Amazon collected $1 billion in 2014 from its online Ad sales. the same year Google Inc. too home more than $55 billion from advertising.
Nearer home, Indian E-commerce companies are realizing the potential to tap this pot. Flipkart is improving its ad platform by buying mobile advertising technology firm AdIQuity Technologies and the company plans to compete with the likes of Google and Facebook in India for a share of online ad spending.AdIQuity’s technology will help Flipkart tap its fast-growing user base and analyse consumer data and shopping patterns for generating ad revenue.
Flipkart and Snapdeal generate ad revenue mostly in three ways: by selling so-called banner ads; by getting brand partners such as Xiaomi to spend on marketing on their sites; and by charging extra fees for promoting third-party sellers. For instance, a third-party 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 “casual shoes”, a seller can ensure its products are shown prominently by paying extra.
As Flipkart and Snapdeal add thousands of sellers this year, these marketplaces are hoping that competition among sellers will prompt some of them to pay lucrative rates for prominent positioning. Flipkart has set itself a target of drawing 100,000 sellers this year to its site from 12,000-13,000 currently. And with a large user base that is growing fast, Flipkart and Snapdeal are also 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 currently as there are few other sites with large traffic numbers.If successful, these moves can provide a much-needed boost to margins at Flipkart and Snapdeal and create an additional, large revenue stream for them. Both Flipkart and Snapdeal are trying to model themselves on Alibaba, which listed in the US last year in a record initial public offering. Alibaba generates more than 55% of its sales from ads. Though Flipkart generates less than 5% of its sales from ads, it is aggressively building the ads business. Making ads work is important enough for Flipkart that chief executive officer Sachin Bansal is spearheading this business. Flipkart generates about 75% of its traffic from its mobile app, while that number is 90% for Myntra. Both companies are betting that by becoming app-only, they will reduce costs, get more exclusive customers and reduce dependence on the likes of Google Inc. and Facebook Inc. for marketing.
Flipkart is readying its mobile ad platform and will start serving ads on its mobile app within the next three months, two people familiar with the matter said. As soon as it starts publishing ads on its app, the company will encourage its ad clients to shift their marketing efforts on the mobile.
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