Four-year-old vendor Longboard Media is riding the wave of a new trend.  The company manages and sells third-party display ads that appear in free space on e-commerce web sites, a strategy which might seem counterproductive to many retailers but is becoming more common. Longboard says selling ads on retail sites can offer e-retailers incremental income. Some of the vendor’s clients say 10-20% of their annual profit—millions of dollars in revenue—stems from ads on their sites, says Longboard co-founder and chief revenue officer Scott Engler.

“Out of the Internet Retailer Top 500, I believe a majority will have ads on their pages in the next 12 to 24 months,” Engler says. “They can’t turn away from the incremental revenue.”

Although selling ads on retail sites is not new, it has become more widespread over the past year, Engler says. He notes that Amazon.com Inc., No. 1 in the Internet Retailer Top 500 guide, which is not a Longboard client, has been selling ad space for five or six years, and other retailers began following suit about four years ago. Amazon did not return a request for comment.

The number of retailers selling ads on their sites has especially increased in recent months, Engler says. In 2011, five major retailers displayed ads on their sites. And that number has swelled to about 30 this year—14 of which are managed through Longboard, he says.

Longboard’s 34 clients include Overstock.com Inc., No. 27 in the Top 500; RadioShack Corp., No. 275; The Sports Authority Inc., No. 230; OfficeMax Inc., No. 12 and Newegg Inc., No. 13. The company will display more than 2 billion ads across all its clients’ sites in the fourth quarter during the holidays this year, reaching an estimated 65 million consumers, he says.

Longboard shares revenue from the ads it sells with the online retailers or other sites that publish the ads. The company works with comparison shopping sites, retailers and mobile advertisers, the latter in a partnership with mobile shopping company ShopSavvy, which provides the technology to feed ads to mobile sites and apps, Engler says.

Besides saving retailers the time, hassle and salary expenses of hiring an ad sales rep, Longboard says it offers another advantage to retailers in competing against the market dominance of  Amazon: the ability to gather and harness consumer data across multiple shopping sites using software cookies that track consumer shopping behavior. For example, Longboard can retarget a consumer who has been looking at digital cameras on various e-commerce sites in the last week with an ad while she is watching YouTube or checking her Yahoo mail, Engler says. This way the brand advertiser and the consumer both benefit from more relevant and targeted marketing, and the online retailer hosting the ads can gain more revenue if the targeted ads persuade more shoppers to click.

“The goal is to get the right mix of advertisers that will add additional value to our shoppers’ experience,” says Lani Murakami, Overstock.com’s vice president, merchandising. Overstock says its ad revenue is up since it began working with Longboard two years ago, but it declined to say how much.

Engler co-founded Longboard media in 2008 with CEO Jim Barkow. Both formerly worked at eBay Inc., Engler on display ad sales and Barkow as a manager of strategic partnerships. After three years in business, Longboard accepted its first outside investment of $6 million.

Three advertising trends support Longboard’s business model, Engler says:  increasing global digital advertising, growth in  e-commerce and the fact that more consumers visit multiple e-commerce sites to conduct thorough online research before making a purchase. Online retailers that have traditionally steered away from running ads on their sites are now trying it out, Engler says.

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