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Unlocking synergy: The case for online retailers and marketplaces in the ads business

Nikhil Raj

January 22, 2024

Online retailers and marketplaces are increasingly adopting advertising as a key strategy, recognizing its potential to drive traffic and generate significant profits. The strategic shift to building an advertising business not only enables companies to make  a compelling profit pool but also brings about a myriad of advantages for users, sellers, merchants, brands, and, of course, the marketplace and retailers themselves.

To understand why building an ads business is a strategic move for online retailers and marketplaces, we’ll examine the key components to illustrate its impact and how to effectively leverage it.

1. Enhanced user experience

By integrating an ML-driven advertising model, online retailers and marketplaces can enable product recommendations through advertisements to suit individual user preferences.  This enables broader discovery of brands while increasing profitability. In addition, ad personalization improves the overall user experience to create a more engaging and relevant shopping journey. Users are more likely  to discover products they genuinely desire, fostering customer satisfaction and loyalty.

2. Empowering sellers, merchants, and brands

The inclusion of advertising services opens up a new avenue for sellers and merchants to promote their products on the retailer or marketplace platform. Through targeted ads, businesses can reach a wider audience that is specifically interested in their offerings. The use of machine learning in the ads system boosts product visibility and increases the chances of conversion. Small and medium-sized enterprises, in particular, benefit from a level playing field as they gain access to sophisticated advertising tools that were once exclusive to larger enterprises.

3. Revenue diversification

Diversifying revenue streams is compulsory for long-term sustainability for online retailers and marketplaces. Engaging in the ads business allows these platforms to tap into a high-margin revenue source beyond their traditional trading business. 

4. Data-driven insights

An ads business provides valuable data insights to refine marketing strategies, optimize user experiences, and identify emerging trends. Online retailers can harness the power of data analytics to understand consumer behavior, enabling them to make informed decisions that benefit  users and sellers. Retailers and marketplaces can also share this data with sellers and advertisers, allowing them to make more informed decisions about their business. 

Competing in a dynamic market

In a highly competitive e-commerce landscape, diversification is key to staying relevant. As sellers establish success in the marketplace, it attracts a broader seller community with more diverse products that expand the marketplace catalog. This, in turn, increases demand by attracting incremental shoppers, solidifying the platform's position as a one-stop shop for both consumers and businesses.

The move of online retailers and marketplaces into the ads business is a strategic shift with profound implications for users, sellers, and the entire ecosystem. By unlocking the synergies between e-commerce and advertising, these platforms create a win-win scenario where personalized experiences, empowered sellers, diversified revenues, and data-driven insights converge. As the digital marketplace continues to evolve, the integration of advertising services emerges as a pivotal strategy for those seeking to thrive in the competitive online commerce.

Nikhil Raj

VP of Business, Retail Media, Moloco

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