Advertising $$$: Every Company Wants a Piece
Advertising $$$: Every Company Wants a Piece
But they can be volatile and promiscuous too. By Benjamin Tan
Marriott International ($MAR), Uber Technologies ($UBER), Kroger ($KR) and Walmart ($WMT) have something in common. They all want to bombard you with more advertising.
Imagine checking into a JW Marriott hotel room and greeted by a television screen blasting advertisements like local tours, dining options, toiletries, and even luxury products that resonate with your tastes. The ads feel somewhat personalized and you find yourself transfixed. There may even be QR codes on the screen to help you complete the in-room shopping experience. Or perhaps an option on the remote control to have the hotel take care of the billing and delivery of desired services or products.
The above is an ideal scenario for Marriott, which is partnering with Yahoo to help advertisers target its many high-income customers. With millions of hotel guests and loyalty members, Marriott will harness the chain’s existing first-party customer data to power its advertising platform. Impressions will first focus on Marriott’s multiple hotel brand websites, and very soon, on television screens across their hotel rooms.
Retail Media Networks: Chasing Advertising Dollars as a Strategic Pivot
Marriott launching its own media network and bringing third-party advertisers to target its customers is part of a wider chase by major corporations for advertising dollars. Uber Technologies just unveiled Journey Ads, a way for brands to connect with its audience of 120+ million monthly active users across its mobility and delivery businesses. At the same time, Netflix and Disney+ are both launching lower-priced subscription tiers, supported by advertising in the coming weeks.
Whether these initiatives will be successful remain to be seen. Downside risks for these corporations are somewhat limited, given that they need not spend millions in R&D to develop advertising technology stacks themselves. Demand-side platforms like The Trade Desk ($TTD) and Xandr (owned by Microsoft) work with retailers to develop customized advertising networks and take a cut from future revenues, if and when they do come to fruition. After an initial investment, retailers can expect advertising revenues to drop almost straight down to their bottom-lines, given how lucrative programmatic advertising (at scale) can be, compared to traditional retail profit margin. Just witness the 80%+ gross margins that The Trade Desk produces as the world's leading independent demand-side platform and the 20%+ generated by Walmart.
Amazon: Advertising a Sole Bright Spot in Recent Q3 2022 Results
Almost every major retailer with an existing customer base of eyeballs (or ear drums) wants to emulate Amazon, which has proven how additive a good advertising business can be to core retail. When Q3 2022 results were released, Amazon advertising was the only business segment that did not disappoint: revenues grew by 30% on a constant currency basis. This is an impressive growth rate compared to how its peers (Facebook: 2%; Google: ~MSD; Snap: 8%; Pinterest: 10%) fared over the same period. Retailers are increasingly reliant on Amazon marketplace for sales, and sponsored listing is the way to go as competition for attention from its 200mn+ Prime members heats up.
Years ago before Amazon started reporting advertising as a separate segment, who would have expected Amazon to earn more ad dollars in a year than YouTube?
But Ad Dollars are Volatile and Not All the Same
Advertising performs well for Amazon because it is effective and leads to purchase conversions. Prime members are not only buying more on Amazon, they search for products and make comparison shopping on the marketplace. A relevant quote from Amazon CFO Brian Olsavsky sums up the power of its platform:
"Our advantage is that we have highly efficient advertising and (merchants) are advertising at the point where customers have their credit cards out and are ready to make a purchase...It’s also very measurable, so when companies are looking to potentially streamline or optimize their advertising spend, we think our products compete very well in that regard”
In other words, Amazon not only has the right customer relationships with high purchase intent, but also relevant first-party data (culled from purchase histories stretched over years across multiple product categories) to facilitate effective targeting, attributions, and conversions. Their retail ecosystem made the leap into advertising organic and sustainable.
How other retailers will perform in emulating Amazon remain to be seen…
Another point to note about advertising dollars is that they are volatile in the digital age. Advertisers tune up and down their budgets depending on economic climate and returns on investments. With self-serve technologies, smaller merchants can even adjust their marketing budgets in an instant, all friction-free. It is not like hanging a billboard over a highway or committing upfront to a long-term linear TV campaign. Everything is measured, tracked and subject to recalibration in digital advertising. With the current macro environment becoming tougher, marketing budgets and effectiveness of each dollar spent on every digital platform get scrutinized. There is no loyalty to any channel - dollars will go wherever returns are most meaningful.
If newer retail media networks do not deliver desired results to advertisers, the current gold rush will end with many broken promises. While it is a low-cost, low-risk strategic pivot for retailers to lean into ad-dollars, the upside scenarios painted by management to investors and advertisers are not straightforward.
So I am looking forward to my next stay at a Marriott hotel, just to see how good their targeting is and what ads I will be served. Hopefully not women’s apparel or contraceptives - that would reflect poorly on their advertising technology and data integrity!
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