The hottest new thing e-retailers are now selling isn't someor fancy service -- it's ads.
It may seem a little counterintuitive, but most retailers have largely avoided putting ads on their sites and mobile apps for fear of annoying their customers or distracting them away from actually buying stuff. That's now starting to change thanks to -- you guessed it -- Amazon.
"It's been one of the most successful new products we've rolled out, from a seller perspective, ever," eBay CEO Devin Wenig said during an earnings call last week about new promoted listings, which let sellers pay for better placements on eBay.
So where does that leave you? In a best-case scenario, which Walmart and eBay executives laid out in interviews, these ads will provide shoppers with more useful information to make their purchases and introduce them to new products they didn't know about before. These executives also said they're taking a slow and steady approach to introducing more ads to avoid turning off customers.
But in a worst-case scenario, retail web pages will load more slowly because of the ads, and customers will get annoyed by retail search results stuffed with sponsored listings and display banners. Some have griped that this already happened at Amazon, with sponsored listings clogging the top of pages and crowding out organic search results. Plus, retailers will have to be careful not to share too much of their customers' data, or they may gain a reputation like Facebook's.
"It's such easy money, I'm sure advertisers are willing to pay a lot because you've got consumers right where you want them," said eMarketer analyst Andrew Lipsman. "But they'll have to be attuned to how much this is damaging the user experience because in the long run they don't want to turn those customers away."
For online stores, the benefits are obvious. Retail is so competitive that prices stay low to attract customers, but stores end up making little money on each sale. Advertising, on the other hand, is way more profitable.
Advertisers, meanwhile, are looking for new venues where they can park their ads so they don't have to rely as much on Google and Facebook. Major retail sites are a solid option, since they bring in tons of visitors who are already thinking about spending money. Plus, unlike with ads on radio or television, retailers can easily show advertisers whether their ads are boosting sales.
This perfect storm is sure to result in more ads on retail sites in the near future, Lipsman said.
An on-again, off-again love affair with ads
This isn't the first time retailers have tried to tap into the ad market. Walmart and Best Buy used to show ads on TVs in their stores, and eBay started serving up display ads on its site after buying Shopping.com. The TV ads didn't work well, since sometimes store workers didn't even turn on the TVs, according to Forrester. The eBay ads drew customers away from its site and sometimes to rival sites.
Now eBay is weaning itself off competitors' ads and instead showing display ads for stuff it doesn't sell, like insurance from Geico and Liberty Mutual, said Bridget Davies, eBay's vice president of advertising. The company is also making a big push for promoted listings, which are expected to help eBay generate $1 billion in ad revenue annually in a few years.
Stefanie Jay, vice president of Walmart Media Group, said her company is building up its in-house ad business to offer display ads, sponsored search ads and video ads on its Vudu video service. Earlier this month, it agreed to buy ad tech company Polymorph to keep up this work. Target in 2016 started Target Media Network to bring in more ad revenue.
Following Amazon's lead, all these companies are trying to find ways to grow their piece of the digital ad market. The online retailer now takes up 8.8% of the $129 billion digital ad market in the US, making it the third biggest ad platform after Google (37.2%) and Facebook (22.1%), according to eMarketer.
If you're not that thrilled about seeing more ads, you may be less thrilled to know that this trend is predicted to ramp up. Other popular internet destinations, including food delivery sites like GrubHub and ride services like Uber, are expected to join the crowd. More physical stores will come on board, too, taking advantage of their huge visitor traffic, Forrester analyst Sucharita Kodali wrote in a December report titled Retailers: You're The Next Media Moguls.
"It's the story of the internet, right?" Lipsman said of more ads coming to more sites. "It's what always happens in the end."