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.

Обновив свои правила конфиденциальности, Apple нанесет ущерб крупным рекламным сетям, выросшим за счет конечных пользователей. Это может потенциально разрушить текущую модель Facebook с ее новыми требованиями к конфиденциальности. Apple также открыла дверь для непреднамеренной корректировки своего мандата на конфиденциальность. Таким образом, возглавляемая Марком Цукербергом рекламная компания (и социальная сеть) перейдет на новый способ достижения своих важнейших целей: роста доходов и полезности для пользователей. Вместо этого Facebook станет компанией электронной коммерции.

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.

Автор Веб Смит | Под редакцией Хилари Милнс с иллюстрациями Алекса Реми

Memo: Mount Shopify

A Youtuber and his production team ventured to Antarctica with the help of a luxury expedition service, endured temperatures so “frigid” that gloves were not needed, endured those mild conditions for 50 hours, claimed it was the most physically difficult thing he’s ever done, and then planted a Shopify flag after a four hour hike to a ridge. “This is now Shopify Mountain,” proclaimed MrBeast. The sponsored video was incredibly corny and overly-dramatic but no one can claim it didn’t have the intended effect.

Previous Report: Enter MrBeast

Jimmy “MrBeast” Donaldson is a brilliant marketer, creator, businessperson, and philanthropist. And the timing couldn’t be better for Shopify. The company could use a bit of savvy marketing, value creation, new business, and a bit of charity after a difficult year. In that way (and in only that way), the partnership made sense. Donaldson spent ample time praising Shopify in the 12 minute advertisement; it has now been viewed 61 million times since its December 24th publish. To put it in perspective, this is over 1/2 of the typical Super Bowl ad viewership for what I suspect was a fraction of the cost ($7M).

In an homage to an advertiser, after a hike up a rocky crest, the team plants a flag and proclaims the virgin peak to forever be known as Mount Shopify.

But while the MrBeast storefront is a mid-eight figure property (Charm.io estimates $45 million in annual revenue), I believe that Shopify is positioning itself for a year of emergence. 2023 will be the year of enterprise-level merchant for Shopify in its attempt to better the competition (namely Salesforce’s Commerce Cloud and Adobe’s Magento properties). Once known for appealing to consumers hoping to become the next MrBeast (merchandising-wise, at least), Shopify is becoming the go-to for major retailers, marketplaces, and brands a like. Thisi Shopify’s proverbial mountain to climb.

After a year that saw the stock tumble 74%, the Shopify is due to emphasize “quality” over quantity – a descriptor that I use, loosely, to describe its growing catalogue of those prized “larger-GMV” retailers. In the past year, a number of online-first brands have left their custom carts behind for greener pastures. One example is Supreme’s shift to Shopify:

Supreme is off to a fresh start for 2023. It has just been revealed by dropsgg that the brand has changed up its online store from its previous platform to Shopify‘s eCommerce service. This switch is said to have a better bot prevention system and will begin operation next week.

Another example is ButcherBox who is rolling out its Shopify conversion page by page, leaving its custom builds for outsourced support and more advanced tools. After announcing its $600 million year in publications like TechCrunch and How I Built This, the company also (quietly) confirmed this move. From an November 2022 Shopify Masters podcast:

To this day, ButcherBox partners with third-party farms, processing facilities, cutting facilities, distribution facilities, shipping, customer service, and tech. That’s a big reason the company uses Shopify for its online store.

So when Donaldson spent so much energy turning one of his 50 hour challenges into a Shopify advertisement, I assumed that it was an attempt to raise the temperature a bit before a much larger marketing push by the company. Time will tell what that marketing push looks like. But as a standalone, the impact has been effective enough. There’s even an attempt to name a Mount Shopify in Butwal, Nepal (at least one of the images used are from Donaldson’s Antarctica trip). Entire subreddits are devoted to the appeal (or disdain) for the video – a reaction that I imagine is rare for the notably likable Donaldson.

Shopify is overdue for its return to form. The company earned a record Black Friday and Cyber Monday, propelled by that growing catalogue of enterprise retailers. This equated to a 19% increase in sales over its 2021 marks. With $619 million in operating losses over 2022 with a $1 billion commitment to build out its Shopify Fulfillment Network, capturing larger retailers and their gross merchandising value is key to profitability moving forward. This is inline with its own forecasts for 2023.

MrBeast’s Shopify-sponsored video wasn’t his best work. But at an estimated 300,000 net new subscribers per day, I am sure that his passionate fans will forgive it. As for Shopify, the sponsored video served as a reminder that it has its own unique challenges ahead. Shopify is a financial services company as much as it is an eCommerce technologies provider. As low-brow as the native advertisement was, it brought awareness to perhaps one of the more undervalued publicly-traded companies.

For Shopify it’s all about GMV. Its approach to growing its maturing revenue streams is no longer just about the smaller merchants (to which MrBeast’s audience appeals) and the subscription revenue attributed to them. More than 30% of Shopify’s revenue was subscription-driven in 2022, according to sources. But I believe that the business model is evolving. Shopify Payments charges merchants 2.4-2.9% of the transaction, Shopify Capital is growing its lending products, and the point of sale system continues to appeal to omnichannel-friendly retailers.The more larger-GMV retailers on platform, the more that will use these higher-yield financial products.

Shopify needs a collection of nine figure online retailers to turn things around and remind investors that it will remain a large contributor to the future of commerce. That’s no small mountain to climb.

Update (1/3/2023): Shopify has launched “Commerce Components by Shopify” (CCS). Targeted to enterprise retailers, the company proclaimed via press release: “Shopify enters its next era of growth: redefining enterprise retail.” The technological stack allows for Shopify’s integration within existing systems. The ButcherBox example, mentioned above, is an example of this. The majority of the food retailer’s site remains custom while the gifting process is hosted by a third-party. Shopify adds:

Commerce Components by Shopify combines the best of both worlds for enterprise retailers: access to Shopify’s foundational, high-performing components that just work—like our checkout, which converts 72% better than a typical checkout, and 91% better on mobile—plus flexible APIs to build dynamic customer experiences that integrate seamlessly with a retailer’s preferred back office services.

A list of enterprise retailers that were just announced today include: Mattel, Glossier, JB Hi-Fi, Steve Madden, Spanx, and Staples.

Автор Веб Смит | Художник Алекс Реми

Краткая информация для пользователей: Коллекция прогнозов (2023)

Всегда есть выбор между тем, чтобы закрыть глаза назад или посмотреть вперед. Для 2023 года мы оторвали задний обзор и обледенели лобовое стекло, потому что эта подборка прогнозов ведущих банковских учреждений может помочь управлять многочисленными макроэкономическими влияниями, которые ожидают ритейл, рекламу, логистику, недвижимость и электронную коммерцию.

A problem becomes a crisis when our failure to address it threatens one’s identity; a polycrisis is when multiple problems interact with one another, potentially amplifying the sum of its parts in unpredictable ways. Popularized by Columbia University’s Adam Tooze, I suspect that it will become a word that may rise in popularity in 2023. It was former U.S. Treasury Secretary he recently commented:

This is the most complex, disparate and cross-cutting set of challenges that I can remember in the 40 years that I have been paying attention to such things.

While the study of a polycrisis requires a larger view of global economics and its many forces, we have drilled down on how each may impact the industries relevant to this group of industry leaders. These forces include: the Omicron variant, stagflation risk, nuclear escalation, Eurozone’s debt crisis risk, wage growth exceeding forecasts, U.S. inflation, European inflation, the Fed, the Biden administration, Russian gas boycott, conflict between Russia / Ukraine / United States, China, Italian government’s “intense pressure”, and German government’s “intense pressure.” We’ve learned over the previous few years that that each geography can play a role in the sum of its parts. We are too interdependent to suspect otherwise. The Ever Given blocked the Suez Canal and it affected you, one Chinese province’s COVID lockdown affected you. The Renasas Electronics factory fire led to 23 damaged machines; the impact was felt internationally.

The idea is to understand the potential of future supply shocks and other influences that could disrupt or encourage the industries most relevant to you. As we’ve seen, the “butterfly effect” is real.

According to UMASS-Amherst economist Isabella Weber, there are sectors that are most sensitive to shocks: “Among these, petroleum and coal products were the most sensitive to shocks. Oil and gas extraction, chemical products, farms, food and beverage and housing also featured highly.” As global emergencies overlap, supply shocks have become more common and inflation has lingered on. It’s never been more important to understand how sector-specific data (and the overlapping of other sectors) impacts the sum of all parts. And then, secondarily, impacts you.

In general, retailers may be forced to adapt to changing consumer behavior and economic conditions in order to weather overlapping crises. This may involve implementing new technologies or processes to facilitate online sales, reducing costs, or offering new products or services to meet the needs of consumers. It is important for retailers to stay informed about the evolving situation and to be proactive in addressing any challenges that may arise. As such, we’ve compiled 18 reports from banks and funds with a key excerpt from each document along and a link with access.

Goldman Sachs: Economic Research

Macro Outlook 2023: This Cycle is Different

As shown in Exhibit 3, we estimate a 35% probability that the US economy enters recession over the next 12 months, well below the median of 65% among the forecasters in the latest Wall Street Journal survey and toward the bottom of the range.

J.P. Morgan: Market Insights

A bad year for the economy, a better year for markets

For attractively valued emerging markets to shine in 2023, at least one of these three featured catalysts need to occur. We strongly believe that central banks will be less restrictive in 2023, but certain political outcomes, such as the end of China’s zero-Covid policy, or a cessation of hostilities in Ukraine, remain very uncertain.

Morgan Stanley: 2023 Investment Outlook

Applying the Lessons of a Turbulent Year to 2023

Global supply chain realignments, demographic change, debt deleveraging and a structural shift toward a consumption-led economy will be key trends for China in 2023. Manufacturing and trade are becoming less important in driving economic activity partly because of reduced offshoring by Western companies and rising wage costs in China.

Bank of America: Outlook 2023

Back to the (new) future

Michael Hartnett: I don’t think you can immediately say we’re going back to QE or zero rates, I mean that era’s not coming back, but what you can say is a lot of the assets that were penalized greatly in 2022, there’s been a lot of, if you like, creative destruction, more destruction than creation. But hopefully the valuations now a little bit more settled and these growth themes over the medium term can actually start to — you can start to sort of action on them.

Blackrock: 2023 Global Outlook

A new investment playbook

This is the most fraught geopolitical environment since WW II, in our view. The world is splitting up into competing blocs that pursue self-reliance.

HSBC: Global Private Banking

Looking for the silver lining

In recent years, wider security risks to physical assets and their supply lines have reappeared with many goods including food, water and energy. Governments and companies are trying to mitigate the effects by increasing inventories, diversifying sources and supply chains, investing in alternative energy and developing more local capabilities.

Barclays: Corporate and Investment Bank

Living with shock and awe: 2023 Global Outlook

2023 may well be one of the slowest years for global growth in decades. Our analysts expect the world to grow at 1.7% next year, a big slowdown from the 6%+ growth of 2021 and a significant drop from the 3.2% growth expected for 2022. Inflation will likely fall slowly, with consumer prices worldwide rising at a 4.6% average next year.

NatWest: The Year Ahead 2023

Essential insights into the big themes fuelling the outlook

We believe that monetary policy tightening cycles have a little further to run, although there have already been some hints that policymakers are becoming less aggressive. We forecast the Fed Funds rate will climb to a terminal rate of 5.0% in mid-2023, slightly below the 5.1% peak that the market is pricing in.

Citi: Wealth Outlook 2023

Roadmap to recovery: portfolios to anticipate opportunities

Despite recent performance, though, the digital revolution has not gone into reverse. Indeed, these technologies are becoming ever more deeply embedded in how we live and work. In the years ahead, we expect intensifying innovation driven by well-funded research and development. And we believe that businesses will have to either embrace new technologies and processes or face extinction. Put simply, the unstoppable trend of digitization remains in full force.

BNP Paribas: The Investment Outlook for 2023

Investing in an age of transformation

Though these worries have driven some large companies to cut their sourcing from or manufacturing operations in Asia and to shift them elsewhere, we see no largescale decoupling from either the region or from China.

Credit Suisse: Investment Outlook 2023

Supertrends – Diversify your risks

Our Millennials’ values Supertrend is set to benefit from long-term demographic patterns, as the young cohort in Asia in particular will dominate consumption and drive digital trends like social media, streaming, online shopping and fintech. Importantly, this generation has a long-term focus on the world of tomorrow, supporting biodiversity, the circular economy and health and nutrition

UBS: Asset Management

Investing through change: picture the opportunities

We acknowledge that the near-term macro outlook is unusually uncertain. But regardless of what 2023 brings, we believe the inflation, growth, and geopolitical factors that have caused market strife in 2022 are increasing the potential rewards for medium- and long-term investors willing to bear these risks. This is the good news about bad markets.

ING: global economic outlook 2023

May he live in interesting times

Our base case scenario remains that inflation in the developed economies will return to around 2% in 2024. However, this is no reason for relief and could be a very short-lived experience. In the longer term, structural shifts in the global economy are likely to push up costs and hence inflation. Deglobalisation – the restructuring of supply chains but also new trade barriers – presents new costs for corporates. Climate change and the transition to net zero will also initially push up costs for energy and commodities and will lead to more volatile inflation over the coming years.

Apollo: 2023 Economic Markets Outlook

A soft landing is possible

Here’s another situation that will surely need to unwind: A growing disconnect between earnings expectations for S&P 500 companies and overall GDP growth (Exhibit 26). It’s more likely that earnings expectations, which have been stubbornly high, will need to come down than it is for GDP growth forecasts to rise. While we are increasingly confident that the Fed might engineer a soft landing, we are still facing an economic slowdown.

Wells Fargo: Investment Institute

Recession, recovery, and rebound

We enter 2023 with an unfavorable rating on REITs overall; a favorable rating on Self-storage REITs, Retail REITs, and Data Centers REITs; and an unfavorable rating on Residential sub-industry REITs (Apartment, Single Family Home and Manufactured Homes), Office REITs, and Health Care REITs.

BNY Mellon: 2023 Outlook

Looking through to recovery

Inflation appears to have peaked, which will eventually enable central banks to slow the pace of rate hikes and ultimately shift into a holding pattern. However, risks have now shifted to the lagged impact of aggressive monetary policy tightening on economic growth and earnings.

Lazard Asset Management

Competition is fierce but quality companies that reinvest in themselves can stay on top.

In their view, the critical issues of the past 12 months—inflation, monetary policy, and the risk of recession—are likely to remain front and center, though in a different configuration over 2023. Inflation pressures, which dominated the markets in 2022, have, in our view, likely peaked across most developed economies.

And this is the report that influenced our focus on the polycrisis. It is well-written and insightful in ways that others are but Fidelity’s narrative was far less mechanical and more narrative-driven based on all available data.

Fidelity International: Navigating the polycrisis

Sustainability premia set to increase

Prices for air, sea, and land freight are falling and the backlogs created by Covid lockdowns are easing, which may help to soften the blow on consumption. The gradual removal of quarantine restrictions globally has boosted investor confidence, with China now the only major economy where significant requirements are still in place. Further relaxation there would remove a distinct hurdle for both China and the global economy.

Ideally, we will continue to add to this running list of investment prospectuses and macroeconomic outlooks. It’s never been more imperative for companies – new and old – to consider how their top and bottom lines are impacted by variables that are out of their control. The reaction and perspectives are in one’s control, education helps those useful reactions possible.

This member brief has been unlocked until January 1, 2023. To gain access to our archives + insights and curations like these, consider joining the Executive Membership. 

Автор Веб Смит | Художник Алекс Реми