Instacart and Walmart are Massive Ad Companies - and Maybe the Next Walled Gardens

When do they start to swallow up the retail media category?

As if we needed any more evidence that retail media is a killer business, Instacart kicked off what felt like one of the only exciting IPOs in years.

Yes, Instacart is a grocery delivery company, but as many have noted, it is an advertising driven business, as well as an ad tech company and a massive first party data collector.

The company generated $2,551 million in revenue in 2022, including $740 million in advertising. And as Ali Miller, Vice President of Product, told me earlier this year, Instacart thrives in part because is provides market intelligence and data infrastructure for its many retail parters, which number in the thousands.

Instacart’s numbers are terrific, that is, until you compare them to Walmart’s. Per analyst Brian Wieser, the big box giant is headed toward becoming a $4 billion ad company.

If we can put category juggernaut Amazon and its $40 billion ad business aside (easier said than done), the retail media category appears to be a massive win for all involved. But given the emergence of a few clear leaders, I’m starting to wonder how long we’ll see hundreds of retailers have the stomach for sticking with this business - or whether we’ll see a giant like Instacart or Walmart form a mega ad network.

As Quentin George, Partner, McKinsey & Company, put it prior to a panel last week at the IAB Connected Commerce Summit, “I’m wondering, is the era of easy money over?”

I had Lex Josephs, VP and General Manager, MAP Sam's Club on my podcast this past week. Josephs was formerly VP of Ad Sales & Ad Tech Partnerships at Walmart, which owns Sam’s Club but operates it independently, so she’s seen several different sides of this still nascent industry.

I asked Josephs about the start up costs and operational demands of propping up and maintaining an ad business inside a big retail company.

“The value proposition was actually quite simple,” she said. “Providing the most additive ads experiences to our member, while simultaneously driving profitability…

“We took the strong parts of Walmart Inc.’s tech and customized it for the membership model, and then focused on building what’s right and partnering. It’s really a a build, buy leverage model.”

So clearly Sam’s Club is in a unique, and advantageous position. It’s affilated with a retail media titan in Walmart, and it also has paying members who have generated 40 years worth of shopping data.

My question is, even as the Dick’s Sporting Goods and Macy’s and CVS’s and Walgreen’s snatch up that ‘easy money,’ when do economies of scale come into play? A big theme at last weeks IAB event was the urgent need for standards -every retail media network has its own buying interface, its own audience definitions, often its own opague way of tracking success. During one session, many attendees questioned whether this was sustainable.

Josephs theorized that their maybe more mergers in retail, a la Albertsons and Kroger, which could inadvertedly eliminate some retail media network clutter. But in the meantime, the retail media landscape seems ripe for consolidaion.

“I do think there will be an ecosystem where there is specialization, becasue I don’t think everyone can be everyone to everyone,” she said.

“I do think that marketers are going to have to figure out what platforms are right for them. If everyone meets retail media network standards, but you don’t start to figure out how to lead or differentiate, then everyone becomes the same.”

On the one hand, standards take friction out of markets. On the other hand, they often benefit the biggest players.

“I think that is going to be another challenge for everybody,” said Josephs. “There seemingly to be a playbook that many are following. Where do you then stand out?”

I wonder if at some point, an Instacart, or a Walmart or Target, turns to some of the other contenders in the space, and offers to make life easier for them (according to Mediapost, there are already signs that Walgreen’s efforts are wavering).

‘Hey Retailer X -We’ve already got piles of data, our ad tech is humming, we can buy effectively in bulk - why don’t you let us take over your ad operations - and sit back and cash a check?”

It may be premature, but is it conceivable that we may see a handful of Retail Media Walled Gardens emerge?