Marketplaces: Avoiding the Ad Death Spiral

marketplaces ads feature

Let’s just state it upfront: People hate ads. There’s nothing worse than being bombarded by annoying pop ups on irrelevant products as you’re trying to browse and buy goods online.

For marketplaces that rely on ad revenues, it’s all about conversions. And if they can’t optimize search, listings, ads and promotions on their site, they don’t get conversions. If they don’t get conversions, they get desperate and begin to blast out more ads and promotions to compensate, which ends up driving users away and ultimately killing revenue.

So, what can marketplaces do to effectively optimize their ad system and avoid the ad death spiral? Here are 5 ways to improve your infrastructure and turn around ad engagement.

Build a unified data infrastructure

When ads, listings, promotions and search aren’t optimized together, conversions are low, revenues decrease, and it becomes a death spiral for marketplaces. Right now, most large marketplaces have separate teams for ads, merchandising, search and recommendations. They all work in separate departments and information is siloed.

Even with expensive tech savvy engineers, these businesses do not have a unified data infrastructure that measures the performance of all searches, feeds and ads across the marketplace. Having a unified data infrastructure allows you to measure the true cost of ads to users and sellers – that is, when not to show an ad because it either lowers sales by annoying users or a seller would get the sale for free anyway. You may be able to improve your business without showing any ads, and only a unified data infrastructure would prove that.

Reuse what already works in Search and Feed

There is no “ads relevance.” There is just regular “relevance,” and you already have this. Reuse it in ads. The same goes for recommendations, personalization, and measurement: you have a working version of these in your product now. Reuse them for ads. You may need some adjustments, but rebuilding relevance, personalization, and measurement for ads is a classic mistake driven by the engineering organization chart and not the needs of the business or common sense.

Improve the user experience

Before trying ads, can you get more revenue per user by improving the user experience instead? And when you do launch ads, you’re probably going to degrade the user experience, so you’ll need a strong foundation to ensure that you don’t degrade too much.

User experience degradation from ads can be tricky to measure because annoying users may not cause them to stop using your product in the short term during an A/B test, but gradually, over time. Use your product intuition: if it’s annoying to you, your users are also annoyed, even if you can’t measure the impact over two weeks. Go over budget in terms of how much better your product must be to compensate.

Know how to test and scale your ads

You carefully test the return on investment and scale when you run ads yourself on Google and Facebook. When you launch ads, your sellers and advertisers will expect the same level of accountability from you.

Develop a plan for long-term growth

Running a marketplace is hard. Beware of launching an “ads MVP” to boost revenues and prop up your business. Ad revenue must come from somewhere. If you don’t carefully measure and control where your ad revenue comes from, then that incremental ad revenue today will be coming from cannibalizing your core business tomorrow.

Ads and promotions can be part of a long-term growth plan when you think of them as optimizing your take rate or seller fees versus a new line of business. Well-designed ads can allow big sellers to pay higher fees to your marketplace in exchange for more reliable volume while small or new sellers may pay lower fees to boost user experience and diversity.

Ads should not be killing your business; when they are working effectively and optimized throughout your site or marketplace it should be a major revenue generator and a valuable tool for sellers and your merchandising team. Putting these best practices into place is not a painful process and should be the first step in engaging your users and increasing conversions.

Andrew Yates is co-founder and CEO of Promoted