As a result of shrinking margins and increased competition, large retailers are seeking additional outlets for digital revenue. And as an alternative to programmatic ads, many are adopting sponsored listings, an eCommerce ad unit where vendors pay to have their organic listings promoted in search and browsing results, on the homepage, in emails, etc.
The problem with programmatic ads is they are obtrusive and page-slowing, which can hurt revenue if people abandon the site without purchasing anything.
This trade-off between revenue and user experience has propelled many e-retailers to avoid ads altogether (indeed, according to the tool used for the Ad Tech Insights tracker, fewer than 10% of eCommerce sites show ads).
However, this means most retailers aren't taking full advantage of their visitor traffic. Monetizing these visits drives incremental revenue that could pay for new hires to improve the core product, or enable companies to lower prices and stay competitive.
The pioneer in sponsored listings is Amazon, who's estimated to have driven billions from sponsored listings in 2019. This revenue allows them to reinvest in lower prices and product enhancements, thereby further cementing their market leader position. Additional brands who have adopted sponsored listings with success include Yelp, eBay, and Edmunds.
A sponsored listing is an organic listing that is promoted or highlighted in some way, often by being listed at the top of certain search results. Alternatively, a vendor could pay to promote their product in an e-mail, on the site's homepage, within an in-app notification, on a product page, or wherever an e-retailer puts organic product listings.
These "advertisers" would be brands/sellers who already work with the retailer and who are paying to get more visibility for their products/services.
For instance, let's say I'm an eBay seller who sells rings for $100. On an eBay search for "rings", my product is result #50, far down the page. So, I decide to use eBay's Promoted Listings product, and I pay $20/day to appear in the first row for the same search. This spend then results in two incremental sales a day (a win, since I'm paying $20 for $200 in new sales).
In this scenario, everybody benefits:
BeforeWeekly Ad Budget$0Weekly Sales10 @ $100 = $1,000eBay's Weekly Sales Commission: $35 (3.5%)$35 (3.5%)Total$35/weekAfterWeekly Ad Budget$140Weekly Sales24 @ $100 = $2,400eBay's Weekly Sales Commission: $35 (3.5%)$84 (3.5%)Total$224/week, or __6.4x my previous value__
And this example is for just one seller and one phrase. Although eBay doesn't publish ad revenue figures, their traffic volume and engaged userbase could easily push promoted listings to a $100M+/year ad product.
(Also, technically the "loser" here would be the sellers who are already organically high-up, but who see a sales dip when they are pushed down by a paying seller. In this case, they may pay to promote themselves back up, increasing revenue for eBay further and enabling market forces to determine what the true value of that placement is. Either way, eBay is driving new revenue, further engaging its sellers, and providing a good user experience to visitors.)
You can compare sponsored listings to Google's pay-per-click search ads. While it may take months and hard effort to reach the first page for a given search, anyone can pay to appear as the #1 result.
PPC is a cash cow for Google (the ad unit is projected to have driven over $45 billion in 2019), but they aren't the only brand who has made sponsored listings work. Indeed, it's projected that Yelp's sponsored listing product makes up 70% of their total revenue. Applied to their 2017 earnings, that's $600 million in sponsored listing revenue - which is almost entirely profit.
Given sponsored listings involve advertisers paying for content promotion, many would consider them ads. That said, sponsored listings share important differences from what we normally think of as ads.
Sponsored ListingsProgrammatic AdsClick-ThroughKeeps users on the site and directs to an internal product page, helping to drive more sales and page impressionsLink sends user away from the siteAppearanceBlends in. Generally just an organic listing with a "sponsored" labelStandard banner sizes that usually disrupt the page flowRelevanceSponsored listing appears only if it's relevant to what the user is looking for (via search or browsing)Publisher has little control over relevance - it's up to the ad tech networks' algorithmsPage SpeedWhen implemented server-side, load times can mirror that of organic contentJavaScript tags and cookie matching scripts will burden a page and increase load timesGDPR ComplianceBrands have full control over their users' data and do not have to worry about data leakageBringing in RTB partners increases the odds of data leakage and accidental non-complianceBrand SafetyPublishers can ensure brand safety because the advertisers are vendors/sellers that have already been pre-approved to sell their productsPublishers don't have full control over whose ads appear, which can lead to negative pressRevenueHigh CPMs. Kevel's clients average $5-$10, with some niche publishers able to charge $100+Low CPMs. Generally average < $2
There are five usual places that brands put sponsored listings: search results, browsing results, the homepage, product pages, and e-mails.
Search results are a natural placement for sponsored listings, with advertisers choosing what search terms they want to bid on (like Google's Adwords). Given there's an "intent to buy" when a user searches for a product on an eCommerce site, this placement is of high value.
For instance, the shoe brand Mizuno currently pays Amazon be the first result for a search of "mens running shoes". This is a wise move, as organically the first Mizuno shoe is result #70. Without that paid placement, Mizuno would likely have very few sales, if any, from people making that search.
Sponsored listings can also be placed in specific category sections as someone is browsing the site. While not technically a search, category browsing indicates intent and can ensure relevant targeting.
Many sites have an "Other Products You May Like" section on their product pages. There's no reason that vendors - whether competitors or complementing products - wouldn't find value promoting themselves in these slots.
Most eCommerce sites have drop-down menus for browsing by category. These menus are great spots to throw in product ads on the far right that are relevant to the category the user is scrolling over.
A prominent placement on a site's homepage is a great way for a brand to raise awareness and drive clicks for its products. Additionally, e-retailers can charge high premiums for this coveted spot.
Finally, incorporating sponsored listings into e-mails can drive new revenue without disrupting the email experience. There's a sizeable payoff for little work here. For instance, let's imagine this scenario:
Given this, each week you'll make $20K:
That's about $250K more revenue a year, nearly all profit, and requiring no additional hires.
Sponsored listings are generally sold either via a self-serve platform or direct sales. The best choice for a retailer boils down to how much control they want. For instance, marketplaces tend to offer self-serve platforms within their seller portal. This makes it easy for anyone to upload an item to sell, put in a credit card, and pay for extra promotion.
Other brands prefer handling the advertisers manually, with a small team dedicated to securing deals and managing campaigns using an internal UI. This offers more control over who is advertising, how they price/invoice, what spots they sell, and so on.
Given the potential size of the deal, it may make more sense for an internal REI business team to manage the campaign themselves, so as to provide a more hands-on experience.
The large sponsored listings platforms - including eBay's, Amazon's, and Etsy's - were all built in-house and took years to launch. The time required to create sponsored listings isn't minimal, as it entails building ad pacing tools, revenue optimization algorithms, reporting features, forecasting tools, and more - not to mention having to deal with server costs as one scales, IAB certifications, GDPR compliance tools, and so on.
There are a couple of widget-based ad networks that enable sponsored listings, such as PromoteIQ (acquired by Microsoft in 2019) and Criteo. These options are good for retailers who want to outsource the tech and vendor relationships in order to launch faster. The trade-offs are that they lose flexibility to design a robust platform, have to deal with page-slowing JavaScript tags, will see lower revenue since networks take a rev-share, and can't build white-labeled self-serve platforms with them.
Ultimately, sponsored listings are still quite rare - and used almost exclusively by the Top 25 e-retailers (as listed by Internet Retailer). In fact, our research identified the following breakdown:
IR's Top 500% That Do Sponsored ListingsTop 10 Retailers (by Revenue)70%11-2533%26-1008%101-5002%
In other words - just 18 of the Top 100 Internet Retailer sites employed sponsored products, and only 26 of the Top 500.
This is interesting data, as it raises the question of correlation. Sponsored listings revenue isn't going to vault a company to Top 25 by itself, but successful server-side ad programs can drive meaningful revenue, enabling brands to offer lower prices, capture market share, and drive organic growth.
Whether or not this amount proves enticing will depend on the retailer, but, at the very least, sponsored listings are a low-risk, high-return ad unit that enables brands to drive new revenue without having to resort to obtrusive programmatic ads.
