Hi, readers! This is Hana Yoo, stepping into the rotating lineup of AdExchanger team members who are covering the commerce beat while our fearless senior editor and commerce doyen, James Hercher, is out on paternity leave.
Today’s commerce dispatch comes to you from Las Vegas, where we just capped off our Programmatic IO conference. Thanks so much to everyone who joined us!
One major theme that emerged at the conference was retail media. In the US, it’s expected to be a $45 billion industry this year and exceed $100 million in ad spend by 2027, accounting for one out of every five ad dollars spent.
It took retail media five years to reach $30 billion a year in ad spend, compared to 11 years for social media and 14 years for search advertising, said Max Willens, senior analyst on the advertising and media desk at eMarketer/Insider Intelligence, who spoke at the conference.
Retail media experienced such explosive growth because it “ticks all the boxes” of what advertisers want, Willens said. It can be tied to direct outcomes, uses first-party data that doesn’t rely on cookies and gathers data from safe, privacy-compliant sources.
But retail media is also a deeply unequal ecosystem. Amazon claims 76% of the market. Add in Walmart, Instacart, eBay and Etsy, and these top five players have a 91% share of the industry. The dozens of other retail media networks are fighting for 9% of the pie.
“Go further out on the long tail, and you quickly run into significant limitations,” Willens said. “The juice is just not going to be worth the squeeze for lots of advertisers to go out to however many tiny little RMNs [retail media networks] that only operate within their own garden walls.”
As a result, he said, “the lion’s share of retailers participating in this are going to have to embrace some measure of the open market activity as a means of overcoming their own size limitations.”
I caught up with Willens to chat about retail media – and why it’s due for a reality check.
AdExchanger: What are the main challenges retail media faces?
MAX WILLENS: Complexity is a huge problem for retail. If you’re an advertiser and you’ve got your spending in five, six, seven different RMNs, you have this enormous web of issues that you have to solve for at the same time.
You have the complexity of deciding how to spend the budget inside those RMNs. If you’re a brand with 20, 40, 50 different products, that quickly becomes a dizzying, bewildering process to manage.
What are some areas of growth?
Retailers have the potential to turn their websites into much more engaging, much stickier, much more powerful drivers of conversion and sales. But they also have the potential to screw it up and turn their websites into local news websites from the 2010s that are this full-frontal assault of garbage. Finding the line between making something that’s engaging and enriching but also lucrative is tough.
What highlights or surprising insights have come from your retail media research?
One thing that surprised me was that I expected I would have to write a ton about connected TV because CTV is really hot right now. It seemed like an interesting and powerful upper-funnel complement to the more bottom-funnel performance dimensions of retail media.
But if you look at the forecasting that my colleagues have done, CTV is not going to be that big of a piece of the retail media pie. It’s going to matter in the context of the CTV ecosystem, but it’s only going to represent a single-digit percentage of the ad spending there for the near-term future.
What’s the relationship between social and retail media?
Social media has had to change the way that it thinks about the rules they can set when it comes to the spending that they take from advertisers. It’s going to be interesting to watch how symbiotic or parasitic the relationship between social media and retail is going to get. We’re right at the beginning of it.
We’re going to start seeing more things like Meta’s Managed Partner Ads or Amazon offering Pinterest inventory to advertisers. Reddit could easily tap into this. There’s a lot of opportunities to marry that [data] with similar signals that the RMNs are getting.
There’s a lot of potential. There’s also a lot of opportunity for it to get messy.
This interview has been edited and condensed.
