Why are e-commerce Marketplaces interested in Ads platform?

Traditionally e-commerce Marketplace (MP) has following revenue streams,

• Market place commission - every transaction (conversion) on marketplace for a seller will result in seller paying a %age of sale price as commission to Marketplace
• Pick up and Last mile logistics (e-kart, easy ship) - service fee for logistics. Most marketplaces want to own the customer interaction touch points so that they can control & provide the best customer experience.
• Traffic Monetization - Marketplaces have over years invested in building brand and attract a lot of traffic. But conversion out of this is usually single digit or sub-single digit number.  So they end up selling their digital asset real-estate (read web/mweb page space) to outside world, which in Marketing parlance is called as Ad-inventory.
• Inventory Management (FBA, F-advantage)- Sellers keep their inventory within marketplace warehouses and pay for the inventory holding. This serves multiple purposes for Marketplaces, better visibility to inventory levels,  maintain better quality (packing) and monetize the huge warehouse space they have set up. 

Of the above listed 4 revenue heads, 3 have a direct cost associated with them which means for every X rupee to be earned as revenue there is a direct cost of Y rupee to be incurred and the margins are very thin. But in case of Traffic monetization, Marketplace does not have a comparable direct cost and it’s a constant revenue stream.

Traffic Monetization on Marketplaces till recently followed the suit of publisher sites (content publisher). Under this model Marketplace would directly engage with Brands and work on long term marketing for Brands e.g., New launch, festival sale etc., And whatever is the left out of the brand sale is put up on the Ad exchanges for Bidding (RTB - Real Time Bidding).  

Some of the matured Marketplaces have realized that Brands Ad spending within that marketplace will drop as more and more marketplaces emerge and the same budget will get distributed across different marketplaces. Second, Ad-exchange is always an arbitrage world where Marketplace would never realize its true value. And this is where these Marketplaces have introduced Seller Ads platform to compensate for the drop in Brands interest as well as to address the low value realized through Ad exchange.

What does an Ads platform in e-commerce Marketplace context mean?

The definition is pretty much based on what kind of restriction does the Ads platform impose in terms of who can advertise on it.

Example, one major marketplace earlier supported both sellers and non-sellers to use its platform to advertise but recently (31st October, 2015) it discontinued their product Ads and text Ads, these category of ads provided opportunity for non-sellers on market place to advertise their products on marketplace & pay for click. This was detrimental to company, since in some cases these sellers were competing with marketplace itself for the sale of same product. Now they are moving towards what can be termed as Seller Ads Platform where only sellers can advertise.

Some marketplaces also have an Ad network model wherein they leverage their portfolio sites along with affiliate network  (blogs/partner sites etc.,) and pretty much act like an ad-exchange.

How would a Seller Ads platform help Marketplaces?

First and foremost, it will help marketplace in not loosing a probable customer. Earlier, when a visitor visited the Marketplace with an intention to transact, external ads on the website used to act as distraction & create an opportunity for visitor to go out of the ecosystem (website) and hence marketplace loose a transaction. With Seller Ads platform this situation will be addressed, where in even if visitor clicks on an Ad he will still be redirected to one of seller stores within the marketplace.

Second, it will provide SELLERS an inorganic way to get customers attention and hence increase sales (Organic way is through search ranking which is based on various factors like volume of transaction, user rating, reviews, seller score, price discounts, etc.,).

Third, Seller ads act as a recommendation for the customer and the chances (probability) of conversion on the Marketplace increases hence increasing the revenue.

Does having a Seller Ads platform provide nirvana to Marketplace for monetizing traffic?

No, it’s just a start. A lot depends on how Marketplaces implement the Ads platform and how they solve the fill rate and adoption problem.

We will dwell into details of the challenges in next post.