Retail Media
I have been one of the biggest bulls in retail media since covering Amazon and Pinterest at Pivotal Research. OMC’s purchase validates this space, as did Public is buying Citrus Ads several years ago. I am thrilled for Ascential and OMC and hope, unlike most agency acquisitions, that it is well-integrated. I wish Patrick Miller, the smartest executive in the space – congratulations and the best of wishes.
As an early operator in the Internet, as well as having been an investor in the space for the last 15 years, I think that most investors misunderstand the opportunity but eventually will.
One of my most read reports on AMZN, which I wrote at Pivotal Research in late 2020, discussed this misconception. Wall Street’s sell-side and buy-side always try to do SOTP analysis on the metrics they are provided and ignore how the businesses work.
Advertising at AMZN – where the majority of digital retail media really is (don’t let estimates from eMarketer, the sell-side, or others confuse you) largely trade dollars coming from either large CPG companies or 3rd party sellers – is a different ad business than META GOOG, PINS, etc. It is directly correlated to GMV growth and is part of the unique flywheel – among many -that AMZN has built.
If you want a copy of the note, message me, and I will be happy to share.
Here is a little history on the subject that people will find interesting.
1) Yahoo! was the pioneer of CPG focus trade spending with their Nielsen-consumer direct panel in the early 2000s. CPG and OTC pharma wanted to spend online, but had no means of proving its efficacy.
Behavioral Targeting was in its infancy, not commoditized, and Yahoo! was the only company with massive reach, user base, and registered data. At the time, Yahoo! often represented 60-70 percent of graphical ad buys.
I was personally involved with 7-8 figure ad deals with Wyeth and Unilever, and other companies in the space could not buy it fast enough.
I had interviewed with Amazon before I left Yahoo! in 2008 for Wall Street but passed. I saw the ad biz being in direct competition with how Amazon and Jeff Bezos viewed the world.
In the world of desktop, an ad sold to Mastercard, Marriot, or American Express would generate higher short-term EBIT, but would a) send people off the site, b) would be using real estate that could, should and was better served to promote Amazon Prime or other categories.
2) When the mobile tipping point happened in the West in 2012-2013, the world changed for everybody, and I don’t need to tell you all why. The timing could not have been worse for Facebook around their IPO, but their business transformed with sophistication and urgency, unlike almost anything in the history of the Internet.
3) When the mobile tipping point happened later in China, it was around the time of Alibaba’s IPO (ironically also like Facebook). Management’s message at the time changed from a focus on GMV growth to a focus on revenue growth, as Taobao was, in fact, exactly what retail media should look like.
– Every retailer in China should and has had their items for sale on Taobao so the shopping experience is better, and those that want higher placement pay advertising dollars to drive.
-Alibaba keeps the transaction and has -like Amazon -the most important signal for targeting – purchase behavior, and the flywheel keeps going.
4) Amazon- who had an ad business for years yet never grew larger than 1bn in 2015 (it was part of Other revenues, so it wasn’t overtly reported at the time) sees the success of Alibaba and essentially emulates the model.
Growth in advertising went from 2bn in 2016 to what will be close to a 50bn run rate in 2023.
5) during this time frame, other smart internet businesses like ETSY and EBAY recognized the opportunity and did the same with advertising.
6) GOOG realizes what has been happening and, under the stewardship of Bill Ready – who was hired to run Google Shopping eCommerce in 2019 (now killing it at PINS), realizes the same concept.
Make PLAs free, improve the shopping experience for everybody, and retailers pay for higher placement. Everybody wins – particularly the consumer who for years started more of their shopping queries at Amazon given the subpar experience at Google.
7) Post-COVID, the largest retailers like WMT and TGT realize the same – they don’t need to beat AMZN. They just need to emulate it. Offline was not an option, and the biggest retailers already had deep relationships within the trade marketing departments.
8) UBER, DASH, and CART are all talking about the opportunity, and let me be clear – they are all correct. If you have enough scale in terms of GMV, the trade marketing departments at the highest product skews – diapers, toilet paper, snacks, etc- are all ears.
Like all sell-side and buy-side analysts, my price target was wrong. Much of this has been because of the massive fixed investments AMZN made to keep up with COVID-19 demand and the slowdown in AWS, but the concept is right.
The CNBC clip is attached below and is worth a watch. But the underlying idea behind my note was the reason for the note – not about making a short-term stock call. Like most of the sell-side and buy-side, I ended up being wrong, but as the last few quarters are now showing, the retail business is now showing a massive margin rebound.
