Will Middle East’s ecommerce platforms opt for more in-app ads?
As for shoppers, they need to accept that affordable ecommerce does have a cost too
Significant value is being derived from ecommerce offerings, as is evident in the high adoption rates across various categories in our region. Case-in-point, the digital economy of MENA is already expected to cross $120 billion in 2024.
This success has come at a cost as ecommerce players have had to make significant investments in building capabilities across the value chain, in sourcing, marketing, logistics, payments and customer services. This has meant profitability has been a challenge for many ecommerce players.
While there are many ways to boost profitability, one thing is certain - any incremental revenue that comes at a fractional cost helps accelerate the path-to-profitability. In-app ads provide such an opportunity for e-commerce platforms.
As an example, the recent results from Amazon highlight the significance of in-app ads to the bottom-line. In Q1-2024, Amazon's global in-app ads revenue reached approximately $12 billion, or 10 per cent of their retail revenues (excluding AWS). On the other hand, their retail operating margins (excluding AWS) hovered around 5 per cent.
Put simply, without in-app ads, Amazon’s retail business would have generated an operating loss instead of the $6 billion profit it declared this quarter.
The example shows that marketing, which was once a significant cost, can not only offset costs but also help drive the ecommerce industry towards profitability faster.
But is the time right for e-commerce players in MENA?
There are four key criteria needed for in-app ads to take off. I see tailwinds across our region on these criteria:
- Large consumer base on platform: Any in-app ad monetization needs a significant consumer base for advertisers to target. In our region, we already have large online marketplaces such as noon and Amazon that boast a significant consumer base. Additionally, there are niche players emerging, such as NiceOne in beauty and Jahez in food delivery.
- Engaged consumers: Another important criterion is that consumers should also be engaged and have a reason to come to the platform regularly. Our research shows that customers in MENA are increasingly spending more time on these ecommerce platforms, which is a positive sign for engagement.
- Relevant ads: Ensuring that ads are tailored to resonate with the intended audience is crucial for the success of any in-app advertising initiative. This requires a deep understanding of the consumer base and prioritizing underserved advertiser segments.
- Accurate and timely measurement: Finally, accurate metrics are essential for advertisers to allocate ad dollars effectively. This aspect can sometimes be overlooked by platforms as it is challenging to build and can take precious resources. This may be challenging to implement, but investing in measurement is crucial for maximizing the benefits of in-app ads.
So, ecommerce platforms need to invest in identifying the right advertisers for their platform, the right ad formats, and build measurement mechanisms to benefit from in-app ads. But is it worth the effort?
The addressable market for in-app ads on e-commerce platforms in MENA is estimated at $2 billion according to Redseer Strategy Consultants. Such ads also provide a platform for underpenetrated ad segments, such as small retailers and hyperlocal service providers, to advertise.
Ecommerce players also have physical assets such as delivery trucks/ bikes and packets which can create a unique value proposition by giving advertisers the option of omni-ads. This means advertisers have the option to reach their target consumers not just online but also offline – something important as consumers are now omni, meaning they shop both online and offline.
In-app ads will expand the overall ad market in MENA instead of only cannibalizing existing channels. In the process, it will also give a boost to the profitability of ecommerce platforms.
So, still thinking if your ecommerce platform should start in-app ads? The answer is not ‘if’ but ‘when’.