Memo: The Step Function in Retail Media


In 2023: TikTok, Microsoft, Amazon, Pinterest, and 7-Eleven have more in common than ever.

With the continued degradation of third-party data, we’re suddenly seeing every platform moving to eat away at Meta and Google’s second wave of digital advertising. Digital is in the midst of the third wave now, one defined by first-party data. To collect that data, it helps to own the checkout process – and this is where media and commerce are converging in 2023. In many ways, it’s linear commerce 2.0.

Retail media networks are digital advertising platforms that allow retailers to monetize their online presence by selling advertising space on their websites and mobile apps to brands and manufacturers. These networks typically use data on consumer browsing and purchasing behavior to target ads to specific audiences, and they may also provide analytics and reporting tools to help retailers and advertisers track the performance of their campaigns. The main purpose of retail media networks is to bridge the gap between brands and consumers by providing retailers with a new way to monetize their digital properties, while also providing brands and manufacturers with a new way to reach consumers.

Rather than driving online transactions with media impressions, retailers are selling media impressions driven by online transactions. It’s a high stakes game; Meta and Google (the one-time duopoly) are due to innovate in one way or another. But for now, their vulnerability seems substantial.

You’re reading about it everywhere. Retail media is the new hot topic, “crashing the duopoly” is the catch phrase of the moment. Here’s how we forecasted today’s retail media ecosystem in 2018:

All roads lead to increased ad spend for retailers with Amazon at the behest of Google and Facebook. Amazon has a distinct advantage in so much that the entire commerce workflow can happen within their walls.

  • Short term: Amazon is introducing higher-potency retargeting ad
  • Long term: Amazon will benefit from the use of less intrusive data
  • Amazon will not rely upon Google’s search data
  • Amazon has access to unique editorial content
  • Amazon has an authentic reason to hit your Inbox
  • Amazon will transcend traditional digital channels

Now, other major retailers want a part of this. And one social media company is investing heavily into building its own eCommerce operation to position itself as another facilitator of third wave advertising.

TikTok is (against the backdrop of a potential ban in the US) building up its eCommerce sales with TikTok Shop, which only recently rolled out in the US but is making big headway elsewhere in the world. Meanwhile, Amazon wants greater reach and it’s doing so by expanding Buy With Prime, the fast-shipping plugin it began testing last year that lets other merchants add Amazon Prime logistics to its checkout pages. Early response has shown impressive results.

Both are exercises in amassing all-important first-party data as the third-party data era sunsets across the internet.

Amazon and TikTok are flexing their commerce muscles while beefing up their advertising operations. Meta, once at the top of the pyramid alongside Google, has seen its advertising business plummet in the wake of a series of crackdowns by Apple on its third-party data tracking, which once was powerful enough to make or break direct-to-consumer businesses. Third-party has given way to first-party, and Meta is struggling there as well. Its Instagram Shop tab shut down as the company’s goal to make Instagram the internet’s shopping mall stuttered and then collapsed.

All eyes instead have been on TikTok. Disregard the privacy concerns and potential congressional action, for now. TikTok’s 1 billion active users are an engaged audience to product reviews and recommendations from its legion of creators, some of which fall under typical influencer-levels of fame and many who don’t. Scroll the app to see just how much commerce is embedded into TikTok’s content. In the comments of a confessional-style video about how one TikToker’s marriage ended, you might find someone sheepishly asking where the person talking bought their sweater, even though it’s far from the point of the video.

The money is flowing in. The Information published new figures on TikTok’s advertising and eCommerce operations, as well as those of Douyin, China’s TikTok, both owned by ByteDance. TikTok Shop is a success in China and Southeast Asia and there are plans in place to expand it in the US. From The Information:

TikTok’s Chinese parent company, ByteDance, is making inroads in e-commerce. Consumers in China last year spent 1.41 trillion yuan, or $208 billion, buying things on ByteDance’s Douyin video app, the Chinese equivalent of TikTok, an increase of 76% from 2021, according to two people with knowledge of the internal data. Meanwhile, shoppers on TikTok in Southeast Asia more than quadrupled their spending, a metric known as gross merchandise volume, to $4.4 billion, the people said.

ByteDance generated about $60 billion in revenue in 2021, mostly from advertising, according to people with knowledge of the matter. Revenue from e-commerce is likely a fraction of ad revenue—possibly several billion dollars in 2022, as ByteDance, like other online marketplaces, gets a cut of a few percentage points of e-commerce transactions done on its apps.

These numbers show that commerce is just an engine for better advertising by way of better targeting. Even if it remains a fraction of a $60 billion advertising business, TikTok Shop is still a multibillion-dollar business. That’s valuable at a time when we’re seeing competitors falter and marketers wonder where to put their ad dollars. TikTok is still a risk in the US, but if that were to fall away, it’s the leader by far in terms of social media toolbelts. And there’s no reason to think that TikTok, with its parent company in China, would have any problems building up a significant operation in other parts of the world outside of Asia. There’s been a run of China-based eCommerce platforms that have been able to sweep other countries by offering low prices and efficient logistics operations, including Temu and Shein, and TikTok Shop is right there with them, according to SCMP.

“Good” and safe data is top of mind for all social media platforms as rules change around them.

At CES, Pinterest announced a “data clean room collaboration” with LiveRamp, a set up that’s becoming more popular for internet advertisers, reports AdAge. The partnership sees LiveRamp acting as a third-party intermediary, sharing safe, Apple-approved data on Pinterest users with external marketing partners – in the case of Pinterest, grocer Albertsons. Albertsons then uses Pinterest’s LiveRamp data to inform its marketing spend as well as its own retail media network. Similarly, Meta is working with data and insights firm IRI, which will work with brands to measure their ad performance on Facebook and Instagram.

Once powerful advertising platforms are now dealing with middlemen just to share information with their valuable advertisers. Pit that against what’s happening at TikTok and Amazon, and you see how the power dynamic has begun to shift. For Amazon, Buy With Prime is the next act to watch.

According to an article in the Seattle Times, Amazon is figuring out how to maintain dominance despite the pandemic-era boom slowing down and stagnation in Prime membership growth. The solution? Acquire more first-party data by lending out one of its most valuable properties – Prime-enabled shipping – to outside parties. It’s a win for both sides, and it seems to be working. Early adopters reported shorter shipping windows and higher checkout rates on their eCommerce sites. Amazon doesn’t have to worry about cannibalization. Now consumers can pseudo-shop with Amazon while shopping other sites; Amazon gets the transactional fees and a clean source of first-party data in response. Native transactions are now an internet-wide possibility for Amazon, giving it endless inroads to new customer acquisition and first-party data.

Where does this all lead? It’s clear who is in a better position for third wave advertising. What this means duopoly remains to be seen but it’s safe to say that the party was finally crashed. In 2018, we concluded our report on Amazon’s advertising ambitions as such:

The data derived from commerce operations is undervalued and it is our belief that data around consumer conversion will become the digital advertising standard. This will be exacerbated by the reduced efficacy of pixel and cookie tracking as privacy protections increase throughout the industry. Amazon is well positioned to disrupt the current duopoly, indirectly driving more vertical brands to do business with Amazon at multiple points of Amazon’s six point funnel.

I could not have foreseen Apple’s iOS impact on this trend, back in 2018. But it became clearer in May of 2021.

By upgrading its privacy practices, Apple will impair large ad networks that have grown with the help of those end users. This could potentially cripple Facebook’s current model with its new privacy demands. Apple has also opened the door to an unintentional adjustment to its privacy mandate. In doing so, the Mark Zuckerberg-led advertising company (and social network) will adopt a new way to accomplish its most critical objectives: revenue growth and user utility. Facebook will become an eCommerce company instead.

Except, Facebook (now Meta) focused on Web3 and the metaverse instead, starving the company of resources that it desperately needed to fortify its Instagram shopping project. Meta gave up on commerce as Amazon began to exploit its advantage in that industry. Now, every enterprise company from Microsoft to 7-Eleven wants in on retail media’s future. But it is TikTok and its linear commerce 1.0 strategy (build an audience and then establish commerce) may become the preeminent version 2.0 of linear commerce strategy (build an audience based on established commerce). It’s building its first-party data operation fast enough to establish itself as a top five advertiser. And two years ago, few of us could have imagined TikTok as an internet retailer.

The lines between media and commerce may be blurred for good. This presents a new era of arbitrage for the retailers and consumer goods willing to test the retail media waters.

By Web Smith | Edited by Hilary Milnes with art by Alex Remy

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