First-Party Data is Guiding Retail Media Investment Opportunities

Imagine you are in a low-margin business and discover that a competitor has found a way to add a 7.5% additional margin on top of its revenues. It would almost seem like alchemy – a process by which passive window shopping is turned into an effective closed loop ecosystem. Something similar happened in the retail media industry and it is called a retail media network (RMN).

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Published on

06th Mar 2024


By Ran Cohen, Chief Strategy Officer, Perion


Imagine you are in a low-margin business and discover that a competitor has found a way to add a 7.5% additional margin on top of its revenues. It would almost seem like alchemy – a process by which passive window shopping is turned into an effective closed loop ecosystem. Something similar happened in the retail media industry and it is called a retail media network (RMN).


Amazon was the pioneer of retail media networks, and theirs grew organically to combine few critical assets to offer advertisers a unique closed loop environment on its online marketplace. This new environment allows advertisers to leverage first-party data in order to promote products to consumers that demonstrate purchase intent and follow the effectiveness of such advertisements all the way to checkout. No other form of advertising comes close to that.


The scenario above where a low margin business turn into an effective advertising business is close to reality: take Walmart, for example, that reported 1.91% net profit on January 31, 2023, while Amazon reported its “Advertising” line of business as 7.5% of its earnings in Q1 of 2023 and growing at a rate of 21% YoY – all of this during recession. Additionally, the cost of operating Amazon’s advertising will have a negligible marginal cost as it is a platform business.


The current retail media gold rush started a few years back when advertising ‘only’ represented 5% of Amazon’s earnings. It was a concrete figure that retailers could build a business plan on.


In order to understand the Retail Media Network (RMN) opportunity, let’s look at the three building blocks composing an RMN: data, technology, and a sales organization.


First-Party Data is the Fuel

In these days of increasing awareness about data usage and privacy, retailers are seen as some of the most credible and legitimate repositories of user data. They possess large data sets regarding client purchases of a wide range of products over a long period of time.


Retail Media Technology is the Enabler & Sales Houses are The Catalyst

The technology component of a retail media network is attracting a lot of attention from investors. Most RMNs have an external retail media adtech platform at their core. Their function is to connect to data, serve targeted ads, and report on results. The first mover in the space was Amazon, and most technologies have adopted forms and functions similar to its advertising platforms: sponsored products, sponsored brands, display banners, and video.


Although technology plays a critical role, alone it is insufficient, even with self-service platforms. Retailers and marketplaces frequently engage in commercial activities that align with the concept of retail media today, such as shopper marketing to influence brand preference and trade marketing to support product promotion and drive sales growth. As these activities transition to the online realm and integrate retail media technology, a sales house emerges as a crucial entity. The sales house not only facilitates this integration but also taps into a wide range of suppliers to offer new advertising services through the utilization of retail media technology.


Now that we have established the components of an RMN, let’s look at some of the dynamics within it and around it.


Moving Parts in the Retail Media Landscape

In the bigger picture of what we call the retail media industry, there are a lot of moving parts. Retailers, advertisers, and in turn, investors, are clearly jumping on the bandwagon, primarily because of the effectiveness and value to all parties involved.


Consumers enjoy online marketplaces with a variety of products and the comfort of online shopping that replaces the need to shop offline. Advertisers enjoy an opportunity to leverage their data and clearly measure the result of their investment in advertising activities. Retailers found a new high margin business line to add to their current model.


Advertisers are evolving their organization to the new reality and by being active in the space, agencies follow. Agency holding groups are building their own technology stack to provide a full range of services and tools to advertisers. A great example is Publicis acquiring first Profitero, a measurement and optimization tool for retail media, and then CitrusAd, one of the leading retail media activation technologies.


Retailers are investing in building sales houses and contracting technology services in order to monetize their data pools. It would make sense to form broad partnerships to capture a higher data volume. But retailers are often reluctant to work with competing or even complementary platforms. Therefore, the market is quite fragmented and is not easy to navigate for advertisers.


On the technology side, a number of companies are creating solutions for the market that are grabbing investor interest: meta platforms for management, optimization tools, price monitoring tools, new retail media platforms, reporting, and insights tools.


Is There an Investment Opportunity in Retail Media Networks?

Given the current landscape, entering the retail media technology space as a new player may prove challenging. Established solutions, including some of the largest players, are consistently investing in expanding their functionality to encompass a wider range of capabilities. This includes integrating with retailer audiences, incorporating display and video solutions, and exploring programmatic audience extensions. Furthermore, the complexities of integrating with in-store screens and displays, which often require intricate data integrations, add an additional layer of difficulty to the equation.


RMNs typically do not exist as independent entities and are strategically aligned with retailers, making direct investment opportunities limited. Given the increasing number of RMNs entering the market, it is probable that consolidation will occur in the medium term. Advertisers are unlikely to invest across multiple networks unless it is proven to be both effortless and delivers a significant return on investment. Consequently, many large advertisers currently concentrate their efforts on only a select few networks. As an RMN, survival can be challenging if the scale of operations remains too small.


Follow the First Party Data to Find the Right Investments

As a rule of thumb, investors exploring retail media investments should prioritize opportunities that offer the greatest data activation potential. This could manifest through investments in retail media network mergers, where consolidating data resources can create powerful synergies. Alternatively, investing in advanced monetization technology that enables more efficient and effective utilization of data can also be a viable strategy.


One thing is certain. There is bound to be plenty of movement in the space in the foreseeable future as retail media spending is projected to more than double in the next five years.


About the author:

Ran Cohen has over 17 years of experience leading interactive brands & developing breakthrough innovations in online advertising. He has held multiple executive roles, including co-founder & President of Legolas Media (acquired by Undertone) and VP of Product & Business Development at Sizmek. Ran holds a BA in economics from Hebrew University and an MBA from Tel Aviv University.


This blog post was originally published on NASDAQ on JUL 14, 2023

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