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Indian etailers eye ad revenues

News, 18 February 2015

BENGALURU: The rapid growth of Indian ecommerce and the huge valuations being put on the leading companies has tended to detract attention from their growing involvement in the ad sales business as they seek to utilise the wealth of first-party data they have amassed.

According to Live Mint, Flipkart and Snapdeal are moving from spending on their own advertising campaigns to building their own ad sales teams and investing in adtech to enable them to serve ads based on the shopping habits of their customers.

Flipkart, for example, is said to be buying mobile advertising technology firm AdIQuity Technologies, while Sachin Bansal, co-founder of Flipkart, is reported to be taking charge of the development of the ad business after a recent company restructuring.

Live Mint explained the three ways in which they were generating ad revenue – selling banners ads, marketing on websites by brand partners, and fees from third-party sellers promoting their products – and suggested that they could eventually find themselves in direct competition with the giants in this field, Google and Facebook.

China's Alibaba is the obvious model, it suggested, as an ecommerce business that now gets over half its sales from advertising. And Amazon, the veteran US online retailer, generated around $1bn in online ad sales in 2014.

While Flipkart and Snapdeal have both attracted significant investment in recent months, they remain some way off reporting any actual profits and any additional revenue streams can only help in this regard.

"Ad revenues are very lucrative as this goes straight to the bottom line, and Alibaba has shown the way for making ads a core part of the marketplace business," said Abhishek Goyal, founder of Tracxn, which sells data on start-ups.

"In India, the online ad business is nascent so it's up for grabs," he added."Flipkart and Snapdeal account for a large part of the online traffic and they have rich consumer shopping data so there is clear potential to build sizeable ad businesses."

Others were not so sure, however, with one analyst questioning the validity of the Alibaba example, arguing that the marketplace business in India was far less developed than in China.

"I think it'll be years before e-commerce firms generate a large percentage of their revenues from ads because there aren't that many sellers who can afford to pay for ad slots and ad words," he said.

Data sourced from Live Mint; additional content by Warc staff