 "E-commerce")
The growing traffic of online shoppers around the world is resulting in an unusual outcome. Buyers on e-commerce platforms are now searching and discovering products on these sites rather than taking to engines such as Google. The tech giant, as a consequence, is not only feeling the traffic pinch, but these players (such as Amazon) are also taking away some part of its ad business.
Here's how they are doing it: Since users search products on its website, Amazon has been charging brands to have their items prominently displayed on its marketplace. The result is that advertising is slowly but steadily emerging as a key contributor to the online retailer's overall revenue. It is estimated that about $1 billion in turnover came from advertising alone in 2015 for Amazon.
While this is a drop in the ocean in comparison to Google's ad revenues ($19.1 billion in Q4 2015), Amazon's growing heft has rung alarm bells at the search giant's headquarters.
As far back in 2014, Google's former chief executive Eric Schmidt had said, "Many people think our main competition is Bing or Yahoo. But, really, our biggest search competitor is Amazon. People don't think of Amazon as search, but if you are looking for something to buy, you are more often than not looking for it on Amazon."
Indian e-tailers are taking a cue. Both Flipkart and Snapdeal have begun monetising their seller base by charging them for displaying ads on their platforms. Still in its infancy, the players are looking at advertising as a way to drive revenues and offset losses made by their core e-commerce business.
Critics argue that this business is fraught with challenges. Because a transactional enterprise like e-commerce can never fully achieve the kind of scale that a conventional search engine can in advertising.
However, players such as Alibaba appear to have proved the naysayers wrong. Roughly half of its overall revenue is estimated to be coming from display ads. For the financial year ended March 2016, Alibaba's revenue was $15.7 billion.
"Globally the best practice in this space is set by Google. What's really happening is advertising is moving from the physical space to the digital space on a continuous basis. Today, people are not looking at just the biggies, so we are saying that I have an e-commerce platform with 1.5 million people transacting with me every month, how can I grab their eyeballs?" says Harish Bijoor, CEO, Harish Bijoor Consults.
Advertising to the rescue
In the Indian context, Flipkart and Snapdeal, say experts, are walking a tightrope. With Amazon's Indian unit snapping at their heels and investors growing tired of their deep discounting tactics, the two, have to get their advertising strategy right to hedge business risks.
The two majors have already launched their own version of seller ads, where the latter are charged for marketing their products. The two have also made acquisitions in the space to support their appetite for ads. In March 2015, Flipkart acquired AdiQuity, a mobile advertising solutions company.
Flipkart is now luring advertisers with its 75-million strong user base, pushing a new ad format called Brand Stories. Unlike other platforms, it can charge a premium since people coming to its website have a purchase intent.
Snapdeal acquired predictive marketing platform TargetingMantra this May, followed by the launch of its updated seller ads platform. The company will now let sellers target a specific set of customers who shop on the company's platform sharply using its tools.
Going forward, ad solutions on e-commerce will get more sophisticated, along the lines of Google itself, industry sources say.
For instance, Alibaba hosts an auction where sellers can bid for search terms. This is similar to what Google does for search keywords, with brands and advertisers paying more for popular search terms.
Not quite there yet
Flipkart, which in December 2015 had started a zero-commission pilot with 350 reputed companies on its platform, scrapped the idea, and has instead hiked the commission it charges across sellers. However, given that e-tailers are under immense pressure to turn profitable, one can expect more innovation in this area as digital advertising grows.
Media agency GroupM says that digital advertising will make up an estimated 12.7 per cent of the overall advertising market in 2016, up from nearly 10 per cent in 2015.
The overall advertising market in India during 2015 stood at Rs 49,758 crore, according to GroupM, putting digital ad spends at nearly Rs 5,000 crore, out of which Google controls nearly 80 per cent.
This, however, could change drastically in the future. Google and Facebook could control a smaller share of digital advertising, just like how Amazon is becoming a contender in the US and Alibaba is taking on Chinese search engine Baidu.
