Bengaluru: Flipkart Ltd, India’s largest e-commerce firm, is currently generating nearly $1 million in monthly advertisement sales, making the company one of the largest digital ads platforms in India less than a year after it launched its ads business, two people familiar with the matter said.
Ravi Garikipati, head of Flipkart’s ads business, said the company aimed to be the largest digital advertising platform in India over the next 3-5 years. He declined to comment on the revenue numbers.
“Advertisers care most about three aspects: reach, shaping the business outcome, and measuring the efficacy of the ads platform. If you address all these three in an unambiguous way, you will be a clear winner. In particular, the measurability of the efficacy of our platform gives us an edge over competing solutions. Many solutions create awareness and (purchase) consideration but after that you don’t know if and where the actual purchase happens. That’s not the case with us as commerce actually happens on Flipkart and Myntra,” Garikipati said in an interview.
Digital ad spending in India is expected to increase by 40% to Rs.6,525 crore this year, according to a January report by media agency GroupM, which is owned by WPP Plc., an international advertising and public relations firm.
A majority of digital ad spending currently goes to Google Inc. and Facebook Inc. The others such as The Times of India and Yahoo Inc. compete for the rest. Over the next five years, digital ad spending is expected to shift to mobile from desktop sites as sales of smartphones boom. Flipkart and other large e-commerce firms such as Amazon India and Snapdeal are planning to capitalize on this shift and generate large ad revenues.
In China, another market where smartphones are the popular medium of shopping, some e-commerce companies have built large ads businesses. Alibaba Group, which is China’s dominant e-commerce firm, generates larger mobile ad sales than even Baidu, China’s local search engine, according to eMarketer, a market researcher. Alibaba generates more than half its sales from ads, according to data by iResearch Consulting Group.
Flipkart hopes to emulate Alibaba’s success in India.
The Bengaluru-based company has more than 50 million registered users, a majority of whom shop on the company’s app.
Flipkart launched digital ads in May last year by getting third-party sellers on its platform to pay for promoting their products. For instance, a seller can have its products shown first when a shopper uses certain keywords to search for goods on Flipkart; if a user searches for “casual shoes”, a seller can have its products shown prominently by paying extra.
Already, some 24,500 sellers out of 100,000 third-party sellers on Flipkart have used its ads service. And about 12,000 sellers use the service every day, Garikipati said.
Apart from seller ads, Flipkart generates ad revenue in two other ways: by serving content on its platform paid for by brands; and, by connecting advertisers with its so-called Flipkart shoppers audience, which comprises an external network of news, gaming and other apps.
This week, Flipkart will launch its brand story ads format on its mobile app and it has signed up more than 50 brands including L’Oréal, Micromax, Gillette and Sony. Story ads or native ads is a newer format of digital ads that many publishers are offering as a replacement for banner ads, which are seen as ineffective. Story ads tend to be more interactive in nature and show video, images and other forms of content to engage with users. Along with brands that sell on its platform, Flipkart will also show content from external advertisers in real estate, telecom and other sectors.
“Story ads give a very immersive and interactive experience. It’s more of an educational, story-telling format where you’re constantly communicating with consumers using imagery and video. We’ve done it in a way that is native and not clunky like banner ads. It’s also very targeted so brands can show ads based on the relevant users,” Garikipati said.
Flipkart is also expanding its network of third-party apps on which advertisers can show ads to users. By next March, Flipkart plans to sign up with a network of news, shopping and gaming apps to increase the reach of its ads business to 100 million users, he said.
“Reach is important for brands. This is our way to enhance our reach. The time spent by Internet users on commerce apps is not that much. The idea behind the shoppers’ network is to track users wherever they are spending the rest of their time on the digital medium and show relevant ads at the right time,” Garikipati said.
To be sure, ads is a very small business for Flipkart which, together with its unit Myntra, is currently generating annualized gross sales of roughly $5 billion. Yet, even if Flipkart’s ads push isn’t as successful as Alibaba’s, analysts said the company has the potential to build a lucrative ads business, which offers significantly higher margins than online retail.
“Ads is one of the proven ways by which platforms in the e-commerce space can get monetised,” said Ashvin Vellody, partner, KPMG.
“It has worked in economies like China and the US. There are nuances specific to each country and we will have our own learnings along the way, but the potential is there. If you see the trend of spend in ads, it’s shifting to digital media and directionally it bodes well.”