Building up its retail media operation to compete with Amazon, Wayfair launches sponsored products

Online furniture retailer Wayfair is opening up sponsored products to all, the latest in the company’s attempt to build out its advertising platform. The company is also now hiring for a director of product management for media.

The platform, called Wayfair Media Solutions, has existed for a couple of years. But the launch of sponsored products means a new way for Wayfair to compete with other marketplaces like Amazon. According to a document explaining sponsored products, brands can bid to promote certain SKUs within certain categories. The pay-for-performance set up means they play for clicks. The tool is self-service. It went into beta in September and is now available to everyone.

The job posting gives some indication of how the brand is thinking about growth in the space. The brand says it is “aggressively” investing in its “media” space, which includes onsite advertising, sponsored products, custom sponsorships and brand sponsorships.

Wayfair’s approach is unique, according to ad buyers, because it’s building much of its technology in-house. The company has 1,300 engineers and data scientists. Most of its advertising technology, including campaign management and bidding algorithms for online advertising, was developed in house. Two buyers said sponsored products CPMs are between $3 and $4. 

Wayfair did not respond to a request for comment.

Like Amazon, Wayfair classifies media revenue under “other” categories in its financial reporting. That revenue was $13 million in the third quarter of 2018 and $42 million in the year to date last year.

One buyer, who is currently working with a brand to buy ads on Wayfair, said that while Wayfair’s scale remains much smaller than Amazon, Wayfair’s similar ability to connect advertising with intent with actual sales is attractive. Wayfair’s also managed to crack one area Amazon hasn’t quite entirely swallowed: furniture. That makes it more attractive to brands in that area.

“The impact Wayfair has had on the industry as a retailer is important,” said Will Margaritis, who heads e-commerce at Dentsu Aegis. “Amazon has always struggled with the home. Wayfair found this niche in which no one could do well online.”

In a media kit, Wayfair says it has more than 39 million monthly unique visitors across its brands, with 68 percent female users, and 31 percent of them making more than $85,000 in household income.

Deep Dive: Amazon strategies

Offerings within media solutions include the new sponsored products, as well as personalized brand pages and display. Like Amazon, it also includes an offering that follows customers with targeted ads off

Wayfair’s experience with growing its ad platform seems to be very closely mirroring Amazon. In an earnings call last quarter, CEO Niraj Shah said that the return on ad spend for the supplier in the beta test had been high. Still, he said, it’s important as retail to not have it negatively impact customer experience — a consistent balancing act for retail media operations that don’t want to overstuff search results with advertising when users come in to make a purchase. Advertising can be lucrative, with high margins, noted Shah, but it can also ruin the experience.

“The reality is we think [sponsored products] will take a little while to ramp up,” said Shah. “So we obviously – there’s volume there and it grows, but the volume starts relatively small, and I think the real economics for everyone involved get good as it ramps and so we’re in a ramp phase, but I don’t think of the ramp as not in a quarter, but as many quarters. And as it plays out through next year and forward, I think we’ll start seeing it be a meaningful contributor.”
Digiday Top Stories
  • Member Exclusive
    As headwinds emerge, DTC brands bet on early growth to carry them through the rest of the year

    From March through July, direct-to-consumer startups in categories like personal care products and athletic apparel reported astronomical growth. Now, is a slowdown on the horizon?

  • Member Exclusive
    Why it will be hard for BigCommerce to dethrone Shopify as the DTC platform of choice

    In the direct-to-consumer startup space, the response to BigCommerce's IPO this week was muted, thanks to Shopify's dominance.

  • Member Exclusive
    After a quiet three months, DTC brands resume launches

    After months of Instagram posts about how "we're all in this together," and turning their factories into production centers for masks, direct-to-consumer brands are finally starting to return to business as usual. That's particularly evident by the number of new startups entering the market.

  • Member Exclusive
    The dream of the DTC exit is fading

    Last week Lululemon announced plans to acquire Mirror, a connected fitness startup, for $500 million. It may give a false sense of hope to DTC startups about what type of exits are possible in this environment.

  • Member Exclusive
    How DTC startups fall flat in marketing their values

    Direct-to-consumer startup founders have found themselves in a number of unprecedented situations over the past three months -- from having to keep their company afloat while stores were closed to having employees confront them about racism within the company. Many of these same startups have also found themselves in hot water for how they responded to these situations. The issue at hand is simple: customers feel like these companies aren't practicing what they preach.