience, it’s appropriate,” the Netflix spokesman says. “But it would not be if we were advertising unrelated products. We’re going to keep our ad program focused on film studio properties and entertainment-related items that add value for Netflix members.”