Is retail media about to face some growing pains?
Plus TikTok's claim to TV$, and worries about a streaming ad overload
Retail media’s growth trajectory has been nothing short of transcendent over the past few years. But did anyone notice that Instacart’s ad revenue grew just 8.5% and 7% the past two quarters (to be sure, Brian Wieser did).
Of course, there are lots of businesses that would kill for 5% growth, let alone 7 or 8. Yet in a space that has been growing at a 20 to 30% clip over the past few years, Instacart’s numbers stand out. Especially when you factor in the eye-popping ad recent growth for rivals Amazon (+24%) and Walmart (+28%).
I thought of this disparity while attending Luma Partners’ Digital Media Summit this week, particularly during a panel focused on the commerce media sector. As the moderator Lauren Wiener, managing director at Boston Consulting Group, put it, “we seem to have graduated from shopper marketing budgets” - meaning that the easy money that was moving from in-store ads and newspaper circulars to the web is about to dry up.
So as much as TV companies are looking to glom onto retail media for its wonderful closed-loop attribution, RMNs may need other media to continue growth just as much.
Not to mention that, as the panelists noted several times, there are an estimated 200 RMNs and counting, from Wawa to 7-11, which makes things hard for brands to navigate. Plus, every one of these players has different ads types, metrics, even definitions for what constitutes an impression.
At some point, this kind of fragmentation becomes a growth inhibitor, right?
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We may be already there. During the panel, Kelly Leger, Partner Managing Director at Deloitte Digital, asked a question from the audience. Leger consults consumer packaged goods brands on this space, and said many marketers are getting frustrated with retail media, in part because of how crowded it has become, and in part because their own structures. “You have four or five teams looking to control budget, and they are wondering with retail media, are they competing with each other, cannibalizing their success?”
It’s an interesting question. Brand siloing is a headache for a number of parts of the ad world, not just retail media. Eventually, you’d think that as RM grows in importance, that many brands will restructure. Until then, might the industry do itself a favor and make things easier on brands?
I keep saying this space screams for a rollup. How many retailers have what it takes to run media companies, and ad tech businesses, over the long haul?
I could actually see Instacart being a strong candidate to become an ad network for RMNs, since it’s not one single retailer. As Tim Castelli, Vice President of Global Advertising Sales, explained at DMS, Instacart works with 1,500 retailers across 85 locations. “We see ourselves as a grocery tech company,” he said. “We’re not a single retailer propping up an ad business.”
Three years into its venture into ads, ad revenue now makes up 30% of Instacart’s business, Castelli said. Perhaps the fact that Instacart’s ad growth has lagged the category is that it only sells to grocery advertisers. Expanding that pie would seem to be a natural goal.
However, right now, which retailer wants to the first one to give up on its own RMN and outsource its ads to someone else? I asked a category expert at DMS about the viability of this idea. “It’s a dilemma,” he said. It may be ok for now to allow another vendor to handle a brand’s retail media business if it only accounts for so much of its business. “But what happens in five years if it’s a $100 million business, and you don’t control it?”
I Don’t Want My MTV
A few weeks ago, I attended a closed door meeting focused on the TV metrics wars, and a top media agency executive expressed a worry: “I just hope streaming doesn’t end up like cable.”
He didn’t mean that he was worried that streaming would feature bundles - it was more about the ad experience, as in 20+ minutes of ads an hour, where you watch Road House on TNT for the hundredth time, and it takes three hours.
So far, streaming has been all about light ad load. However, did you catch the comment by Warner Brothers Discovery boss David Zaslav during last week’s earnings call? As quoted by Variety’s Brian Steinberg on Twitter, Zaz said “You could easily go up to two or three minutes' of ads on streaming, 'double or triple what we have.'“
Uh oh. I’m assuming Zaz didn’t drop this comment off the cuff. Yes, this may be just the thinking of a particularly debt-ridden media firm that needs to aggressively drive revenue. But this could also open the door to an ugly trend. Interruptive advertising was supposed to be dead in an on-demand world. Now pretty much every streamer is carrying ads. Are we about to start going back to cable-like ad world?
Long on Short Form
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Lastly, I had TikTok’s head of enterprise sales Tim Natividad on my podcast this week (no, we didn’t talk China/US relations). I asked Tim whether TikTok has a challenge in that brands and agencies don’t know where to put it - since it shares qualities with TV, but it’s inherently mobile, and mostly short form (for now).
“Regardless of whether you categorize TikTok as social, as TV, shoppable, the reality is we have 170 million monthly active users,” he said. “When the average U .S. consumer has a spare hour of free time, aside from streaming, they're coming to TikTok to spend that free hour of time, and that translates into about 90 minutes' worth of engagement per user every single day. “
Tim says TikTok is forging its own category, which he calls “participatory entertainment.”
“This is different from the lean back, I'm sitting on my couch, cracking a beer, watching the NBA playoffs at 7pm,” he said. “What we know is that entertainment and content consumed on TikTok actually translates into real, know, IRL interactions, right?… we have a lot of conversations from traditional TV video buyers who obviously know that more of their incremental audience is accessible and reachable on TikTok relative to other mediums like television. And I'm sure that trend will continue.”
Check out the full episode here.