Snakes on a Site

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.

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“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.”

Home Depot also keeps a sharp focus on the ads it will run, primarily selling to home improvement vendors such as kitchen and bath retailer Moen Inc. and power tool manufacturer Ryobi. “These kinds of vendors are sort of low-hanging fruit in terms of reaching shoppers most interested in additional promotions or advertising on a retailer’s site,” says SendTec’s Obeck. “They’re clearly the first potential advertisers for e-retailers to talk with.”

Tangential products and services
As selling ads on e-commerce sites evolves, Obeck foresees a time when, for example, a home improvement e-retailer might also carry ads for vendors of products or services that aren’t carried by the e-retailer but are home-related, such as homeowners insurance. “We do not want to approach advertisers who are not contextually relevant, or who a consumer shopping on an e-retail site might ask, ‘What are they doing here,’” he says.

As for product vendors, the potential ad buyers, there is a compelling argument for purchasing an ad on a retail web site carrying their products that goes beyond merely reaching certain demographics, some e-retailers and experts say. That argument is readiness to buy. “One of the key things about HomeDepot.com customers is they’re buyers,” Obeck contends. “They’re there shopping, not just reading articles.”

To date Internet retailers have taken several avenues for setting up and bolstering ad sales programs for their web sites. In July Netflix, for instance, hired Peggy Fry, former vice president of interactive marketing at AOL Entertainment Group, to head up an in-house ad sales group. Home Depot also has established a small internal team that works with SendTec, which manages the sales force and the creation and deployment of ads on the site.

But before deciding whether to sell ads on their web sites, e-retailers must consider what impact advertising may have on shoppers and customers. “Retailers need to be concerned about introducing too much clutter on their site,” says Forrester Research’s Kim. “If lots of ads actually prevent a consumer from making a purchase decision, it’s likely the consumer will find another place to do their shopping. Retailers must ensure the online shopping experience is a positive one rather than overloading the consumer and creating a bad experience in the name of additional revenue.”

In addition, e-retailers need to consider whether an advertisement will generate more revenue than a merchandising strategy it might replace. “Web site space is valuable,” Foglesong says. “An e-retailer should ensure that an ad program and the customer experience are consistent with their brand, add value for customers and don’t negatively impact customers’ online experiences. If online advertising is done properly, the program should enhance the shopping and research experience.”

Further, e-retailers concerned that shoppers viewing advertisements on their site might drop the e-retailer in favor of the site of a competitor that does not sell ads can adopt a strategy like Home Depot’s, some industry observers say, where all ads on the company’s site link to destinations within the site. “We give vendors the opportunity to build out what essentially are branded sections on HomeDepot.com,” Foglesong says. “And we encourage the advertisers to make the sections as rich and in-depth as possible, with lots of information about the products they sell and the opportunity to integrate multi-media content.”

And in the end, some experts say, it’s that ability to give advertisers a rich web environment and exposure to a wide audience of consumers with related special interests that will fuel increased demand for ad space on e-retailer’s web sites.

linda@verticalwebmedia.com