In-depth: How e-commerce is outsmarting social media by rapidly increasing its share in digital adex

A recent report by Elara Capital highlights that advertising on the e-commerce platforms continues to outperform in the digital advertising ecosystem, with Amazon reporting ad revenue growth of 26.31% YoY.

In contrast to Amazon’s latest financial results, Alphabet and Meta have registered 9.48% and 23.52% YoY growth in advertising revenue for the same quarter.

According to many industry players, key reasons behind this trend are the ease of reaching online shoppers, precision targeting, rich data insights and conversion-friendly environments that e-commerce offers. Meanwhile, the social media scene is facing hurdles, making it harder for advertisers to connect.

Karan Taurani

Karan Taurani, SVP- Research Analyst (Media, Consumer Discretionary and Internet), Elara Capital, said that search and social have been under pressure for the past year with 9.1% YoY growth for search and a 1% YoY decline for social in CY23.

“We believe the trend is expected to continue in the medium term, with e-commerce ad revenue likely to grow ~1.8-1.9x of social and search ad revenue growth. The India market too may mirror similar trends wherein search may lose share at the cost of e-commerce gaining traction," he added.

Forces fueling e-commerce ad growth

Shashank Rathore

Shashank Rathore, Vice-President, e-commerce, Interactive Avenues (the digital arm of IPG Mediabrands India), highlighted that the substantial growth in the e-commerce sector post-COVID has become the biggest influencer, prompting traditional brands to emulate the success stories of digital-first brands like WOW shampoo, Honasa, Boat and Plum Cosmetics by focusing on retail media.

“Additionally, marketplaces and quick commerce platforms now offer evolving biddable platforms that empower brands with more control and enhanced performance,” he added. 

Prakash Bhadarka

Similarly, Prakash Bhadarka, VP - Media and Publisher Partnerships, Schbang, explained that the big increase in e-commerce advertising, especially on platforms like Amazon is because of a few reasons.

“More people are shopping online, especially because of the COVID-19 pandemic. This means e-commerce sites have become important places for ads. E-commerce ads can be aimed at specific groups of people, which makes them work better. E-commerce websites give advertisers a lot of data and tools to track and improve their ads. This helps them make their ads more effective,” Bhadarka said.

“Some e-commerce ads only cost money when they lead to actual sales. This makes businesses want to use them more. On e-commerce sites, companies have to compete a lot, so ads help them stand out and sell more. E-commerce sites help people find and compare products and ads make them more visible,” he added.

Furthermore, he pointed out that on the other hand, social media ads haven't been growing as fast. This is because there are too many ads, people are worried about their privacy and they are picky about what they pay attention to. Also, social media platforms have made it harder for ads to target people, which has slowed down social media advertising.

Shradha Agarwal

Meanwhile, Shradha Agarwal, Co-Founder and CEO, Grapes, emphasised that when a consumer reaches a retail platform, whether online or offline, in their purchase journey, their purchase intent is usually considerably high. So, ads at this stage garner a higher conversion rate, making them popular with the brands.

"Moreover, e-commerce is rapidly becoming more than just shopping. Myntra has been integrating influencer marketing right into their channel for quite some time now, offering styling and fashion tips from them. Amazon has added content streaming for free on their platform in the form of Amazon MiniTV. These value additions pull people to spend more time on these apps, which make them a favourable option for brands to advertise on," Agarwal said.

"This comprehensive approach makes the e-commerce platform into well-developed touchpoints for the consumers, hence garnering a lot of brand and advertiser attention," she added.

Recently, Amazon Ads introduced a beta version of a generative AI-powered image generation feature, aimed at assisting digital advertisers in simplifying the creation of engaging ad visuals.

Chinmay Chandratre

According to Chinmay Chandratre, General Manager, Madison Digital, India is a country with almost 70% of the population under 40 years old. With high internet penetration, massive data consumption on mobile and an increase in purchase propensity, it is imperative that the user base on marketplaces like Flipkart and Amazon is on a high. Ad revenue is directly proportional to user behaviour – “Jaha dikhta hai, vaha bikta hai” (it’s sold wherever it’s seen).

“Factors influencing it are: Rapid increase in internet penetration, 2/3rd of Indian population is now connected. Shift in buying behaviour in favour of online post the pandemic, 450 million + online shoppers, almost doubled in the last three years and unlocking tier 2/3 + rural markets which have shown a keen interest towards online shopping,” he added.

Aakash Goplani

Aakash Goplani, Account Director - Brand Experience, SoCheers, pointed out that the users on e-commerce sites have heightened purchase intent, making it easier for advertisers to convert visitors into customers. Frequent sales events like Black Friday, Prime Day and many more create spikes in traffic and shopping activity, presenting prime opportunities for advertisers. Precise targeting based on user data, innovative ad formats, and the competitive landscape with third-party sellers all contribute to the success of e-commerce advertising.

"In contrast, social media advertising has experienced slower growth due to market saturation, ad fatigue, and intense competition for user attention amidst a vast sea of content. These factors shape the advertising landscape and impact brands' marketing budget decisions," he added.

Upsides and downsides of e-commerce platforms dominating advertising landscape

Bhadarka said that the shift towards e-commerce platforms by big players in advertising has both good and bad sides.

Speaking about the positive implications, he said, “Reaching the right people: E-commerce websites can show ads to the exact people who might want to buy something. This helps businesses spend money on ads more wisely and get more people to buy their stuff. Using data for better ads: Advertisers can see lots of data about how their ads are doing on e-commerce websites. This helps them make their ads better and get more sales.”

 “Ads that pay off: Some e-commerce ads only cost money when they actually make a sale. This means businesses want to use them more because they know they'll get results. Helping you find stuff: E-commerce ads make it easier for you to discover and compare products when you shop online. This makes your shopping experience better.  Competition for your attention: E-commerce websites have lots of ads, so companies work hard to get your attention. This competition can lead to better services and more choices for you,” he added.

While emphasising the negative implications, Bhadarka spoke about various points including, too many ads: There are so many e-commerce ads that it can be hard for individual ads to stand out. You might feel overwhelmed by all the ads you see.

Privacy worries: Advertisers collect your data to show you ads. This can make people worried about their privacy. Some rules and privacy awareness might limit how much data advertisers can use.

Not Trusting Ads: When you see too many ads, you might not trust them. You might think they're bothering you or trying to trick you, which makes ads less effective.

Blocking ads: Some people use ad-blockers to avoid seeing ads they don't like. This makes it harder for advertisers to reach you.

Meanwhile, Goplani said, "Undoubtedly, e-commerce advertising presents numerous benefits such as precise targeting, direct ROI mapping and ease of setup and monitoring. However, it does have its limitations. As a sales-driven medium, it does not effectively showcase a brand's story or its purpose in its truest sense compared to other platforms, both digital and outdoor, and is typically highly transactional. Therefore, a carefully crafted combination of e-commerce and other mediums can help brands maintain a healthy balance between sales and community engagement, keeping their brand visible and relevant."

On the other hand, Agarwal highlighted that while there has been a definite growth trend in e-commerce advertising, it overtaking other avenues like social media marketing and search advertising is still new.

“This shift might result in a more integrated approach all around. One-stop shops are likely to become the way forward for a lot of platforms, wherein they offer a variety of services under the same roof. Similarly, brands might go for a more comprehensive and integrated ad strategy for the maximum impact,” she added.

According to Chandratre, in today's world, data is considered to be real gold,  all marketplaces have super-rich data points which really makes them a powerhouse.

"Resultant implication of the same will definitely benefit the advertisers as it gives them the opportunity to: SMEs can efficiently invest on the online marketplace, benefit from selling at a lower cost, maintain profitability and save on the entire offline setup. Maximise in non-metro markets which has tremendous potential. Platforms like Meesho/Jio Mart/Tata Neu are focussing more towards robust data collection, enabling the advertisers to customise and effectively reach the required consumers, sharp targeting - right message to right consumer at the right time," he said.

Growth projection for e-commerce advertising in India

Rathore said, “We anticipate that, given the historical growth rate, e-commerce advertising will make up approximately 30% to 35% of the total agency revenue by 2025. Furthermore, there is a potential for e-commerce advertising to become the agency's primary service by 2027-28.”

“This forecast is grounded in multiple studies suggesting that overall e-commerce is expected to surpass $200 billion in 2028 and $300 billion by 2030, compared to its $85 billion size in 2022. The growth factors are rather straightforward, driven by ongoing GDP expansion and rising income levels, which attract more consumers seeking convenience and value in this sector,” he added.

Bhadarka highlighted that in India, e-commerce advertising is expected to grow significantly in the coming years. The growth projection is around 27-30% every year, which is quite fast.

Meanwhile, Goplani said that in the Indian market, any medium that directly increases consumption takes precedence over the rest. Consequently, e-commerce advertising has emerged as one of the most critical mediums for all product-led brands.

“The frequent sales and new product launches in this space are expected to further drive the growth of e-commerce advertising, making it a vital component of a brand's marketing strategy, leading to more than 2x growth in the use of e-commerce advertising,” he added.

Chandratre said, "Indian E-commerce market is growing rapidly and is expected to be a 100 Bn dollars industry. With all the digitisation efforts which the government is taking, ~80% of users are expected to connect via the internet by 2025. As a result of which new potential markets are being unlocked for marketplaces to expand their reach. ~35-40% of online transactions on marketplaces are from non-metro markets. Possibilities of targeting on e-commerce platforms are immense, enabling the right message to the right consumer at the right time and hence it is imperative that ad revenue is ought to grow.”

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