Earlier this week, Best Buy, the country’s largest electronics retailer made some interesting news when they announced that they would be launching Best Buy Ads. Best Buy Ads will offer paid search ads and sponsored product listings on Best Buy’s website, among other ad offerings. First-party traffic is a critical asset today. So consumers landing on the Best Buy site remain highly sought after eyeballs.
Best Buy has seen its sales balloon in the past year. Pandemic-burdened consumers buying electronics and technology to improve their home-bound lives drove this growth. With that increase in sales has come significant increases in website traffic. This gives Best Buy an opportunity to establish a compelling advertising business.
Best Buy is certainly not the first brick-and-mortar retailer to attempt to leverage their organic traffic into a compelling business. Best Buy can now play the ad game, given its pandemic-bolstered online business now representing about a third of its overall revenues (about $15 billion). Just like Amazon has successfully done. Albeit at a much smaller, but perhaps more target scale.
During the company’s last earnings call in November, CEO Corie Barry said this to analysts and investors. “Best Buy’s relevance, customer relationship, and first-party data have grown along with customers’ technology needs and our ability to meet those needs, these are all great examples of value we can provide to our vendor partners that many other retailers cannot.”
With the boost to the online business, the company has also been able to better understand their shoppers’ preferences and behaviors. It can take that knowledge and turn it into high-quality ad props.
Building an Ad Business
Advertisers choosing to place ads via the Best Buy Ads platform can select where they want those ads to appear – website, apps, in-store, or even other external publisher sites. The company believes it can build an advertising business from existing product vendors and from other interested companies.
Best Buy CMO Frank Crowson said understanding the mindset and behaviors of shoppers who are drawn to technology allows Best Buy to offer advertisers access to consumers with interests like movies, gaming, and cooking an interesting opportunity. “That’s interesting to folks who sell those things,” Crowson said. “But also to a lot of different advertisers, as well.”
A Growing List of Retailers
As we mentioned, Best Buy isn’t the first retailer to pursue the advertising opportunity. We have written before about Amazon’s ad business which is now estimated somewhere close to $25 billion. So it is natural that others are in hot pursuit of a slice of the digital advertising pie.
The grocery chain Kroger launched its advertising network in 2017. As a result, it saw revenue increase 135% in 2020 (the pandemic year) and deliver $150 million in operating profit. That is significant since the grocery business is a particularly low operating margin business.
“We interact with our customers three billion times a year — in our stores, in their homes, and online,” Best Buy said in its announcement. This may seem like a lot of targeted eyeballs. But it pales in the face of the volume of eyeballs flowing through Amazon’s shopping ecosystem.
Still, 3 billion eyeballs are sufficient to build a meaningful ad business and deliver operating profit to Best Buy. It won’t be without its sticky wickets. For example, they will have to take into account their most important vendors as they push competitive ads to their audience. We think it’s an interesting trend and one more example of the opportunity in digital advertising that can exist, deliver value and profit and still be just a tiny slice of the overall digital advertising business.