Reports suggest the eBay (NASDAQ:EBAY) is looking to make advertising on its platform a core element of its business. The company is building its own internal advertising sales team – a function which was outsourced to another company in the past. As consumers search for products on e-commerce sites, brands benefit from advertising on these platforms as they get better visibility in these searches. Last year, eBay expanded the product categories which could use its “Promoted Listings” feature, and the company now aims to replace third party ads on its platform with promoted listings. This is a significant development as the company looks to promote sellers on its platform by giving them better visibility and not promoting competition on its website. We believe that while this focus can give a boost to its marketing revenues, it can also drive transactions on its platform. According to our estimates, transaction revenues account for more than 70% of eBay’s valuation, and marketing and advertising revenues account for another 20% of its valuation.
eBay believes that it is now in a better place to attract advertisers – especially brands and large retailers – to its platform, given its transformation into an e-commerce platform with a curated and diverse collection of goods. According to eMarketer, global digital ad spending is likely to grow in the range of 5-9% in the next few years, reaching nearly $725 billion by the end of 2020. While social media platforms are likely to be the primary beneficiaries of this increase, e-commerce platforms are also looking to attract retail advertisers. As e-commerce becomes an integral part of the retail environments, brands are looking to advertise on websites where they sell their products to drive revenues. Amazon is reportedly setting up a Google-like set of advertising tools and services to drive revenues from digital advertising. (Read Can Online Advertising Drive Revenues For Amazon In The Long Term?)
Elimination of third party ads on its platform and an increased focus on its listings could improve eBay’s customer experience, and help buyers better find products on eBay’s platform. If done effectively, this could impact the average spend per active user on eBay’s platform positively.
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