EBay Inc. is introducing ads that merchants will pay for only if they lead to actual sales, seeking new revenue opportunities for the online marketplace before a planned split from the PayPal payments division.
The service, called Promoted Listings, will let EBay sellers specify what percent of a product’s sale price they’re willing pay in order to run an advertisement. The higher the percentage, the more prominent the ad will be, although EBay will also consider a product’s popularity and the seller’s reputation.
The cost-per-sale approach is unusual because websites risk running ads that don’t generate revenue. Instead, most companies, such as Google Inc., rely on cost-per-click ads, which charge marketers each time someone clicks on a link. EBay’s new ad offering will help smaller merchants, which make up the bulk of the company’s 25 million sellers, because they won’t have to track the effectiveness of ads or pay before a sale, according to Alex Linde, EBay’s vice president of advertising and monetization.
“This way, there’s no upfront risk for the seller,” Linde said. “The only lever these sellers had in the past was price, and nobody wants to grow only by discounting.”
While Linde didn’t specify any revenue goals for promoted- listing ads, he said EBay’s extensive data on consumers and sellers will help it direct ads to the most likely buyers.
“It’s risky to guarantee a return on an ad,” said Lauren Fisher, an analyst at EMarketer Inc. “They could end up giving away a lot of advertising.”
The advertising push is part of a larger effort to reinvigorate EBay’s e-commerce business, which is lagging behind the rest of the industry. Colin Sebastian, an analyst at Robert W. Baird & Co., sees marketplace revenue falling 4 percent to $6.7 billion, while EMarketer predicts that global e-commerce sales will rise 21 percent to $1.59 trillion in 2015.
Advertising hasn’t been a priority for EBay in the past. Ad revenues are lumped into a segment that brought in $2.76 billion last year. Most of that came from banner ads promoting brands, rather than particular products.
Promoted Listings will be rolled out gradually, starting in June with a few hundred sellers in the U.S., U.K., Australia and Germany. EBay also plans to come up with ways for larger merchants to promote special deals more effectively, Linde said.
Letting consumers buy directly from ads could siphon traffic away from the marketplace. R.J. Pittman, chief product officer of EBay’s marketplace business, said he’s confident the ads will deliver incremental sales that wouldn’t have happened otherwise.
“In a marketplace the size of EBay, discovering products and sellers is a bigger problem than any search engine can solve,” Pittman said. “This way, buyers won’t have to work so hard to find things they may not even know they’re looking for.”
Pittman predicted the cost-per-sale approach will work especially well on mobile devices, where it’s more difficult to search EBay’s database of products because of the small screens.