The move comes more than six months after India’s largest e-commerce company Flipkart Online Services Pvt.Ltd acquired AdiQuity Technologies Pvt. Ltd to improve its ads platform and make advertisements a core part of its business, just like China’s Alibaba Group Holding Ltd.
Both Flipkart and Snapdeal want to copy the business model of the Chinese e-commerce firm, which generates more than half its sales from ads, according to data from iResearch Consulting Group.
Snapdeal will unveil its ads platform strategy in phases. To begin with, Snapdeal Ads will largely revolve around deploying native advertisement formats for product commercials for sellers that can be showcased across its website, mobile site and app. Native advertisements are those that closely match the page content where it appears.
It will help drive discovery of sellers’ products and increase revenue through targeted advertising tools that Snapdeal has developed in-house, said Vishal Chadha, senior vice-president of marketing development at Snapdeal.
Banner ads and other formats will be made available in the second phase, which could take three to six months. The company did not divulge any revenue targets or the commission model it plans to launch.
“The advertising tools will help our over-two lakh strong seller community simplify their business journey and boost overall revenue as more users discover their products," said chief product officer Anand Chandrasekaran.
For small and mid-sized businesses, these online advertisements will be a cost-effective method to boost business, according to the company.
Snapdeal has been working on the platform for nearly four months, according to three people familiar with the development. The initiative is now being driven by Asif Ali, who joined Snapdeal as part of the company’s acquisition of US-based advertising platform Reduce Data in September.
Reduce Data claims that its platform uses artificial intelligence and real-time data to deliver high returns on investment for advertising campaigns.
Snapdeal may also hire a senior executive to lead its ads push, said the people cited above, requesting anonymity.
Increasingly, online retailers are betting on advertising to become a key business. With e-commerce marketplaces adding thousands of sellers every year, these firms are hoping that competition among sellers will prompt some of them to pay lucrative rates for prominent positioning.
Also, with a large user base, Flipkart and Snapdeal are betting that retail brands, consumer goods makers and electronics brands will increasingly use their platforms to place advertisements.
In India, a majority of online ad spending goes to Google and Facebook as there are few other sites with large traffic.
E-commerce companies in India seem to have taken a leaf from Alibaba’s ad strategy. If successful, these moves can provide much-needed boost to margins at Flipkart and Snapdeal and create an additional, large revenue stream.
Today, firms like Flipkart and Snapdeal generate ad revenue mostly by selling banner ads; getting brand partners or brands to spend on marketing on their sites; and charging extra fees for promoting third-party sellers.
For instance, a seller can pay extra to have its products shown first when a shopper uses certain keywords to search for goods on the two sites; if a user searches for, say, casual shoes, a seller can ensure its products are shown prominently by paying extra.
To be sure, the ads businesses are at a nascent stage and it’s far from clear whether these will ever become large. For instance, Amazon.com Inc. and eBay Inc., two large US-based e-commerce firms, don’t generate nearly the kind of ad sales that Alibaba does despite being dominant in the US.
Flipkart and Snapdeal also need to show significant value to sellers and brands in order to pull in large ad revenues.
This is easier said than done, especially once they stop subsiding sellers. When these companies stop funding discounts by sellers or reduce them, sellers are likely to find that selling online isn’t so lucrative after all.
Will they be willing to put money into ads?
It isn’t stopping Flipkart and Snapdeal from trying, though.
Flipkart is considering a plan to cut commissions charged to sellers to encourage them to invest in ads, Mint reported on 24 July.
On its part, Snapdeal said it ads platform will provide campaign analytics, allowing sellers to build targeted campaigns, measure impact and return on investment on real-time basis.
“Engaging with sellers at various points of their business journey, we’ve realized that lack of marketing expertise or investments for elaborate promotions are some of the recurring concerns for their business. Snapdeal Ads platform addresses these through simplified advertisement panel that is integrated into the seller tools they already use today," said Chadha.
Founded by Kunal Bahl along with Rohit Bansal in February 2010, Snapdeal.com today lists about 15 million-plus products across 500-plus categories on its platform.
The company has 200,000 sellers and delivers to about 5,000 cities and towns in India.
Snapdeal is backed by large investors such as Japan’s SoftBank Corp.,BlackRock Inc., Temasek Holdings (Pvt.) Ltd, Foxconn Technology Co. Ltd, eBay Inc., Premji Invest, Intel Capital, Bessemer Venture Partners and Ratan Tata.