Infographic

Everything-is-an-Ad-Network

As the foundations of digital advertising are upended, a new model is emerging – one where everything becomes an ad network

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What Is It?

As the privacy landscape evolves and the foundations of digital advertising shift, 2023 will be the year many businesses launch their own ad networks.

Apple’s App Tracking Transparency (ATT), Google’s expected deprecation of third-party cookies, and evolving privacy regulations are all combining to cause a dramatic shift in digital advertising.

While it is uncertain exactly what the advertising landscape will look like in the future, it is clear that, as third-party cookies are phased out, first-party data will become increasingly important in delivering relevant advertising. As a result, businesses with high volumes of first-party data suddenly find themselves in a powerful position in the new privacy-first market, and many are setting up highly profitable advertising networks to make the most of this situation.

Perhaps the most notable example is Retail Media Networks (RMNs), which are essentially advertising businesses set up by retailers. RMNs give advertisers privacy-compliant access to a retailer’s first-party data, combined from both online and offline sources. Advertisers can use this data to reach the retailer’s customers with relevant advertising, using ad inventory across the retailer’s digital channels, including web, app, and social.

Crucially, RMNs allow brands to connect with potential customers when they are actively shopping and interacting with retailers, rather than when they are browsing the internet or scrolling through friends’ social posts.

But retailers aren’t the only ones taking advantage of the ad revenue opportunity first-party data brings.

55%

of businesses believe RMNs will deliver higher conversion rates because adverts appear when consumers are actively shopping and willing to spend

Gaming platforms are already building successful ad-funded businesses, and streaming services are also getting in on the act, with Netflix and Disney+ opening ad-funded tiers in late 2022 and early 2023 respectively. Last year, food delivery service DoorDash announced a suite of products that would enable advertisers to serve ads on its platform. And earlier this year, Apple announced it would expand the inventory it makes available to advertisers on its devices, meaning more ads and sponsored products on App Store, Stocks, and News.

From travel and financial service providers to food delivery services, first-party customer data is being used to sell highly sought-after advertising inventory and create valuable revenue streams.

The savviest service providers are realizing the value of their first-party customer data, and are unlocking this value through proprietary ad networks

Case Study

Marriott Media Network: new channels emerge for advertisers

In May 2022, Marriott announced the launch of the Marriott Media Network in partnership with Yahoo.1 The network will use anonymized customer data from past searches and reservations on its app and websites to enable brands to display relevant ads to travelers. The network will provide access to premium inventory spanning its own channels including display, mobile, video, email, and eventually TVs and digital screens in guest bedrooms. It will enable advertisers to reach travelers throughout their travel journey, including the path to purchase, pre-arrival, and even during their stay. Marriott believes that their network offers an unprecedented combination of scale and personalized media to an audience of in-demand, high-intent travelers, providing new channels for brands to effectively reach their target audiences.

Why Now?

Platform policy changes and tightening privacy regulations present opportunities for companies with first-party customer data

Digital advertising is dominated by Google and Facebook. In 2021, Google generated $218 billion in ad revenue, while Facebook generated $115 billion. Together with Amazon, these three advertising behemoths account for 74% of digital ad spend.2

But as privacy regulation tightens and third-party cookies are phased out, it is becoming increasingly difficult to collect and share user-identifiable conversion data between third parties. These changes look set to disrupt the very nature of how advertisers reach consumers, shifting the balance of power away from the likes of Google and Meta to platforms with extensive first-party data.

In this era of privacy-first advertising, online platforms that possess first-party customer data will become increasingly attractive to advertisers that can no longer rely on third-party customer data for contextual reach.

Third-party cookie deprecation will have a significant impact on the digital advertising landscape

75%

of businesses believe the end of third-party cookies will make it harder to reach audiences at scale

71%

of businesses believe measurement and attribution will suffer without third-party cookies

RMNs are becoming a more attractive and realistic proposition for many retailers, as their online offers grow

After a pandemic-related increase in online retail spending, ecommerce penetration across all categories continues to grow. Online sales in US retail jumped 40%year-over-year in 2021. As a result, retailers have more first-party data and valuable digital media inventory to exploit.

Digital ad spend continues to rise, and digital retail media’s share of it is growing. In 2023 it is expected to capture 19% of US digital advertising dollars, driven largely by phenomenal growth in Amazon’s advertising business.3

Retailers are attracted by the prospect of a new high-margin revenue stream – others will follow

Retail media advertising is nothing new, but traditionally it was confined to in-store signage and shelf placements, or coupon programs. RMNs are a step up from these activities due to the sheer volume of revenue involved. Amazon launched its network in 2012 and by 2021 it was generating $31.2 billion in annual revenue, behind only Google and Facebook,4 while Walmart Connect generated $2.1 billion.5

At a time of ongoing economic uncertainty, the opportunity to diversify retail offerings and explore new, high-margin revenue opportunities is incredibly attractive, and we will see more retailers enter the market in 2023.

Analysis – Consumer View

Consumers are open to the idea of RMNs but there is work to be done

Consumers react poorly to environments that are cluttered with ads, or where they feel the messages shown aren’t trustworthy or meaningful. Overall, they’re more receptive to lighter, less intrusive ad experiences that offer products or services they are actually interested in.

As a result, brands thinking of launching ad networks should do so in a way that supports rather than inhibits the customer experience. They need to add value to the customer journey, perhaps by offering discount codes within ads or by identifying a product the user would be interested in and taking them straight to the product page. These are both strong reasons for a consumer to click on an advert.6

What’s more, our study found a significant variation in how open consumers of different ages are to advertising on online shopping sites. Around half of 16-44 year olds are happy to see advertising on a retail website. A similar proportion believe that personalized ads improve their experience when online, and that ads can help them find the right products. But there is work to do to convince those over 55 of the value of advertising on online shopping platforms. Only about a third of people in this age group welcome ads or see them as beneficial.

Younger consumers are more likely to perceive the benefits of RMNs when shopping online

Analysis – Advertiser View

Advertisers can more easily identify, understand, and reach audiences with relevant ads

The benefits of emerging ad networks vary based on the quality of the inventory they offer, the audiences they can reach, and the quality of the first-party data they can use to optimize that reach.

RMNs are particularly attractive to advertisers because ads can be placed directly on retail sites, rather than on social feeds or within editorial content. This means advertisers can engage audiences at the most appropriate point on their purchase journey, when they are in the buying mindset, maximizing the effectiveness of ad campaigns. RMNs also offer closed-loop reporting, linking ad impressions to sales on the platform, so advertisers can see the real impact of their ad spend.

Whether they are run by retailers or service providers, the new generation of ad networks also have benefits relating to privacy compliance. These networks use permissibly collected customer data to generate behavioral signals and audience segments that are only used within the networks themselves and are not shared with third parties. This means advertisers can serve audiences with relevant, personalized ads in a privacy protected way.

Retailers are excited to unlock the value of their first-party customer data

Retail media is an attractive proposition for the retailer because (upfront tech investment notwithstanding) they can deliver profit margins of over 50% – significantly higher than the low margins of the classical retail model.7

A retail media business also gives retailers access to real-time insights about consumer preferences that can help them deepen their connection to customers, shape their strategy, and effectively close the loop from advertising impression to sale.

RMNs are well on their way to convincing advertisers that they offer great value… not bad for a form of advertising that was relatively unheard of five years ago

Find

56%

businesses think RMNs can help brands find and connect with new customers

Personalize

53%

businesses think RMNs leveraging first-party customer data enable marketers to deliver more relevant ads

Measure

50%

businesses think it’s easier to track the impact of ads displayed on RMNs

Where Next?

Businesses have a unique opportunity to generate new high-margin revenue streams, but must not lose focus on the customer experience

While ecommerce giants including Amazon, eBay, and Walmart have already established successful RMNs, it’s not too late for other retailers and online platforms to start extracting value from their first-party data. Businesses who have an online platform and detailed first-party customer data should be asking themselves – what’s stopping us from launching our own ad network?

Media networks present clear opportunities for online platforms to generate new revenue streams and personalize the customer experience. It is clear that businesses embracing their first party data as a tool to drive personalization through media networks now will be well positioned to capitalize on the opportunities presented by the transition to truly immersive experiences spanning both the physical and digital worlds. But it is critically important that platforms do not lose focus on the customer experience. Increasing ad load (the ratio of ads shown to each user relative to organic content) too drastically can ruin the customer experience, reducing user engagement, and ultimately increasing churn.

Next Trend:

Anything-as-a-Service

Brands are exploring how a shift from selling goods to offering products as-a-service can extend their customer relationships beyond the point of purchase.

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Related Resources

• 

  Learn More

  Everything is an Ad Network:

  Realizing the Promise of Retail Media Needs Understanding on Both Sides

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References

Trend

1. news.marriott.com. Marriott International introduces Travel Media Network, powered by Yahoo.
2. digiday.com. The Rundown: Google, Meta and Amazon are on track to absorb more than 50% of all ad money in 2022.
3. insiderintelligence.com. Why 2022 will be the year of retail media networks.
4. cnbc.com. Amazon has a $31 billion a year advertising business.
5. adexchanger.com. Walmart breaks out ad business revenue at $2.1 billion and details how ads power its retail evolution.
6. MTM/Acxiom: Responsible Marketing Research.
7. bain.com. Are you ready for the retail media revolution?

Figure data

Young Consumers graph – Source: MTM/Acxiom – CX Trends for 2023 – B2C Survey. Question: To what extent do you agree with each of the following statements about advertising in online stores? Base: Total n = 2018, 16-44 (n = 949), 55+ ( n = 753).