Amazon.com (NASDAQ:AMZN) wants to keep people who visit its website from leaving and it's willing to give up ad revenue in order to make that happen.
The company has quietly stopped selling advertisements that allowed other retailers to purchase pay-per-click ads on Amazon.com that diverted the user to their site (and off of Amazon's). The program, which was called Product Ads, allowed advertisers to reach the online retailer's vast audience without having to share data with the company.
It was essentially a way for sellers to put their toe in the water without becoming full Amazon partners. The ad program was known for its high conversion rate Scot Wingo, the executive chairman of ChannelAdvisor, told Reuters, adding that advertisers were surprised when they received the email from Amazon telling them the program was being discontinued.
"Our customers performed really well with it because it provided a middle ground of being able to partner with Amazon but also not allowing them to see all their transaction data," Wingo told the news service.
Why is Amazon doing this?
The online retailer is making a move that its partners, which bought this type of ad, are not likely to be pleased with. These product ads and sponsored links that brought users from Amazon.com to partner sites proved very popular in ChannelAdvisors' recent annual survey.
Of all digital marketing channels, 35% of global respondents listed Amazon Product Ads and Sponsored Links as the top channel for return on investment for their company. That number was even larger (44%) for U.S. residents.
"We are disappointed with the news," Angela Hsu, vice president of Internet business and marketing at Lamps Plus, a home decor company that used the product ads program told Reuters. Her company was actually featured in an Amazon case study in May that showed the program had increased its sales by more than 80%.
Dropping these ads could cost Amazon some money, but the change could actually produce more revenue for the company by funneling sales through sellers in its on-site marketplace. It's a calculated risk, but making this change essentially takes away an exit door for customers.
There is an alternative
While Amazon is getting rid of the picture-based pay-per-click ads that lead customers offsite, it is testing a new link-based ad program in the U.S. The company detailed that plan in the email it sent to customers announcing the end of what was formerly called Amazon product ads.
Those ads will be less visible than the ones they are replacing and there is no guarantee they will be effective.
It's simple logic
If you're shopping in a retail store and it shows you items from another store (perhaps at a better price) it's reasonable to think some percentage of customers will leave and go to that other retailer to make their purchase. Amazon has essentially been taking money to allow that to happen.
By closing this door Amazon is betting that more users buy things either directly from its site or from its marketplace partners. That seems like a fairly safe bet when you consider the depth and breadth of the products offered by the retailer and its partners.
This is sacrificing a little revenue to keep people on Amazon longer, which should lead to them buying more things. It's a smart move that should drive increased sales for the retail giant and its marketplace partners.
Daniel Kline has no position in any stocks mentioned. He buys from Amazon nearly everyday. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.