If you think that “sponsored” products on Amazon are ad campaigns, think again. Those sponsored positions are now known as retail media, which has become the third largest digital advertising channel in the US after paid search and paid campaigning. Most impressively, eMarketer expects it to almost double, from $31 billion in 2021 to more than $61 billion by the end of 2024, when it will account for nearly 20% of digital marketing spending. The question to consider is how other markets can compete with Amazon especially as retail sales increase.
Currently, Amazon dominates the space with approximately 78% of ad spend in 2021, led by Walmart at a much lower 5.4%. The consulting firm BCG estimates that in 2021, 68% of Amazon’s total profit will come from advertising with a margin of 75%.
Brick-and-mortar giants Target, Kroger and DICK’S Sporting Goods have all expanded into the mall, as have digital-only players like Instacart, Wayfair and Gopuff. COVID-19 has only exacerbated the business crisis. US consumers spent $1.7 trillion online in the first two years of the pandemic — $609 billion more than in the previous two years — spending money on shopping.
Therefore, marketing campaigns are poised to become the newest competitive arena in digital marketing. But, what exactly is a playground? What do sellers want? Will the site accelerate collaboration and take things faster, and what should we expect from this?
1. Playground.
Digital advertising companies have a history of placing ads where people don’t want to see them. Banners, pop-ups, search ads, sports ads and ads that are inherently annoying and known to convert (for example, “banner skin,” invented in 1998, has been causing a drop in conversions). Then in 2012, Amazon decided to place ads on ecommerce searches – one or two clicks away from the buy button and closer to the “purchasing intent” than the most relevant links – to solve the conflict between experience and ROI. Thus, modern media was born.
Retail media is a subset of marketing, a group that includes affiliate marketing, consumer advertising, retail TV, in-store TV and the metaverse. Product ads are served in real time through search, display and product pages on the seller’s website.
As I touched on above, when you search for “toothpaste” on Amazon, the product’s ads are “sponsored” in the results. If you click on “Colgate Optic White” and scroll down, the items labeled “Related to this product” are advertisements. The ads are minimal, private, non-intrusive and easily linked to events. Amazon and its competitors operate Retail Media Networks (RMNs), which enable advertisers to advertise systematically using keywords, product numbers, proximity matches and direct identifiers.
2. What it takes to compete.
When marketers choose RMNs, they look at the size and quality of traffic and activity on the platform. They also consider analytics, measurement and first-party data, which is often a weakness for smaller retailers.
First party data is data that marketers obtain directly from consumers – email addresses, purchase history, browsing history and so on. Since the big platforms (mainly Apple and, more recently, Google) turned to third-party cookies (tracking codes that helped to track products on platforms like Meta / Facebook), first-party information has become more desirable. There is no safe, clean or accessible place for this data outside of ecommerce platforms.
Having data is one thing; using it to track ads, provide analytics and show return on ad spend (ROAS) and more. Amazon already does all that. Companies invest in RMNs where they can show a strong return on investment – hence, Amazon’s dominance. To compete with Amazon, retailers need marketing technologies that leverage their data and its end-uses.
3. M&A, past and future.
For online marketers, the question is whether to own or rent TV technology. Amazon created their own platform (DSP) and service delivery platform (SSP) to serve ads. Walmart uses The Trade Desk as its DSP and acquired two companies – Polymorph Labs in 2019 and Bingu in 2021 – for the supply chain.
Meanwhile, advertising companies are betting that online retailers will borrow. In July 2022, Publicis Groupe acquired CitrusAd, an automated marketing platform that connects 4,000 brands with 70 advertisers, and remains active in all M&A activities while expanding their technical capabilities. To capitalize on marketing and first-party data tracking, Criteo spent $250M to acquire IPONWEB, a platform focused on media marketing, to complete the transaction in August 2022.
Among the tech giants, Alphabet must be the most feared of RMNs now that 63% of consumers start their search on Amazon when shopping online. Alphabet collects first-party information through Google Pay and Buy on Google (its checkout process) but not through Google Shopping, which refers buyers to sellers. eMarketer’s forecasts show that Google could lose 5% of US digital revenue to Amazon between 2019 and 2023. Can Alphabet make ecommerce sales soon in response?
Marketing First, Ecommerce Second
Ten years ago, Amazon was an ecommerce platform with ads. Undoubtedly, it is becoming an advertising platform that uses ecommerce to gather eyes and first-party information, and is working hard to bring more sellers to the Amazon market. Of course, with so many things to find there are so many ways to make money. Will other vendors be aggressive in trying to follow through? Will Walmart and others take a bigger share of the market and create their own retail spins or just be the “Bings of Retail Media,” too late to the party?
Let’s assume that the space will be competitive. Video marketing now represents digital marketing at its best.
Tim Harned is the Managing Director at Frontline Supporters. With a distinguished M&A and fundraising career spanning more than three decades, he has led transactions for both Fortune 500 and early-stage, high-growth companies worldwide. He brings a unique international perspective to his work, leading cross-border events and US challenges. Earlier in his career, Harned spent 15 years in M&A and financial advisory at Lehman Brothers, Banc of America Securities and Morgan Stanley. He transitioned to working with technology consulting firms for over a decade before founding his own firm, 8Nineteen Advisory, which he sold to Progress Partners in May 2021.
