For much of the last decade, Google and Meta have shared a duopoly of the online advertising sector, controlling the market with a share of more than 50%. But that changed in 2022, with the two tech giants grabbing 48.4% of the US digital ad market. That’s compared to $54.7% at their 2017 peak. Their share is expected to drop further, to 44.9%, in 2023. That is of course still a lot – especially considering the vast size of the sector. However, the fall illustrates how crowded the market is becoming and a shake-up of the companies that have long dominated online advertising. The same story is playing out across the world. Google and Meta are projected to accrue about a 40% share of the worldwide total in 2023.
The challengers are diverse. They include TikTok (which arguably gets the most attention and is sucking ad dollars away from Meta), Microsoft and Apple. But possibly the biggest threat – and the one that Meta and Google are likely most worried about – comes from the Retail Media Networks (RMNs). Investment in US retail media advertising is expected to reach $28.9 billion in 2023, up from $17.4 billion in 2021.
What’s behind the meteoric growth of retail media networks?
With initiatives such as data protection legislation and Apple’s app tracking transparency, online advertising has posed more of a headache to advertisers, while simultaneously becoming more important than ever. Limits to behavioral targeting and measurement have ‘kneecapped’ the likes of Google and particularly Meta. This means that advertisers have been looking for places to invest their budgets where they have more certainty about return. They’ve woken up to the treasure trove of customer purchase data and behavior that retailers – particularly online retailers – have access to, especially now that data is more difficult to obtain. Customers are normally logged in using personal credentials when they shop online. That makes it easy to collect details about shopping habits, interests and behaviors without running up against data regulation restrictions. What’s more, the ability to reach shoppers near the point of purchase allows marketers to track the effectiveness of a particular ad more easily. That’s the ‘holy grail’ of advertising. These capabilities are even more appealing in inflationary times, when advertisers want more certainty around ROI.
The appeal of advertising on the RMNs goes even further. Consumers frequently view online advertising as annoying or even creepy. However, customers on retail websites are more likely than not in a shopping frame of mind, so ads are less likely to be seen as a distraction or nuisance. They could even be perceived as helpful.
The key retail media players
Any retailer that has a website or digital loyalty card has the potential to become a retail media network. Indeed, the loyalty cards that became popular during the 1990s are a gold mine of customer purchasing insights. But there are two players in this sector who dominate.
It will surprise no one that Amazon is by far the largest of the retail media networks. It is a distant third behind Google and Meta in the online advertising sector, but its share of the market is growing. In 2024, it is expected to account for 12.7% of all US digital ad dollars, compared to 17.9% for Meta. The fact that its ad revenues soared by 23% in Q4 of last year (vs Q4 2021) – and that this happened in an ad slowdown that is battering its rivals – demonstrates Amazon’s strength and the appeal of its product. The e-commerce giant now refers to its ad business as one of the company’s three ‘engines’, alongside retail and cloud computing. Indeed, its ad revenue is bigger than its Prime, audiobooks and digital music revenues combined. And it’s twice as high as that of its physical shops, including Whole Foods.
Walmart, the world’s largest retailer, is another key player in the retail media sector. Its retail advertising revenue is significantly smaller than Amazon’s as it was relatively late to the e-commerce party. The size of its e-commerce marketplace is significantly smaller than Amazon’s – the latter’s Q4 e-commerce sales were more than Walmart’s for the entire year in 2022. 61.8% of Americans say that Amazon is the site they use most often for online shopping, versus just 8.6% for Walmart. However, the cost of advertising on Walmart is attractive. The average CPC was $0.38 in Q4 2022, compared to $0.85 for Amazon. This is largely down to the fact that Walmart has far fewer sellers than Amazon, so there is less competition for ad space. Walmart’s increased focus on its ad business created a bright spot in its otherwise gloomy Q4 results. Its ad revenue saw growth of 30% year on year, increasing to $2.7 billion in 2022.
How should advertisers approach retail advertising?
In straitened times, the appeal of the easily trackable nature of retail advertising is easy to understand. McKinsey found that around 70% of advertisers see somewhat or significantly better performance on RMNs than on other digital channels. However, it’s important to proceed carefully, and not get swept up in the hype that currently surrounds retail advertising. Because, inevitably, there are still factors that need addressing. The sector lacks a set of standards and measurement protocols. This makes it difficult for advertisers to assess the effectiveness of ads on one network versus another. Large brands such as Unilever have called for the RMNs to unite and create a framework for increased transparency. Until that happens, brands need to exercise caution, and invest only if they are looking to target consumers on their shopper journey. WARC warns that retail media is a potential ‘performance plughole’ for advertisers. It cautions against the temptation of allocating an increasing proportion of branding budgets to bottom-of-funnel channels such as retail media.
The future is retail, but buy carefully
The RMNs and other smaller online ad players like Apple don’t pose any immediate threat to Google and Meta in terms of the size of their ad revenue and the sheer quantity of ad dollars they attract in the US and globally. However, they have upended the long-standing duopoly, and that can only be a good thing. Increased competition drives innovation and decreases prices. Futhermore, the measurability of retail media will shine a light on channels that don’t deliver similar levels of sales results or business outcomes for brands.
These networks are undoubtedly a great opportunity for brands, allowing them to reach customers at the point of purchase, when they’re in a buying mindset and likely to find ads less annoying. And of course, there’s the fact that they don’t come up against the data regulation restrictions that so beset Meta. But caution is crucial. With such a challenging economic context, it’s tempting for marketers to invest more of their budgets in bottom-of-the-funnel activities, at the expense of branding campaigns that build longer-term resilience and aid post-downturn recovery. Transparency, careful planning, precision and optimization are the keys to enduring success. RMNs certainly play an important role, but they aren’t the whole story.
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