Do you know how Amazon drives revenue? Given the company’s origins as an online book marketplace and its meteoric rise to dominance in the ecommerce space, you'd be forgiven for thinking first of online product sales.
Tech savvy readers know AWS (Amazon Web Services), which provides on-demand cloud computing platforms and APIs, is a key revenue stream, but what you might not realize is that as of 2022 Amazon’s onsite Advertising business is nearing US$10B in quarterly revenue.
This business model is called Retail Media, and it’s rapidly reshaping the digital advertising and retail landscapes.
One key aspect of Retail Media is similar to programmatic advertising, which uses algorithms to automatically buy and place ads in real-time on platforms and deliver personalized, relevant advertising to customers at various touch points on their shopping journey.
With the approaching death of third party cookies bringing into focus the importance (and value) of first party data (data that is collected directly from a company's own interactions with its customers, such as product views, purchases, and loyalty membership data points), multi brand retailers are investing in Retail Media Networks that leverage their first party data to sell product and ad placement to brand marketers.
Given their vast online shopping traffic and huge troves of first party data, the benefits of Retail Media have always been clear to industry leaders Amazon and Walmart - they’re extremely well positioned to host AI powered, relevant advertising. At the beginning of 2022, Amazon revealed it had generated US$31.2 billion dollars in revenue in 2021 from this business alone. GroupM reports that Amazon now makes 5% of its gross merchandise value – the total value of its online sales – from advertising.
To break this down further, Amazon reported an operating income of US$2.53 bn for Q3-2022. While AWS contributed US$5.4 bn, Amazon's Advertising division announced a whopping US$9.55 bn in sales. As Advertising incurs very little costs for Amazon, many analysts assume that 90% of this figure is profit - which means that without AWS and Advertising, Amazon Retail would actually have made a loss of -US$11.47 billion in operating profit.
Given the scale and sophistication of Amazon’s Ads business and the proven success of the channel in driving brand engagement, results and sales, it’s no surprise that an increasing number of retailers are integrating their own media businesses. Globally, GroupM estimates that Retail Media will be a US$101 billion (A$150.44bn) industry by the end of 2022, up from US$88 billion (A$131.07bn) in 2021. This represents 18% of all global digital advertising and 11% of all advertising.
As an incremental, high margin revenue stream that drives additional profit on top of sales generated through personalized product discovery, Retail Media helps retailers diversify their revenue streams without sacrificing their core business of selling products.
75% of brands are now allocating separate Retail Media media budgets (up threefold from 2021). For brand marketers, Retail Media represents a shift away from broad-reach strategies and a move towards data-driven, personalized and context aware campaigns. While search and social represented the first and second waves of digital advertising, eMarketer predicts Retail Media will be the third big wave. As costs inside the walled gardens of Google and Meta rise, Retail Media is an attractive alternative channel for running relevant, measurable and engaging campaigns - with ad spend directly linked to digital sales (a desirable metric in the post third party cookies world) brands can be sure they’re getting the greatest return on ad spend (ROAS). As BCG states, “the strength of Retail Media reflects the fact that advertisers like the visibility of performance provided by closed-loop measurement capabilities.”
Particular Audience’s privacy-first Retail Media platform leverages item and clickstream data to weave sponsored product placement within industry leading personalization on many of the multi-brand retail websites you use to shop.
AI and ML algorithms that drive personalized product discovery such as collaborative filtering, natural language processing and computer vision deeply understand the relationships between items. This means customers can be recommended relevant sponsored products that match their shopping context at the point of purchase, which might look like suggestions in keyword search, display ads, or dynamic product recommendations, as well as auctionable real estate online and in store.
The PA Retail Media platform drives return on ad spend in excess of 19x in some cases - outstripping the barely profitable ROAS more congested and less context-aware advertising channels cost brands today.
Given that Advertising is the reason Amazon can afford to lose US$10bn every three months on their retail business, multi-brand retailers are looking to Retail Media to diversify their revenue streams and compete with giants of ecommerce. When it comes to data-driven marketing, Retail Media is an example of a truly incentive aligned strategy that helps retailers drive sales and grow their business, and gives brands the opportunity to reach the right customer, at the right time. For retailers and brands alike, the time to invest is now.
