Jun 30, 2023·edited Jun 30, 2023Liked by Keshav Parthasarathy
Hey Keshav,
Really good to see someone explaining all this from the Retailer/Publisher side. Thanks for this!
I believe there are 2 more points that I would to add to the Demand topic (Specially for MPLs) -
1. The commission rate - Generally MPLs with higher commission rates also have lower ad revenue as % of GMV given that sellers are likely to spend much less in advertising if they are sharing more of their GMV with the Retailer.
2. The Composition of the type of the vendors/sellers - as in how many of them are Long Tail, Key Accounts etc - given that an individual level the ad revenue as % of GMV is also higher for Key Accounts than the Long Tail sellers
Hi Mohit. Thank you for your comments. You are absolutely right. On the first point, you can see some brands within same category spending high on advertising, but giving lower product margins (and vice-versa). Your second point is interesting. In my experience, while large accounts have spent more absolute dollars on advertising, they tend to spend lower than the long tail when measured as a % of their sales. But this depends on the solution offered by the retailer/marketplace for the long-tail clients.
A few comments: 1) Amazon’s ad revenue as a % of GMV is about 8% as of 2022 ($514b in total sales and $41b from ad sales). IMHO that’s probably the high bar; so I agree that 5% is a good target. 2) One of the most critical levers in getting any traction towards GMV % targets is internalisation of retail media and management commitment to make things happen. This could impact growth from small things like opening up more ad slots ( that drives ad revenue) to enabling more capabilities like off-site ( retail media on-site ad slots are limited).
Thanks Paul for both your comments. Amazon has grown considerably in the last two years from 5% to 8%, which is impressive. Having seen retailers in both Europe and Asia and to some extent in the US, I still feel 5% is quite high for most retailers. Again, the benchmark needs calibration to the business model.
Agree on your second comment, albeit on-site media will still be a much larger business than offsite for retailers. The internalisation / stakeholder alignment will be a key part to helping open-up useful ad inventory.
Hey Keshav,
Really good to see someone explaining all this from the Retailer/Publisher side. Thanks for this!
I believe there are 2 more points that I would to add to the Demand topic (Specially for MPLs) -
1. The commission rate - Generally MPLs with higher commission rates also have lower ad revenue as % of GMV given that sellers are likely to spend much less in advertising if they are sharing more of their GMV with the Retailer.
2. The Composition of the type of the vendors/sellers - as in how many of them are Long Tail, Key Accounts etc - given that an individual level the ad revenue as % of GMV is also higher for Key Accounts than the Long Tail sellers
Hi Mohit. Thank you for your comments. You are absolutely right. On the first point, you can see some brands within same category spending high on advertising, but giving lower product margins (and vice-versa). Your second point is interesting. In my experience, while large accounts have spent more absolute dollars on advertising, they tend to spend lower than the long tail when measured as a % of their sales. But this depends on the solution offered by the retailer/marketplace for the long-tail clients.
A few comments: 1) Amazon’s ad revenue as a % of GMV is about 8% as of 2022 ($514b in total sales and $41b from ad sales). IMHO that’s probably the high bar; so I agree that 5% is a good target. 2) One of the most critical levers in getting any traction towards GMV % targets is internalisation of retail media and management commitment to make things happen. This could impact growth from small things like opening up more ad slots ( that drives ad revenue) to enabling more capabilities like off-site ( retail media on-site ad slots are limited).
Thanks Paul for both your comments. Amazon has grown considerably in the last two years from 5% to 8%, which is impressive. Having seen retailers in both Europe and Asia and to some extent in the US, I still feel 5% is quite high for most retailers. Again, the benchmark needs calibration to the business model.
Agree on your second comment, albeit on-site media will still be a much larger business than offsite for retailers. The internalisation / stakeholder alignment will be a key part to helping open-up useful ad inventory.