As if Google’s decision to eliminate cookies on its ad network and Chrome browser weren’t bad enough, last week advertisers received another blow with Apple’s decision to release App Tracking Transparency on iOS 14.5. This latest move makes it even more difficult for advertisers to gather user behavior data across apps and mobile sites. The impact is huge. New data suggests that U.S. consumers choose to opt-out of tracking 96 percent of the time in the wake of iOS 14.5.
The timing of these decisions accelerates an already-dramatic shift happening across the entire advertising ecosystem. A shift that retail media advertisers need to take seriously, as two meaningful trends begin to unfold amid these changes.
First, more brick-and-mortar retailers are moving into e-commerce. In the next 18 months, by 2023, experts anticipate 25% of retail will happen on the digital shelf.
The second trend is the increase in ads on marketplaces that provide measurable closed-loop sales, such as Amazon, Walmart and Instacart. These online marketplaces connect advertising and sales using first-party data, delivering significant advantages over sites like Google and Facebook.
Along with the move to e-commerce advertising, the money is shifting. What we’re seeing across the board is that Google’s share is dropping while retail media’s share is increasing. A majority of this share is going to Amazon simply because that’s where the consumers are—for most CPGs, at least. Of the total search ad spend in 2020, 57% went to Google, 18% to Amazon and 0.8% to Walmart. This year, I expect we’ll see a significant spike in Amazon at Google’s expense given the demise of cookies.
Amazon Advertising’s $6.9B Quarter: “See, Find, Buy”
As advertisers make the shift to e-commerce advertising, a key difference over Apple and Google is the “see, find and buy” model of e-commerce. Amazon has mastered this playbook quite well. As we all know, they have the market cornered on “find and buy.” Sixty-three percent of product searches start on Amazon (find) and it is the #1 e-commerce marketplace (buy).
On the “see” side, the growth of Amazon advertising has been nothing short of impressive, generating 73% growth to $6.9B in Q1 alone. Meanwhile, Amazon is folding other ad properties into their portfolio like the newly acquired Wondery podcast and partnership with Twitch, which just reported total hours watched in Q1 2021 nearly double those from the same period in 2020.
Another difference worth noting is that to be successful on retail media, marketers can no longer frame their advertising strategy just in terms of return on ad spend (ROAS). More importantly, the goal should be to drive share of voice, which is share of shelf on Amazon. Growing shelf space on Amazon is achieved through a combination of paid and organic search. We talk more about this concept in our blog: The Dollars and Sense Behind Share of Voice.
The Digital Grocery Shelf
While the example above demonstrates the dominance of Amazon in many e-commerce CPG categories, one of the few areas Amazon has yet to conquer is grocery. Whole Foods, Amazon Fresh and Prime Now are all growing, but the lion’s share of consumer grocery shopping is still happening elsewhere.
For CPGs like General Mills and Kellogg’s, Walmart is an attractive space because of its position in this category. Grocery shopping—which is critical to every household in the United States, more so than buying the latest TV—is happening mostly through Walmart’s online grocery pickup, then Instacart, Kroger and finally Amazon. Retail media ad spend in grocery is following suit.
This isn’t a trend that’s only playing out in the US. Globally, the amount of digital ad spend within just food and beverage FMCGs (fast-moving consumer goods) was projected to grow at 4% a year, that’s nearly doubled to 7% a year.
The recent changes by both Apple and Google are career-changing moves for advertisers in terms of removing traditional targeting capabilities. The shift was already in motion and now there is no time to waste for advertisers to adjust. Just as Amazon didn’t need to promote itself as the place for people to buy products during the pandemic, the same may be true of advertisers as the Apple and Google changes play out. Advertisers will naturally migrate to the retail media platforms that make the most sense for their business. As they make the shift, they must learn to navigate the nuances between traditional digital advertising and e-commerce advertising on marketplaces like Amazon. While this presents a greater opportunity to capture customers at the moment of purchase, advertisers must figure out which minefields to avoid (such as advertising out-of-stock products) and how to account for inefficiencies that could erode rather than grow revenue.
At the highest level, those two trends—the growth of e-commerce and retail media—are colliding with the decisions made by Apple and Google, driving a permanent shift in retail media budgets and a permanent shift in the strategy consumer brands use to succeed.
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