In the early days of e-commerce, retailers worried about including too many ads on their sites, for fear that annoyed customers would click away, or that intrigued customers would follow an ad’s link and make their purchases elsewhere. Such fears clearly have been resolved, because virtually every modern e-tailer now sells advertising on its site and thereby gains a new source of revenue.

In many cases, the on-site advertising mimics in-store product placement: Vendors and manufacturers pay the retailer a fee to appear in desirable locations. For online sales, this arrangement means that if a customer shops the retailer’s site for cleaning products, for example, Lysol might pay to be the first result that appears in the shopper’s browser.

Approximately 80 percent of U.S. retailers feature particular products, sponsored links, or display advertising on their websites, according to one recent study. They do so because ad sales—also known as “audience monetization,” because it provides profits based on the size of the audience that the website attracts—are highly profitable. The retailer already has invested the time, effort, and money to attract the audience of potential customers. These are sunk costs. But if it can convince a vendor to pay it to advertise to that same audience, any revenue it earns from that agreement represents pure profit for the retailer.

Discussion Question:

How are retailers using online advertising on their sites to increase profits?

 

Source: Erin Griffith, Fortune, June 20, 2014