Could AI Wipe Out a $200 Billion Ad Category?
I doubt it, but it could seriously shake things up
This post is part of a special multi-part series sponsored by Walmart Connect.
The rise of retail media over the past few years has been nothing short of remarkable. In a time of prolonged volatility and uncertainty, the category is predicted to generate a whopping $169 billion globally in 2025, per eMarketer - and seems well on its way to exceeding $200 billion.
That is, unless AI Agents ruin the whole thing.
First, a long caveat: I have serious doubts about whether all of our personal and business tasks are about to be handed over to bots, for a number of reasons:
AI gets things wrong, a lot. And we’re about to hand over crucial tasks that involve potential significant financial sums to things we don’t understand or control?
Maybe it’s me, but most people today, when they are asked to use a customer service bot or agent, generally want to smash their computers.
When it comes to shopping, many people like to shop. It’s practically a sport on TikTok! Not to mention that people, again, like to control what they buy.
I realize many of the Very Smart People are all saying this agent thing is inevitable. Of course, many of them were assuring us that we’d be mostly living in the Metaverse hanging out in virtual brand experiences just a few short years ago.
But, hey, I’m often very, very wrong.
With all that being said, sure, I could see the appeal of using agents for tedious shopping - like say replacing batteries and light bulbs, or picking up toiletries. But for say, clothing? Cars? I don’t buy it. I know everyone uses the example of using agents to plan a vacation (which is a headache) - but I’m not sure I want a bot accidentally booking me in the wrong country or something worse.
Still, if AI Shopping Agents are coming - and people take them up in a big way - what does this do to the Retail Media boom?
After all, we haven’t even figured out how best to incorporate advertising into conversational search, or whether those ads are even going to work all that well. How are we going to squeeze all these retail media ads into a chat interface?
I asked Walmart Connect's Senior Vice President of Retail Media Sales Ryan Mayward about this during our recent Cannes podcast sitdown. He noted that it’s very early in this would-be shopping revolution.
“We’re obviously figuring out how to bring agentic AI in the shopping experience,” he said. Right now, Walmart’s app features Sparky, which can answer consumers’ questions.
“I think it's a pretty amazing experience. There's no advertising in there, it's all product recommendations right now. First and foremost what we're after is nailing the customer experience, making it an amazing opportunity for them to find exactly what they're looking for as well as drive discovery.”
“And I think after we get to a point where we're really comfortable that the customer is getting what they want out of it, we can move into more of an advertising framework and figure out what the right ad experience is. But it is absolutely early days.”
Sarah Marzano, analyst at eMarketer, said that if consumers take to agentic shopping (a big if as of now), it could functionally resemble the role of intermediaries like an Instacart or DoorDash in retail media, who are positioned between the shopper and the fulfilling merchant.
“Retailers will have to figure out how to work with agentic AI and not against it,” she theorized. “The biggest impact will of course be to eCommerce, which represents a minority share of retail spending…but the overwhelming majority share of retail media spending.”
That’s not to say there’d be nothing to worry about. “I think retailers are going to have to really work on loyalty program differentiation in order to stand out if agentic AI commoditizes the shopping experience,” she added.
To be sure, it promises to be incredibly complicated to rip up an existing eCommerce system and replace it with an agent one, per AdExchanger. Of course, over the long haul, if shopping agents are effective, and consumers take to them - maybe the retailers all start making more money so much more efficiently that losing some retail media cash won’t be a big deal. But right now, they all sure like the new high margin ad businesses.
Of course, many believe that retailers and brands will simply figure out how to advertise to, and persuade, AI agents. I liked mobile analyst Eric Seufert’s take on this.
“The notion that advertising will be directed at personal commercial agents, rather than at consumers themselves, strikes me as a dead end.”
We’ll see. It would be wildly ironic if AI tech not only hit the advertising industry’s creative teams, media buying divisions, and then the most lucrative and profitable business seen in years.