Is E-commerce Now Going To Shake Up Advertising World?

Retail has traditionally meant getting products from manufacturers and stocking, displaying and selling them in brick-and-mortar stores. The problem of transporting, storing and displaying products, hundreds and thousands of them, was overcome by online stores by merely listing and displaying them with images. They also eliminated one key problem that physical retailers faced, i.e understanding what to stock and how much, by using a much more accurate gauge of demand; customer clicks and views.

This radical change in the last two decades is making it increasingly difficult for physical stores to compete. Of course, along the way Amazon, as the torchbearer, had to come up with a plethora of solutions for their challenges; getting outside sellers to stock, list and sell their products, opening up their stocks and pricing to sellers, allowing sellers to provide their own promotional content on the store and solving the sellers’ logistics problems with their muscle. It worked perfectly.

When Amazon and customer systems were linked through APIs (Application Programme Interfaces) with thousands of outside sellers now active it created unprecedented demand of course, but it also generated massive volumes of data which became difficult even for their huge computing resources to handle. A massive computing and storage behemoth, Amazon Web Services, (AWS) was created to meet Amazon’s own needs, but also as an independent revenue stream and it garnered external business of $31 billion in the last year.

Many people have tried to copy the unique business model with varying degrees of success. But the biggest challenge that arose was how to ensure that customers actually find products among the millions that are listed. The algorithm they created pushed up products most seen and ordered, to the top of the page. People soon learnt how to game this to their advantage, viewing and placing orders and quietly cancelling them later. Advertisements were introduced and with sponsored products a seller could pay to place his new product at the top of the search. But still, the customer would often not find the best product for her needs which could be listed 10-15 pages later.

This is an ongoing problem which may not be solved in a hurry, not because it cannot be, but also because advertising has created a $31 billion revenue stream which Amazon will find difficult to ignore. In 2021, this was more than the total worldwide advertising spend in Newspapers which was $29.5 billon. It was 14 per cent of Amazon’s online store sales and 6.7 per cent of its’ total global sales for the year, which was $469.8 billion.

Amazon is therefore hoovering a lot of the ad spend that would otherwise go to other media including newspapers, television and indeed even to new media like You Tube. Does it mean that selling the platform itself is going to become more important going forward than the selling of actual products?

What Amazon does, is soon copied, replicated, adopted by other online platforms around the world and combined together, the global online business in 2021 was $ 5.2 trillion. This was about 22 per cent of the $ 23.65 trillion total global retail sales in the year.

Ecommerce in India in 2021 at around $25 billion, was 7.8 per cent of the $1.07 trillion total retail sales in the country (in comparison, in China ecommerce constitutes 43 per cent of total retail sales).

The advertising market in India clocked $11.1 billion last year, of which digital advertising was around 31.6 per cent or $3.5 billion. Ecommerce advertising was 20 per cent of this. As online retail business grows, so will the emphasis on ecommerce advertising, diverting resources away from traditional ad spends. Digital advertising will dominate the advertising world in the years ahead and in this, ecommerce ads will grow disproportionately.

So physical retail will face a double whammy. The growing spend on ecommerce advertising will consume resources which would otherwise have pushed offline retail business. Not only will they lose sales to the platforms, they are also going to lose visibility which would have driven customers to them.

Before people start picking up picketing placards it must be pointed out that this global trend is not going to change. The movement towards greater ecommerce is both inevitable and desirable and with each year the platforms will increase efficiency, adoption and reach.

It just means that physical retail has to adapt to this new reality and fast. Various kinds of hybrid models have appeared, marrying the physical and the digital – phygital as it is sometimes called – but these are still baby steps. The entire category beginning from the simple grocery must gear up with greater convenience, proximity, speed and service. In the organised sector, there is no alternative to better service, customer friendliness and efficiency. Just putting up SALE signs and having promotions is not going to be the panacea for their difficulties. The stores will have to find more ways to engage with their customers to ensure that feet do not leave the store without bags.

Similarly, with the growth of advertising driven ecommerce, we are going to see the blossoming of many new brands. Already a number have popped up on sites like Amazon, Flipkart and Myntra. Companies like Mensabrands have made it their mission to push new brands and young and peppy labels are not just rearing to create space in their categories, they are willing to spend big to do it, even roping in big cricketers, film stars and influencers. It is going to make life complicated for traditional brands, be they in fashion, cosmetics, personal care or even electronics. A plethora of ecommerce based electronic brands already outsell established brands in many categories.

In this new age, no business is safe. It is time to examine your risks and start taking action before your business becomes irrelevant.

With over 30 years’ international experience in marketing, managing brands, retail and ecommerce businesses, the writer consults and comments in these areas.

Ajai Kumar Dayal

Guest Author The author has over 30 years’ experience in managing and consulting on big brands, retail, and ecommerce. He has been a commentator and columnist in many publications.