The Blurring Line between Commerce and Ad Models

Posted on March 11, 2010. Filed under: startups, venture capital | Tags: , , , |

A lot of different ideas are converging in my head right now, largely as the result of two discrete conversations.  The first, is more of a broad thesis I am developing about alternative revenue streams for publishers, and how niche publications are thinking about monetizing their audience and assets beyond “ad models.”  The second is a thesis I’ve been kicking around in the realm of Charlie O’Donnels NextNY conversation last night on “Disruptive Commerce Models” or “E-Commerce 2.0.”

Until last night, I largely viewed realms to be separate, but a conversation this morning with a very bright guy named David Cho made me realize that one of the fundamental drivers influencing my thinking in both realms is related  to a broader phenomenon:

Phenomenon: The line between commerce and advertising is blurring.  Think of the relationship between the below monetization mechanisms as a spectrum, where both ends of the spectrum are losing $ volume to the middle:

The Commerce/Ad Spectrum

Commerce 1.0 (buying inventory, taking risk, reselling at a premium to consumer)

“Commerce light” (no inventory, really brokerage between suppliers and consumers)

CPA (performance)

CPC (performance)

Brand Advertising

I see tons and tons of niche publishers looking to “transform” their model away from “ad models” toward “commerce models” (largely chasing what they perceive to be the strategy that made Gilt grow like a weed).  David Cho was the first niche publisher I have met since I started investing who said “fuck that, the ad-model isn’t broken, I just need better units to monetize my base.”  I actually think he may be right…but those better performing units are going to start to look more and more like commerce functions. is a perfect example of an ad based model that really operates and feels like a transaction/commerce model to consumers…now, think about a world where widgets being distributed onto publishers sites, are capable of performing transactions and transaction like events within the ad unit…and you start to see where I’m going with this.  So that’s advertising bleeding up the spectrum into commerce…

Now let’s look at commerce bleeding down spectrum to advertising.  Last night’s conversation at NextNY was theoretically about Commerce startups, but in reality, I didn’t know how to define “Commerce” or an “e-retailer” any more…the reason is because so many of the folks in the room pursuing flash sales, group buying, etc…aren’t really retailers at all.  They are more like brokers, bringing together suppliers and consumers.  Is a broker a retailer?  Because these brokers are similar to retailers, but brokers also look an awful lot like ad units…bringing together suppliers and consumers for a fee (without taking inventory risk).

All of this is to say I don’t think there is a hell of a lot of difference between Ad models and “commerce light” models when applied to an audience aggregated through some sort of editorial voice…so I’m interested in talking with people who are pursuing the nexus point of these two worlds, especially if you are packaging that together into a “turnkey” monetization mechanism and selling into publishers.  If you are…and you’re smart…I’m interested in learning from you and maybe even investing in you.

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8 Responses to “The Blurring Line between Commerce and Ad Models”

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I like your comparison between “e-commerce 2.0” and brokers. One of the things I kept hearing last night was that as brokers, these startups have to deal with more substantial inventory acquisition costs in addition to typical customer acquisition costs. It will be interesting to see how these startups find ways to make inventory acquisition cheap and sustainable.

I think Adgregate Markets is doing some cool stuff with commerce enabled ad widgets. It makes sense to be able to buy things in more places than just on a destination site – like in a Facebook stream. Same applies for aggregation sites or brokers that bring together products and services. I think like you mentioned last night one of the big things still to figure out is reducing the friction of payments which becomes more even important as people bounce around between commerce widgets, flash sales sites, aggregated sites and group buying sites seeking the best deals.

Another way to invest in the space would be to seek out technologies that help brands/manufacturers/suppliers get revenue-predicting metrics from non-cpa/cpc advertising channels that are as reliable as those from cpa.

Phil, could you point to the discussion about revenue prediction in cpa/cpc advertising channels? I get the concept- you can predict the marginal revenue produced from each incremental dollar of ad spend- but can you point me to some resources/people that know this space cold? thx.

There is a 3rd blurring of the line here with social media, or more specifically, UGC that is linked to commerce platforms.

Using the example of art, since that what our company deals in: People like to talk about art, people like to recommend art to friends, people like to express themselves through their artistic preferences. These are all natural social interactions that can also function as significant drivers of interest in making purchases.

We are setting up social infrastructure that makes these interactions more easy and more visible online, while providing the commerce platform underneath for when a conversation peaks someone’s interest enough for them to make a purchase.

This is a further blurring of the line. No-one wants to think of social interactions as an ad unit, but in the abstracted framework you describe, they can be viewed that way.

Anyway, great post. It prompted me to write a whole post about this (without the stuff):

Social media = ad unit is an interesting concept…I guess referral prgrams and affiliate fees paid to consumers (I.e. AMZN) are examples of that

[…] few entrepreneurs have written lately about the blurring of ecommerce and advertising (albeit advertising that is about […]

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    I’m a NYC based investor and entrepreneur. I've started a few companies and a venture capital firm. You can email me at (p.s. i don’t use spell check…deal with it)


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