The Challenges Commerce Execs Must Address Before Hurtling Into Advertising

As retail and direct-to-consumer companies look to ignite their next wave of growth, executives at these organizations are having to chart a path forward amid rising customer acquisition costs. As they do, many of these companies are setting their sights on a new beacon of potential growth shining on the horizon: advertising revenue. The opportunity to monetize the large portion of their visitors who don’t convert into direct sales is massive.

Advertising represents the next frontier for commerce companies, and not just in the realm of online and physical retail. All customer-facing brands that are forging direct relationships with consumers fall into the ever-expanding commerce category, from Walmart and Nordstrom to Uber and Instacart. If you’re a commerce exec who is (wisely) exploring a foray into the advertising business, you need to make sure you have sound strategies in place to address the following issues.

The Lurking Latency Threat

Years back, Amazon.com famously calculated that a one-second page load slowdown could cost it $1.6 billion in sales a year. Let’s face it: consumers haven’t gotten any more patient since then. Slow load times represent a fast death for commerce companies, and that’s why most have gone to great lengths to keep their digital experiences streamlined and user centric.

In comparison, by virtue of their advertising operations, many of today’s open web publishers are mired in an inefficient online ecosystem of tags, ad servers and heavy ad file sizes that commerce companies can’t afford to join. The typical ad tech ecosystem layers latency onto pages. Latency translates to lower conversions, and lower conversions equate to less commerce revenue. As commerce companies wade into advertising, they must protect their user experience at all costs, and that means rethinking the traditional ad tech stack altogether. If they don’t, they'll find they’re trading sales and long-term customer relationships for short-term ad revenue that could never fill that formidable gap.

The Prickly Question of Price Points

On the open web, where real-time ad auctions are the rule of the day, publishers play a cat-and-mouse game with advertisers in which publishers somewhat arbitrarily set price floors on their inventory in order to get advertisers to increase their minimum bids. These price floors are subject to regular tweaking and refinement as publishers continually seek to optimize the value of their rarely-sold-out inventory.

For commerce companies, there can be nothing arbitrary about their ad prices or auction rules. After all, these companies are planning to enable outside brands to peddle their wares within their own platforms — platforms that are designed, first and foremost, to sell the commerce company’s own wares. In formulating price points and auction dynamics, commerce companies must safeguard their own sales first, and ensure ads are serving and priced based on what's known about the consumer and their expected actions. This is a complex undertaking that must be controlled algorithmically.

The effect of a misstep in this area can be seen daily within today’s app ecosystem, where many publishers monetize their apps through advertising that promotes downloads of competitive apps. While the publishers reap a few cents for driving these downloads, they’re ultimately pointing their valued users to other experiences that will reduce the time spent within their own app. It’s simply an unsustainable model. If commerce companies aren’t smarter about their approach, they could find themselves trading commerce dollars for advertising quarters, rather than layering those quarters on top of those hard-won dollars.

The Third-Party Conundrum

Finally, let’s talk about the opening up of a commerce company’s ecosystem. Today’s advertisers expect a certain level of third-party verification and tracking when they spend their digital ad dollars on a platform, but providing such access opens commerce companies up to data leakage, breach and misuse in ways they previously haven’t been exposed. Before commerce companies start enabling third-party tags and back-end access, executives better understand exactly what’s at stake and put the appropriate safeguards and policies in place.

Given their robust data stores and daily user strength, commerce companies have an apparent leg up on traditional open web publishers when it comes to attracting advertisers. However, as illustrated above, they also face wholly unique challenges, many of which might not be apparent to executives who haven’t spent much time in the world of ad tech. Furthermore, there’s a lot at stake for these commerce companies (i.e., existing sales revenue) when it comes to executing correctly out of the gate. Quite simply, if a commerce company isn’t prepared to tackle the aforementioned challenges head on, and early on, it’s best it stay on the sidelines of today’s online advertising game.

Justin Choi is the founder and CEO of Nativo, which empowers brands and publishers through its advanced platform for content. Justin is a serial entrepreneur who has also founded multiple fast-growing businesses across a variety of industries, and has been awarded multiple patents for the technologies he’s developed.