eBay is looking to further monetize its site by adding new advertising models, including Promoted Listings for Auctions and CPC Ads, as well as an “offsite” ad program, and it is investing aggressively in innovation in this area.
Wall Street analysts were the first to hear of eBay’s plans; presumably eBay will tell sellers later this quarter.
eBay CEO Jamie Iannone told analysts that the company was experimenting with the three new ad models during a call on April 28 to discuss first-quarter earnings, when it reported Gross Merchandise Volume (sales) growth of 29% and $3 billion in revenue, a jump of 42% compared to the first quarter of 2020.
(Readers may be familiar with the eBay “GMV to Revenue gap,” as former CEO Devin Wenig called it, in which eBay makes more money from sellers for each dollar of sales.)
Iannone said eBay was continuing to look at “monetization” as well as “adding value to sellers.” He also referenced the increased fees eBay rolled out in the Watches category this quarter “because of the value we’re creating for our sellers in that category.”
eBay generates the majority of revenue from seller fees, but management has made it clear for many years that it was looking to grow revenue from payments and advertising, a solution to the problem of tepid and negative sales growth it was experiencing before the pandemic.
“Overall, when I look at advertising, it’s still only 1% of GMV,” Iannone said, “and if you look at benchmarks, there’s significant opportunity above that and, as long as we continue to add value to sellers, we think that will be a continued opportunity.”
Revenue from Promoted Listing ads grew 58% in the first quarter to $224 million. Over 1.3 million sellers promoted close to 400 million listings. The CEO said growth was driven by increased seller adoption and AI improvements that increased conversion.
Total revenue from advertising reached in 2020 was $1 billion, “primarily through promoted listings, which leverages a risk-free CPA model for fixed-price inventory.” (CPA is a reference to Cost Per Acquisition – sellers pay only when they make a sale.)
“To capture our next billion, we’re running multiple experiments,” Iannone said.
He said three new advertising pilots eBay will launch this quarter are the following:
Auction Ads. “The growth that you’ve seen just to date has really been on the fixed-price business, so that’ll be a new capability.”
CPC Model. “We’re also testing a CPC-based capability for our sellers, which is a new potential growth vector.” (CPC is a reference to Cost per Click – sellers pay when a shopper clicks on an ad, regardless of whether they buy anything.)
Off-eBay Opportunities. “We’re also looking at off-eBay opportunities for our sellers to even further increase their exposure.” Note that Etsy currently offers an offsite ad program, take a look at the EcommerceBytes Blog for more information (link below).
One analyst questioned how the CPC model would work for auction format listings; “It seems like advertising should work best for probably those categories where there are multiple sellers trying to sell a fairly homogeneous item,” he noted.
Iannone responded: “On the Promoted Listings, we see opportunities really across every category and every price point of GMV. The beauty of the CPA model that we’ve had, the cost per acquisition model, has been just the simplicity of it – of just adding the percentage and it makes it really easy.
“But the CPC model that we’re launching also gives the opportunity to really kind of push volume in a different way with a different set of capabilities. But even on single and unique items, people want to promote those items and get more exposure for them. They have for the longest period of time. It’s why we’re launching the ad feature for auction and testing that, is to really go after it. We still have a lot of opportunity across our listings to increase the penetration. Like I said before, we’re only at 1% of GMV”
We delve into what eBay may be planning with its offsite ad model in the EcommerceBytes Blog – take a look and leave a comment.