Amazon India eyes revenue boost, seller loyalty with ad services

Amazon India has launched a clutch of high-margin ad services such as offering prominent product positioning for a fee and display ads


Photo: Reuters
Photo: Reuters

Bengaluru: Amazon India has launched a clutch of high-margin advertisement services such as offering prominent product positioning for a fee and display ads, in a move that can help the online marketplace boost revenue and build more loyalty with its third-party sellers.

Amazon.in, the Indian business of the world’s largest online retailer, launched its advertising services over the past three months across its mobile and desktop platforms.

Local rivals Flipkart and Snapdeal are also trying to build similar offerings on their marketplaces as the ads business is significantly more profitable than the marketplace or retail business.

However, while Flipkart and Snapdeal are building the ads technology from scratch or buying ad technology, Amazon has the significant advantage of adopting ready-made technology from its parent company in the US that has built expertise in this area over more than a decade.

“Hundreds of sellers are already advertising on Amazon.in and their number is growing each week,” Amazon India country head Amit Agarwal said. “If you’re a seller you want to have the option of spending money on marketing and seeing the RoI (return on investment). Our Seller Central platform allows sellers to do this—How many clicks are they getting? Are they getting RoI? We have the same set of products for brands.”

Amazon’s ad services include a self-service product that allows marketers to show product ads on its site, a product that allows third-party sellers to buy search words to get their wares displayed on top of customer search results and display ads.

The company charges sellers and brands either on a cost-per-click basis or a cost-per-impression basis, where Amazon gets paid every time a customer sees the ad.

“We have spent a lot of effort on building self-service ad products for sellers in a way that improves customer experience. We have personalization, related products and a lot of technology that allows customers to browse through a lot of selection. But all these are machine-driven. A human (seller buying a self-service ads product) might be better at saying that if you like these kind of things, you may also like my product. So (the ad product) enables the customer to get exposed to more selection. It’s a more-power personalization system,” Agarwal said.

Amazon is also using its price comparison site Junglee in its ad push.

Third-party websites can pay the company to show their product ads on Amazon through Junglee, but only for things that aren’t available on the marketplace. Amazon then directs customers to the third party and pockets a fee.

“If we don’t carry a product and a customer is looking for it, I would rather send you to the product than disappoint you. We’re getting good traction from this as well,” Agarwal said.

Ad services are potentially a very lucrative business for online marketplaces, offering significantly higher margins than the core business and helping increase sales for sellers, who may then be willing to pay even more for these ads. Amazon India, Flipkart and Snapdeal are engaged in a cash-intensive market share battle and are burning hundreds of millions of dollars on marketing, discounts and building infrastructure. If successful, ads can help them cut their massive losses.

For instance, making ads work is important enough for Flipkart to have chief executive officer and co-founder Sachin Bansal lead the business. Though Flipkart generates less than 5% of its sales from ads, it is aggressively building this business by recruiting a large ad monetization team and purchasing mobile advertising technology—it bought it from AdIQuity Technologies earlier this year.

“It won’t be very difficult for online marketplaces to build the ads business; ads have traditionally been a big source of revenues for most Internet businesses,” said Rajiv Sundar, senior director at Deloitte India, a consultancy. “They will have to cultivate relationships with advertisers and media-buying agencies and this is not very tough. And because of the low cost associated with ads compared with retail, it will be a margin booster. Having said that, ads will always remain an ancillary business and never become the core business for marketplaces,” he added.

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