Sponsored Listings: The Definitive Guide for 2019
Thanks to shrinking margins and increased competition, many large e-retailers are seeking additional outlets for digital revenue. For some, this means adding programmatic ads to their site. For instance, Walmart is loading the bottom of many pages with six identical 300x250 banners.
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 good news is, more and more e-retailers are adopting sponsored listings, an eCommerce-centric ad unit where vendors/sellers pay to have their organic listing(s) promoted in search and browsing results, on the homepage, in e-mails, etc.
Sponsored listings are proving to be an innovative way to drive revenue without having a detrimental impact on sales or user experience.
The pioneer in sponsored listings is Amazon, who's estimated to have driven billions from sponsored listings in 2018. 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 Etsy.
What are sponsored listings?
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.
All "advertisers" are brands/sellers who already work with the retailer and who are paying to get more visibility for their products/services.
They are also known as promoted listings, sponsored products, product listing ads, or some variant on those phrases.
For instance, let's say I'm an Etsy seller who makes $100 engraved wedding trays. On an Etsy search for "perfect wedding gift", my product is result #50, far down the page. So, I decide to use Etsy'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:
The seller is cost-effectively driving more sales and gaining product visibility.
Etsy has increased the money it gets from me, the seller:
|Weekly Ad Budget||$0|
|Weekly Sales||10 @ $100 = $1,000|
|Etsy's Weekly Sales Commission: $35 (3.5%)||$35 (3.5%)|
|Weekly Ad Budget||$140|
|Weekly Sales||24 @ $100 = $2,400|
|Etsy'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 Etsy doesn't publish ad revenue figures, their traffic volume and engaged userbase could easily push sponsored 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 Etsy further and enabling market forces to determine what the true value of that placement is. Either way, Etsy is driving new revenue, further engaging its sellers, and providing a good user experience to visitors.)
Comparison to Google
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 drive $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.
Who uses sponsored listings?
eCommerce Multi-Brand Retailers
Examples: Overstock, Walmart, Amazon
Description: Companies that sell other brands' products. Many, though not all, have brick-and-mortar stores too.
Who advertises: The vendors and brands whose goods the company sells. For instance, Playskool could work with Walmart to boost their product listings when somebody searches for, say, "best kid toys".
Examples: eBay, Etsy, Chairish
Description: Sites that offer a marketplace for buyers and sellers to exchange goods. These brands do not have physical stores, and product listings are user-generated through a self-serve portal.
Who advertises: The seller pays to have their item artificially higher in search results and/or featured in some way.
Business Discovery Services
Examples: Yelp, ZocDoc, Hotels.com
Description: This bucket includes sites and apps that help people find businesses or business services. With Yelp, for example, restaurants can pay to have their listing appear at the top for anyone searching for nearby places. There's also Hotels.com, where hotels pay to have their listing highlighted; or a doctor-finder like ZocDoc, where doctors pay to be promoted for relevant searches.
Who advertises: The business/organization/doctor/etc pays for their listing to be highlighted, usually in location-based searches.
Any brand with listings
Examples: Ticketmaster, Medium, Yummly
Description: This is a catch-all bucket for any company with search or browsing functionality. For instance, Yummly (a recipe site) could have Land O'Lakes sponsor a brownie recipe, in which their brand of butter is listed as an ingredient. When someone then searches for "brownies recipe", this listing could be artificially promoted to the first result. With a site like Ticketmaster, bands could promote their concerts when someone is looking for a nearby event. Even Medium could have a self-serve portal where writers pay to promote their articles on relevant search phrases.
Who advertises: It'll be the person or business that wants to highlight their content in search or browsing results.
Wait - are these "ads"?
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 Listings||Programmatic Ads|
|Click-Through||Keeps users on the site and directs to an internal product page, helping to drive more sales and page impressions||Link sends user away from the site|
|Appearance||Blends in. Generally just an organic listing with a "sponsored" label||Standard banner sizes that usually disrupt the page flow|
|Relevance||Sponsored 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' algorithms|
|GDPR Compliance||Brands have full control over their users' data and do not have to worry about data leakage||Bringing in RTB partners increases the odds of data leakage and accidental non-compliance|
|Brand Safety||Publishers can ensure brand safety because the advertisers are vendors/sellers that have already been pre-approved to sell their products||Publishers don't have full control over whose ads appear, which can lead to negative press|
|Revenue||High CPMs. Adzerk clients average $5-$10, with some niche publishers able to charge $100+||Low CPMs. Generally average < $2|
Where can sponsored listings go?
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, Reebok currently pays Amazon be the first result for a search of "mens running shoes". This is a wise move, as organically the first Reebok shoe is result #60. Without that paid placement, Reebok 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 th 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.
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:
Background: You have 10M subscribers to your weekly e-mail (with 20% open rate), which you use to feature products. You decide that in each e-mail one of the eight products will be sponsored, and you speak with your vendors to see who's interested in paying for that spot.
Work Involved: The technical integration shouldn't take longer than a couple weeks, and a single person could spend just hours a week managing it.
Incremental Revenue: Let's say your vendors agree to $10 for every thousand opens.
Given this, each week you'll make $20K:
Opens: 10M @ 20% open rate = 2M
Revenue: (2M / 1000) * $10 = $20,000
That's about $250K more revenue a year, nearly all profit, and requiring no additional hires.
How do companies sell sponsored listings?
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.
For instance, Patagonia could work with REI to create Patagonia sponsored listings to be promoted in relevant searches, on the homepage, and in e-mails.
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.
How do companies build a sponsored listings product?
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.
For brands that want to own their sponsored listings tech but don't want to wait years to launch, Adzerk offers API access to a suite of ad serving tools that make it possible to launch a sponsored listings product in just weeks.
Ultimately, sponsored listings are still quite rare - and used almost exclusively by the Top 25 e-retailers (as listed by Internet Retailer).
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 ad programs can drive meaningful revenue, enabling brands to offer lower prices, capture market share, and drive organic growth.
That said, it could also be that the higher-grossing companies have more time and funds to build out these platforms, regardless of how effective they are.
Still, Adzerk has yet to have a sponsored listing customer not drive meaningful new revenue. Chairish, for example, sees nearly a 20x return over the Adzerk cost. TradingView saw closer to 85x, and additional niche e-retailers are above 100x. Our rule of thumb is that for every 100M monthly impressions a site has, it's realistic to drive $10M-20M in incremental yearly revenue from sponsored listings.
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.