It’s no secret that Amazon's (NASDAQ:AMZN) ad business has been successful, driving $31 billion in 2021. Between their on-site sponsored products, header bidding solution (TAM), and off-site retargeting network, Amazon has pioneered ad tech innovation in the past five years.
But Amazon isn’t the only retailer recognizing the potential of retail media: brands like Walmart and Instacart have taken notice and built billion-dollar ad platforms to compliment their core business.
Of course, retail media isn’t isolated to these companies. Thousands of retailers engage in it, mainly through sponsored product ad networks. These solutions make it easy for any eCommerce brand to dip their toes into retail media monetization.
The issue here is that if everybody is using the same platforms, everyone is growing their ad revenue at roughly the same rate. A rising tide may lift all boats, but it also means everybody is at the same sea level.
Walmart (NYSE:WMT) and Instacart, on the other hand, highlight how investing in custom ad businesses can lead to a high-scale, thriving revenue stream that provides the capital one needs to outpace competitors.
Let’s dive deeper into how exactly these brands are rethinking ads, and how this innovation will fuel their growth.
Walmart is closing the gap with Amazon’s ad tech
Walmart’s ad program, Walmart Connect, is more than just a platform for sponsored products and display ads across their site/app: it’s a full suite of ad solutions that let advertisers target shoppers throughout the buying process.
Their in-store digital ads, for instance, enable brands to advertise on thousands of TVs and self-checkout screens (according to them they have 170,000 digital screens across 4,700 stores, likely making them the largest retail digital out-of-home network).
Beyond that, their ad platform utilizes first-party data throughout the buying experience. This means advertisers can target by past purchase history, brand affinity (how much the user likes a particular brand), and more — increasing the likelihood the advertiser sees good return on ad spend (which, in turn, would push brands to migrate budget away from retail networks and toward Walmart directly.)
This data is also used for measurement, with Walmart’s “Closed-Loop Measurement” product able to tie ad spend with in-store and digital purchases. These are insights available only by working with Walmart, incentivizing advertisers to partner with them.
Walmart’s innovation doesn’t stop there: they’ve also pushed into audience extension (letting advertisers use Walmart’s first-party data to target audiences around the web). To enable this, they launched their Walmart DSP in partnership with The Trade Desk. Advertisers buying through the Walmart DSP can now target specific segments based on Walmart-collected buying behavior, regardless of what site/app that user is currently on.
Ultimately, Walmart is on pace to build a thriving ad empire. Indeed, in 2021 they made $2.1 billion from their relatively new retail media offering. This is far from Amazon’s $31 billion, but well above two other eCommerce brands who’ve had ad platforms for years: eBay at $1 billion and Etsy at ~$500M.
If Walmart had relied on traditional retail media networks, it’s fair to say they would not have come close to $2B in 2021. This highlights how ad tech innovation can provide a scalable revenue stream that allows one to outpace competitors.
Instacart Ads goes from $0 to $300M within a year
Instacart too bypassed traditional retail ad networks and went straight to a custom ad platform. Their ad business officially launched in early 2020, and they told the Wall Street Journal they earned $300M that year, with plans for $1B in 2022.
Their ad product is focused on Featured Products throughout the Instacart user experience, not dissimilar to what they would get through a retail media network. But they also have “Instacart Coupons,” where advertisers offer discounts and pay only for redemptions. The beauty of this ad unit is that it trickles down to users, giving them product discounts found only through Instacart (reinforcing Instacart’s value prop to users).
Instacart also incorporated business insights into their offering, allowing Instacart to retain advertisers who may have come for the ads but stayed for the data. Their ad platform, for example, offers metrics like household penetration and how many times products were put in baskets (even if not purchased). This is valuable data that cements Instacart as a must-use ad platform for CPG brands.
Building a direct network of retail advertisers also gives Instacart a competitive advantage over retailers who source their advertisers through a third-party. If CPG brands, for instance, become reliant on Instacart Ads for a good chunk of revenue, they could put pressure on grocers to stay on Instacart.
Beyond that, this relationship with thousands of retail advertisers has enabled them to launch Carrot Ads, an ad network for other grocery sites and apps to monetize with sponsored products (with the ads sourced through Instacart). This product is new, but has the potential to expand their reach substantially (similar to Amazon’s and Walmart’s DSPs).
Instacart rightfully recognized that basic retail media is commoditized, with thousands of retailers using the same vendors for monetization. To separate themselves from competitors and grocers, they needed to innovate their ad tech offering. Indeed, multiple ad units, high-intent targeting, unique retail insights, and an off-site ad network offer Instacart the opportunity to be an ad tech giant, not merely an ad publisher.
Final thoughts
Not every retailer needs to be an ad business. Many are fine monetizing with a retail ad network and focusing instead on their core business.
But Amazon, Walmart, Instacart, and others highlight how it is possible for retailers to spin out successful retail media businesses. The combination of reach, engaged users, first-party data, and unique insights is enticing to retail advertisers, who will pay premiums to access it. It’s not a decision to make lightly (it could take years to build), but it’s one that could differentiate retailers in the years to come.
