If you want to know what will happen in the media Industry, follow the data. Lately, that path runs right into retail.
Ever since retailers figured out that relationships drive
their business, they have exploited data about those relationships relentlessly. Retailers have now learned how to use consumer information as an asset to improve most phases of operations.
(merchandizing, buying, etc.).
Now, they are looking beyond optimizing operations toward new revenue streams.
The next big revenue opportunity may be
in media. Certainly Amazon has built a fabulous business selling its own context, but its scale advantage can’t be copied.
Because so many huge retailers, unlike
Amazon, are both offline and online, they are limited by inventory much more than by data. To compete, most retailers will have to scale by offering to use their data to target inventory from a
variety of sources, not just their own website. The tools and business relationships don’t exist, but retailers could build them. Retail is a multi-trillion-dollar industry that is
already, by most definitions, in the publishing business.
The Prize
Why should retailers be poised to go hard at selling ads?
The retailer’s burden is low margin. Imagine if you have 1 ½% margins, as big-box retailers do. Sell $100 worth of stuff, make $1.50. By that math, It’s hard to keep the
lights on.
But media math sits in stark contrast. If retailers can target their own site’s ad inventory and sell it for 10 dollars (CPM), that’s more or less
free money — infinite margin, but scale is limited to their site. If they can use their data to target other publisher’s inventory, they might pay 50 cents, and sell it for 5 dollars, a
10x margin. So, sell $100 worth of media stuff, and make $1,000. Ka-ching!
Now, scale that across all media inventory by synchronizing identity with publishers, and the
profit opportunity would be huge.
To illustrate: Kroger’s net income is around $2 billion, and Amazon’s ad sales revenue is around $14 billion and that’s
pure margin. So, back of envelope, Amazon’s ad sales business nets five times Kroger’s entire net profit!
So, can retailers jump from selling site inventory to
becoming full-blown media suppliers? That will depend on whether retail addresses the opportunity as a way to make a quick buck, or as a strategic imperative.
For
this to work, tech must be at the center: data partnerships, inventory partnerships, clean rooms, device graphs, etc. Retailers could plausibly offer the manufacturer a privacy-compliant chance to
speak to their consumer (shopper) across a large number of sites. This vastly improves the odds that a specific consumer will show up in the footprint of a campaign in a time frame. Retailers need to
understand that the media requirement is not just reach — it’s reach per time frame to a specific group.
Friction
1) There has
always been friction in shopper marketing, caused by the fact that manufacturers are not allowed to show favoritism to retailers. In the U.S., this means, for example, that if Unilever buys a
ton of media from Amazon, and significantly less from Kroger, that could look like favoritism. Brands hedge this risk by allocating “fair” amounts of money for giving back to retailers.
However, this is not shopper marketing.
2) Retailers are bound to be risk-averse. For example, they will say they can make plenty of money with O&O inventory, and
sending out flyers, snail mail or otherwise. They might kill the idea by saying it’s not core business. That would be true, but it didn’t stop Amazon.
3) Last
but not least, brands don’t want to give their data to somebody else, and they don’t want to pay for media made pricey by someone else’s data targeting. They especially don’t
want to be party to privacy risk. Of those pain points, buying targeted media from a retailer might be the least risky, especially if the retailer’s media business can be structurally separated
from favoritism concerns.
All this adds up to difficulty — but the size of the prize would justify facing some issues.
The enabling idea is to
increase the fungibility and privacy of first-party data with clean room and anonymization concepts to allow retailers to become, in effect, walled garden ad networks. It’s efficient, and
profitable for everyone involved. Retail happens to be a very natural place for media and data to come together.
So, someday, if you want to advertise to people who like
Turkey Tetrazzini, your best bet may be to buy that target from a retailer, using an impression from almost any publisher willing to allocate their own inventory to its highest and best
use.