Just as Amazon and the internet in general continue to disrupt and transform the legacy publishing and broadcast industries, we are in the early stages of a major disruption of the legacy world of advertising. Amazon and Walmart are two leading forces that are fundamentally changing retail marketing communications.
Ad Agency Reset
Amazon was among the first, and now the largest mover, among retailers to launch its own advertising agency business logging in at over $31 billion in 2021, up from $21 billion in 2020, with a 77 percent share of the total ecomm ad business, according to e-marketer.
Over a hundred years ago, department store mogul, John Wanamaker, said, “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” And from that day forward to this current technology era, his statement was pretty much a truism across every consumer-facing industry.
Walmart is a way distant second at $2.1 billion in 2021 and a mere 5 percent share. However, Walmart’s ad business grew a whopping 130 percent over 2020. And there are reasons to believe that meteoric pace will continue. One reason is Walmart’s sheer size and physical dominance. Each week about 220 million customers and members visit approximately 10,500 stores and clubs under 48 banners in 48 countries and ecommerce websites. This network provides an enormous reach for potential advertisers, both online and in stores. And let’s remember that behemoth Walmart serves 90 percent of U.S. households.
Another reason is Walmart’s proprietary deal made with the best-in-class ad tech firm, The Trade Desk. Unlike other demand-side platforms (DSP), Walmart’s unparalleled first-party omnichannel data, combined with its walled-off exclusive relationship with The Trade Desk’s superior analytics capabilities, will provide advertisers with more efficient and effective messaging, essentially personalization at the point of purchase.
In his most recent earnings call, Doug McMillon, Walmart CEO, said that Walmart Connect is a “high margin” business that will continue to grow alongside the retailer’s Marketplace to eventually “become a top 10 ad business in the mid-term.” This is particularly important as privacy protocols are changing and the owners of first-party data will be the winners. Cookies are on their way out; new privacy regulations are being enforced, and Apple has introduced user security features to mask IP and block cookies including ads. Being your own advertising agency only makes good business sense. And Walmart if nothing else, is invested in preparing for the future.
Old World Context
Over a hundred years ago, department store mogul, John Wanamaker, said, “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” And from that day forward to this current technology era, his statement was pretty much a truism across every consumer facing industry. Money was thrown at print and broadcast media, the cost configured by the number of eyes and ears promised by the relevant media platforms. Ad agencies would collect their 15 percent commissions, and if their client’s revenue increased, the agency would claim that the campaign was successful. However, to build a performance based case that the ads quantitatively resulted in a specific volume of purchases was impossible. Thus, Wanamaker’s frustrating acceptance of reality has also been one of the advertising professions’ angst-driven challenges over all these years.
In fact, as a brief aside, I was one of the “Mad Men” back in the day as an account executive at a large agency. I will always remember what my boss instructed me on how to please our client. He said if the client asks you what time it is, tell them whatever time you want it to be. A bit ridiculous I admit. However, since there were very few fact-based performance measures, keeping the client happy with three martini lunches, theatre tickets, sporting events, etc., was standard practice. But I digress.
Amazon as First Mover
Amazon as first mover in a multitude of advancements in ecommerce has widened the gap between their number-one position and all its slow-mover competitors, including its biggest threat, which would arguably be Walmart.
And in my opinion, perhaps Amazon’s most profound advancement was their superior use of AI and analytics. The result has been their ability to personalize the entire shopping journey. As I wrote in 2016, “Today the customer rules: Bring it to me, just for me, new, now, and more often, where I want it and when.” Personalization, personalization, personalization. Personalization is a big deal, if not the biggest competitive imperative for this century. Amazon, like in so many other ways, is the undisputed leader. All other major retail players are hardly out of the starting gate. They are well advised to get their acts together.
Concurrent with Amazon’s ability to recommend items that they know their users would like, Amazon also realized they could create an advertising platform that could laser connect ads with personalized messaging. The revenue for Amazon would be based on a fee for each click, or through an agreed upon sponsor fee, plus other such deals.
However, the real benefit for the advertiser is the ability to understand which half of their ad budgets are working … or not. The John Wanamaker dilemma solved. More importantly, the performance informs the advertiser of the precise strategies that will work going forward. Thus, first-mover Amazon got big fast, now owning the lion’s share of ecomm advertising.
Walmart Connect as Second Mover
Walmart may not have literally been the second mover to develop an advertising platform, but I do believe there are elements in their strategy, along with CEO Doug McMillon’s vision and commitment (confirmed by their growth trajectory) that Amazon cannot yet match.
As mentioned, the first advantage of Walmart Connect is Walmart’s sheer size and reach. However, it is their ability to gain a more holistic and deeper understanding of each consumer’s shopping behavior through analytics from their fleet of stores integrated with digital data. Therefore, advertising messaging can be more personalized delivered online, in store, and even near pick-up points. Walmart calls it a “closed-loop, omnichannel media environment.” This means that advertisers can get their messaging in front of shoppers right when they’re making purchasing decisions.
Walmart’s second significant advantage over Amazon is its “walled off” exclusive partnership with The Trade Desk. Walmart’s expansive omnichannel first party data, including past purchase audiences, predictive audiences, and brand-level in-store and online shopping behavior data provide a differentiated offer that reaches more advertisers at scale. With the closed loop reporting, advertisers gain great clarity about the performance that their omnichannel ad efforts are having throughout all points of the customer journey, both on and offline. And at the end of the day, Walmart’s DSP gives advertisers a more complete picture of which specific digital and in-store ads played the greatest role in increasing conversions. This guides strategic decisions for optimizing both current and future campaigns, and determining which channels deserve the greatest percentage of the ad budget.
Just the Beginning
For the rest of the industry, and I know there are many more competitors of both Amazon and Walmart, it’s quite obvious that when advertising control transfers to the retailer disintermediating agencies and third-party marketers, the customer experience is enhanced as is the level of insight and intelligence about each customer.
Operating in the digital marketplace requires savvy retailers to reimagine their marketing and advertising strategies to up their games. Amazon and Walmart are already ahead of the curve and the rest of the industry may be stuck playing catch-up.
