Can your marketplace make 2 billion dollars per quarter from Sponsored Products?
So Amazon just released the 2018 Q1 earning report showing that their advertising business, powered mainly by Sponsored Product ads, generated roughly 2 billion dollars, presenting an uplift of 132% year over year.
In 2015 the annual revenues from advertising on amazon reached less than 800 million dollars.
How did they get to 2 billion per quarter in three years?
Is it about traffic?
Not really. In fact, the traffic hasn’t changed dramatically over these 3 years (~10% increase).
There are several basic factors that affect the revenues an online store (just like a publisher or any other website), including Amazon, can generate from selling Sponsored Product Ads.
There are five parameters that affect the supply:
1. Number of visits
2. Number of average page views per visit.
3. Number of ad impressions – How many ads does a shopper see in the website.
4. CTR – the click rates of the ads.
5. CPC – the cost per click that the sellers and brand advertisers are paying for each click a shopper makes on their promoted products.
And two that affect the demand:
1. Number of sellers/brand advertisers that sell on your store.
2. Their average advertising budget.
Now let’s put aside the demand part of the equation and assume that you have unlimited demand from your sellers and brand partners meaning that they want to promote their products on your store and will use all of your inventory for that purpose – In this case your potential revenues can be calculated by this basic multiplication of the supply factors:
Number of monthly visits to your ecommerce site X
Average number of pageviews per visit X
Average number of ads on each page X
Average CTR X
Average CPC
Easy.
So how did Amazon manage to increase its advertising revenues by 1,000% within 3 years?
Here is how a search result page looked like in Jan 2015:
And here is what it looks like these days:
The first 3 products are sponsored and above them is a headline ad with 3 other promoted products.
Here is a product page back in 2015:
And here it is now:
The number of ads increased dramatically in these 3 years and so did their position in the pages. All the products that you see above the fold are actually sponsored and not organic results.
This is the factor that explains much of the increase in the revenues from selling these ads. It is not the only factor, but it is definitely a major one.
Now let’s go back to your store.
If you are just introducing Sponsored Product ads bear in mind that you have to work on your demand side as well as your supply. You need to engage your sellers and brand partners and get them to start advertising on your store. It’s much easier than it was 3 years ago because ecommerce media is already established (here is one thing you should thank Amazon to), but it is still something you need to work on.
As for the supply side you must guarantee that you make the most out of it and especially allocate well positioned and sufficient touch points for the Sponsored Product Ads in the relevant pages (search, category and product).
This is a key factor in turning Sponsored Products into a meaningful business.
You might not make 2 billion dollars a quarter (at least not in the first year), but you can definitely generate significant revenues from selling ads on your site.
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