Amazon.com and Walmart.com are increasingly acting like traditional media publishers by selling display advertising on their websites, and estimates put their resulting revenue in the hundreds of millions of dollars a year.

Now other online retailers are following suit in hopes of monetizing the eyeballs their content attracts — regardless of whether they make a product sale.

A couple of San Francisco companies are riding the trend and are at the forefront of what experts say could quickly become a multi-billion dollar market: Connecting advertisers with retailers, designing and selling ads, and then delivering them to consumers in a personalized and contextual manner.

One pioneer in the space is Longboard Media, a four-year-old, 35-person company that is already profitable and doing $10 million to $20 million in revenue, according to co-Founder and CEO Jim Barkow.
“This landscape is evolving incredibly rapidly. It’s a massive space,” he said.

The other San Francisco firm is RichRelevance, which started in 2006 as a personalized product recommendation technology company and added advertising services for online retail sites in late 2010.
RichRelevance was co-founded by CEO David Selinger, former head of personalization R&D at Amazon, to give retailers the kind of recommendation engine that Amazon has used so effectively. It has received $57.8 million in venture capital and does not disclose revenue.

Before starting Longboard Media in 2008, Barkow and Engler worked at eBay, where Barkow was senior manager of strategic partnerships, and Engler was director of global ad sales.

The duo bootstrapped for the first several years, and though Longboard was profitable, they raised $5 million last September because business was growing faster than projected, Barkow said. They passed on an option for another million dollars, not seeing a need.

Barkow said retailers are quickly waking up to the fact that they are leaving virtually free money on the table by not advertising to the 225 million U.S. consumers that visit their websites — an audience larger than the 160-plus million U.S. citizens that are members of Facebook.

In addition, current estimates are that 85 percent of shoppers are doing online research before buying either online or offline, Barkow said.

EMarketer analyst Jeffrey Grau agreed, saying that advertising offers retailers a way to make money off that traffic, which only results in sales on their websites about three percent of the time.
“It makes a lot of sense because it’s very profitable,” Grau said.
Analysts say the trick will be finding enough advertisers and retailers with mutual interests. “The winning formula has yet to be determined,” said Forrester analyst Sucharita Mulpuru, who nevertheless estimated Amazon could be making close to $500 million from online advertising.

Longboard delivers ads from 135 brand advertisers on 37 shopping sites, and it also does retargeting on the open web — following shoppers with ads based on prior behavior on a retailer’s website — something RichRelevance does not do for fear of alienating consumers.

RichRelevance says its extensive personalization algorithms allow it to be more judicious about which ads get placed before which consumers, and the result is a higher conversion rate.
“Everybody wins when you respect the consumer,” said Andrew Zeiger, general manager of advertising at RichRelevance, who joined the company in January.

RichRelevance, which is also beefing up staff in advertising services, has been delivering advertising to retailers including Sears and Target from customers including Colgate, P&G, Verizon, Cisco and Toyota.

Barkow said Longboard’s business has grown most dramatically in the last six months, and he is hoping to double staff, particularly in sales and engineering, by early 2013. The trick in today’s competitive technology labor market is finding qualified people, he said. Longboard also has offices in Chicago, Dallas and New York.
Longboard’s other main competitors include two East Coast firms founded in 2004: Tampa-based Triad Retail Media, which represents Walmart, eBay, CVS and Home Depot, and New York City-based HookLogic, which represents Expedia, Hotels.com, Shoebuy.com and Staples.

Longboard Media’s three top retailer venues by volume are OfficeMax, Overstock.com and Newegg.com, which just signed on in April. Advertisers include Sony, Samsung, Maytag, Black & Decker and Microsoft.

ComScore analysts have taken notice of the increasing prevalence and quality of advertising on retailer websites, particularly on Amazon and Walmart, which have about 100 million and 50 million online visits a month, respectively, said Andrew Lipsman, a vice president at the digital measurement firm.

“We’ve been discussing this trend in recent months,” he said. ComScore is calling such advertising “digital endcaps,” referring to the sale of physical display spots at the end of aisles in physical retail stores.

Theoretically, such advertising should command a relative premium because viewers are in actual purchase mode, though pricing is currently about the same or a bit less as for other ads, according to recent comScore data. Lipsman speculated that the prices reflect the newness of the sector.

Retailers as a whole have not come quickly to the idea of selling advertising on their websites. A prevailing worry has been that ads will simply redirect hard-won traffic to another site.
Burke Johnstun, co-op advertising and media manager for Salt Lake City-based Overstock.com, pointed out that shoppers leave anyway and rarely make purchases.

“It’s definitely a balancing act, and it’s emerging too,” Johnstun said. “We want to make sure we don’t cannibalize our main efforts.”
Overstock.com has been putting ads up for the last 2.5 years and exclusively uses Longboard, although in the past it also worked with HookLogic.

Johnstun would not say how much Overstock.com makes from advertising, but he called it “significant,” and predicted the stream will grow.

Overstock.com advertisers now include credit card companies and product manufacturers like Whirlpool.
It also gets ad exchange inventory, although it blocks delivery of ads from competitive retailers and for products that compete with what it sells.

“I think we have been only scratching the surface over last year. I think the potential is just enormous,” Johnstun said.

Read the Full Article Here

“We are only starting to tap the potential of digital marketing in this quickly shifting retail climate,” Barkow said. “I’m eager to share Longboard’s insights and accomplishments, collaborating with other innovative minds like Gwen, to help retailers understand the benefits of a cooperative approach in reaching today’s ever-elusive, incredibly informed shoppers.”

ShopLocal Summit 2012 will assemble the leading pioneers, retailers and partners in the Social Media-Local-Mobile world. From “The New Rules of Retail” to “Simplifying Consumer Engagement on Facebook,” the two-day event will allow attendees to learn, network and re-imagine their approach to digital retail marketing together with fellow forward-thinkers.

Profitable since its launch in 2008, Longboard Media now boasts an extensive network for mobile commerce applications, large retailers and shopping publisher that reaches an audience of 62 million active, online shoppers per month. The company continues to launch more retailers with on-site advertising opportunities, and by the end of 2012, will have grown by 300% in retailer media and adoption of on-site media strategies. Equipped with a team of some of the brightest minds in the digital space, Longboard now ranks fifth in Shopper Marketing audience according to recent comScore reports, ahead of major retailers like Walmart.com, Netflix.com and Yahoo! Shopping.

“As Longboard Media has worked its way to the forefront of the digital advertising world, we’ve witnessed firsthand the shift in consumers’ reliance on mobile devices and the emergence of an incredibly informed, savvy shopper on whom the old-school marketing tactics will not work,” said Barkow.

MobileBeat 2012 will bring together the most elite minds to discuss how user interface and experience is impacting the mobile economy. Some of the topics and trends Barkow will cover during “The Impact of Mobile Payments on Retail” panel include:

• Why shoppers expect mobile apps to provide more information than in-store displays and online content

• Four kinds of mobile payment solutions: carrier billing, NRC, apps and card readers

• The growth of multi-touch strategies that let advertisers lead consumers through their path to purchase

• The acceleration and adoption of mobile devices during the shopping experience

He will be joined by fellow panelists Alexander Muse, CEO, ShopSavvy; Trevor Dryer, Head of Product Management, Intuit; and Paul Sun, West Coast Lead, Capital One Labs.

The benefits of an ad campaign combining mobile alongside in-store and display elements are also one of the focuses of Longboard Media’s recently released White Paper, “Making Sense of Shopper Marketing.”

A leader in digital advertising across premium shopping sites, Longboard Media ranked 5^th among direct retailers in recent comScore reports, surpassing major sites such as Walmart.com and Yahoo! Shopping in factors like monthly unique visitors and percent reach. Since its launch in 2008, Longboard Media has increased its reach by over 75% year over year from 22 million to 39 million unique users each month, now estimating its total online unduplicated consumer audience at 62 million.

“Our focus from the beginning has been on achieving scale for advertisers to reach consumers by providing a significant share of voice per product category and the ability to optimize across various retailers,” said Scott Engler, CRO, Longboard Media. “We are excited that, after only four years of promoting retailer media, we are now the leaders in this vertical.”

Among its latest accomplishments, Longboard recently released its first White Paper “Making Sense of Shopper Marketing.” With today’s fragmented purchase funnel and more consumers researching products online or using mobile devices, the old school marketing methods simply don’t cut it. Longboard Media’s White Paper therefore examined how multi-channel campaigns influence sales and extend reach by researching display campaigns with mobile extensions and analyzing them against in-store data provided by various retail partners. Among its findings, the report concluded that in-store, display and mobile campaigns combined together could work to deliver an ROI while increasing the opportunity to influence a sale.

Longboard applies a multi-medium approach within its own commerce verticals to reach consumers at key decision points from browse to buy. Longboard now boasts a network of top shopping brands including Overstock.com, OfficeMax and Newegg.com, among others. As Longboard Media continues to launch more retailers with on-site advertising opportunities, the company has increased its reach by more than 75% year over year from 22 million to 39 million unique users. Longboard now estimates its total online unduplicated consumer audience at 62 million.

Shopper Marketing campaigns become cost effective and more successful if agencies and brands can adapt. In order to build on its potential, campaigns must evolve beyond siloed, endemic buys, and develop into multi-channel strategies that are capable of running seamlessly across the media ecosystem and feeding into offline territories.

Advertisers and agencies typically treat in-store, display and mobile campaigns as separate parts of their overall strategy, each with an individual spend. Each platform has exceptional strengths: for display, heavy research capabilities allow consumers to digest information rapidly; for in-store, coupons, interactive media and mobile capabilities influence the point of decision; and for mobile extensions, geo-fencing and strategic targeting capabilities allow for higher performance. Combined in a single holistic campaign, in-store, all three can work together to deliver an ROI while increasing the opportunity to influence a sale.

However, the current lack of a fluid structure along the path to purchase has led to segmented marketing messages. The alignment of messaging throughout the path to purchase can lead consumers to make decisions online and drive more in-store purchases.

To help quantify the impact, Longboard Media took a look at display campaigns with mobile extensions while analyzing against in-store data provided by various retail partners. Through this study, several key questions were addressed:

• Does the combination of display and mobile improve efficiency?

• What sort of influence does research activity have on in-store purchases?

• What are the benefits of digital Shopper Marketing campaigns?

• What are the key influencers along the path to purchase?

Read the full White Paper Here: Making Sense of Shopper Marketing