Written by Vinay AV,
Ad-led monetization will be the most important profitability lever for Indian e-commerce platforms
E-commerce platforms have a unique advantage in this growing market, with access to user preferences and transaction data while shopping on the platform. Additionally, it can provide transparent performance tracking of ad spend, giving you a competitive edge as brands increasingly prioritize measurable and targeted performance marketing.
On-site advertising is particularly effective at achieving profitability on most e-commerce platforms. India's retail media market currently generates over $1.5 billion in advertising revenue annually, and this revenue stream is characterized by high profit margins and low operating costs.e-commerce giants like Amazon
Leading companies in the food delivery and quick commerce space such as Zomato, Swiggy and BigBasket are also focusing more on increasing ad monetization, a strategic move to increase profitability.
Even non-commerce platforms like Disney+ Hotstar are moving from a subscription-oriented model to an advertising-centric model, recognizing the huge revenue potential. JioCinema took the bold decision to screen his IPL without requiring any subscription and instead monetize it through advertisements. Netflix and Amazon Prime Video are also actively seeking to increase their market share through similar strategic strategies. In this competitive market environment, e-commerce platforms of all sizes and stages of maturity have taken inspiration from the success of market leaders and entered the advertising business with a greater emphasis on profitability for investors.
The rise of personalized advertising and machine learning
Traditionally, e-commerce platforms optimized their ads by targeting broad audiences and implementing hard-coded rules. The lack of personalization made it difficult to balance maximizing ad revenue, driving platform growth, and ensuring an engaging user experience. Lack of ad relevance for users results in lower return on investment (ROI) for advertisers, prevents platforms from maximizing their revenue potential, and results in users being flooded with irrelevant ads.3 Problems arose from two aspects.
To address this issue, personalized advertising is needed.
ML-optimized smart bidding dynamically fine-tune bids based on multiple factors, including search terms, user-specific navigation, past purchase behavior, time of day, and location, optimizing each click. For example, if a user's search query was just “shoes” instead of “women's running shoes,” the bid for women's running shoes might be different. Dynamic bid adjustments ensure that your advertising strategy is fine-tuned to each unique scenario. From a ranking perspective, real-time optimization further improves ad performance and allows the platform to quickly adapt to changing conditions. For example, the ranking for “tops” may vary greatly depending on the skirts the user purchased before viewing the tops. Incorporating these nuances is important to provide users with the most relevant ads.
As an industry
Power your offsite retail media buying with first-party data
Off-site retail media buying occurs when an e-commerce seller chooses to advertise beyond the e-commerce platform, but with access to rich first-party data and reliable tracking mechanisms, the platform Direct spending through.Brands have traditionally allocated significant digital marketing
E-commerce platforms offer robust analytics and tracking capabilities that allow brands to monitor the performance of off-site marketing campaigns in real-time. This data-driven approach allows brands to use the platform's first-party data in a secure and compliant manner to adjust and optimize campaigns for superior results. Typically, brands allocate their marketing budgets between brand marketing and trade marketing categories, and on-site advertising primarily targets trade marketing budgets. However, off-site advertising also allows e-commerce platforms to capture a portion of brand marketing budgets. Additionally, promoting off-site media buys not only helps brands manage their digital marketing spend, but also drives increased orders for the platform due to user clicks directed to the platform itself.
E-commerce advertisers shift gears: demand guaranteed results and performance-based advertising models
Traditionally, advertising has been sold using input metrics such as impressions and clicks, even within e-commerce platforms, even though output metrics such as sales and orders are available. However, advertisers are becoming increasingly frustrated with input-based pricing and demand-output-based models, where they pay only for specific sales results. The desire for greater accountability and transparency in advertising investments is driving this change. Advertisers recognize that output-based advertising is more cost-effective and are more willing to allocate disproportionately higher budgets, especially when tied directly to incremental orders. This allows advertisers to optimize their budgets across products and maximize the effectiveness of their ad spend by bidding accurately based on each product's profit margin profile.
To succeed in this changing environment, e-commerce advertisers must adopt an output-based advertising model and leverage data-driven insights to optimize their campaigns. Succeeding in this new era of advertising requires collaborating with leading advertising technology partners and delivering performance-based solutions.
This paradigm shift has led to increased ad spend on e-commerce platforms, requiring the implementation of advanced data-driven optimization engines to maximize revenue per ad slot and ensure positive ROI. Masu. Platforms that can meet these expectations will succeed in an increasingly competitive and dynamic digital marketplace.
The author is Senior Director, Retail Media Business (India and Middle East) at Moloko.
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