Zalando has quietly tested brand advertising at its own platform during the past few months. With a group of several brands, it ran 30 advertising campaigns from external brands on dedicated parts of its own online store and via third party sites. (…)
“With a pan-European reach of 130 million visits per month and a mobile share of 60 percent, we have a very attractive proposition”, Cochet says. “But we use not only our own website, we also use third parties such as Vogue and Instagram.”
When asked whether Zalando is unnecessarily limiting itself in the capitalization of its reach when it’s focusing solely on fashion in its advertising marketing, Cochet says fashion is of course its starting point. “But the technical possibly of our platform go so far that we will certainly attempt to find non-fashion customers, for example from the beauty & lifestyle or fast-moving consumer goods industries.”
Zalando’s Media Solutions are interesting because Zalando has in its core markets the reach necessary to make an advertising play work. Being able to make money by means other than directly selling goods and keeping the margins is very powerful. (Amazon is a precedent there.)
You could say, there is a certain threshold an online retailer needs to pass for more strategy options to materialize. Once a certain size is reached things like an additional marketplace (Amazon), cross-subsidized bundling (Amazon Prime), an app centric platform (Zalando) or advertising (Zalando, Amazon Advertising Platform) become feasable.
The dangerous consequence for smaller merchants in the same market: Those options to earn money by other means give big online retailers more room with pricing. Meaning: By earning money in a more diverse manner costs can be spread out more. This in turn means big online retailers can become even more attractive to consumers because they can offer lower prices for the goods they are selling than their smaller competitors can.
Zalando Media Solutions are, like most of Zalando’s recent initiatives, still at the very beginning. But they show the promise of what will become available to Zalando over time.
Zalando talked about the companies media platform and advertising services at last years capital markets day (PDF) with, understandably, a focus on the unique targeting opportunities at Zalando:
Of course providing advertising to other companies is not a core competency for an online retailer like Zalando. That is probably one of the reasons why Zalando wants to buy Nugg.ad (German), a German advertising service provider. (“Smart Audience Platform”) (The German Federal Cartel Office has yet to say ‘yes’ to the acquisition.)