Amazon quietly shutters product ads that drove traffic to outside sites

By Mari Saito

SAN FRANCISCO (Reuters) - Amazon.com Inc (AMZN.O) quietly shuttered a pay-per-click advertising programme that allowed businesses to divert traffic from the retailer's platform to their own websites on Tuesday, saying it would permanently discontinue the programme in October.

The programme allowed many businesses that are not necessarily sellers on Amazon's online marketplace to buy ad space on its website. Targeted ads for specific items would pop up on Amazon's website and drive shoppers to the retailer or manufacturer's own site.

"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," said Scot Wingo, the executive chairman of ChannelAdvisor, which helps retailers and manufacturers sell on ecommerce platforms.

Wingo said the programme was known for its high conversion rate and said advertisers were surprised when they received an email from Amazon notifying them of the change this week.

An Amazon spokeswoman confirmed the change and said the advertising programme will no longer be available after Oct. 31.

"At Amazon we are constantly reviewing the services we offer partners to help them best reach our customer base and grow their businesses," the company said in an email to Reuters. Amazon offers other advertising options for third-party sellers to differentiate their products like its sponsored ads programme.

Amazon's overall advertising business could bring in $1.26 billion in 2015 worldwide and grow to $1.83 billion by 2018, according to estimates from eMarketer, which tracks online advertising.

"We are disappointed with the news," said Angela Hsu, vice president of Internet business and marketing at Lamps Plus, a home decor company that used the product ads programme. The company was featured in an Amazon case study in May and said the programme increased its sales by more than 80 percent.

Consumers are increasingly starting their product searches on e-commerce marketplaces such as Amazon before looking on individual retailer's website.

A recent survey released by Amazon and Pymnts.com found that 64 percent of respondents said they begin searching for a product on a marketplace, followed by their favourite websites, search engines and social media.

Google Inc (GOOGL.O), which announced this week it will morph into a new holding company called Alphabet Inc, has acknowledged the dominance of Amazon, with executive chairman Eric Schmidt calling the online retailer its biggest competitor in searches.

Shoppers can discover, compare and purchase products directly from retailers by clicking on Google's ads. Facebook also launched targeted products ads in February.

(Reporting by Mari Saito; Editing by Alan Crosby)