Giants of Retail are building new shopper marketing opportunities through digital advertising’s ‘walled gardens’

By Jamie Tedford, Chairman, Azalea Commerce

Increasingly, we’re seeing top retailers like Walmart and Target investing in a new approach to leverage their own first-party data. They’re strengthening relationships with existing customers and simultaneously monetizing the customer data they’re amassing via digital ads – not only to promote their own offerings, but making money to allow other brands to reach this rich and receptive audience.

This is in-part due to brands taking money that has traditionally been spent with brick-and-mortar advertising to allocate as much as half of their ad budget on Amazon instead, according to e-commerce and media agency sources. If shopper marketing spending is increasingly going digital – then major retailers need to do so as well. As a result, walled-gardens are becoming a more and more attractive approach. 

Morgan Stanley analysts estimate $178 billion is spent annually on in-store promotions and coupons in the U.S. This shift now puts that pot up for grabs for Amazon, which has traditionally found those budgets harder to access than TV, print and search. And as other massive brands (Walmart and Target for example) develop their own digital advertising walled gardens, they’re back in the running to earn this budget. 

Walmart sent the advertising industry abuzz with news of its upcoming pitch to major advertisers at a major ad industry event. This quickly followed its April acquisition of ad tech provider Polymorph—a potential indicator that the retail behemoth is working to keep up with eCommerce giant Amazon, or take down the incumbent Google/Facebook digital advertising duopoly. 

Next we saw, Amazon announced their acquisition of Sizmek’s ad server business, which has significant implications for both marketers and Google. Sizmek’s ad server competes with Google’s Marketing Platform (formerly DoubleClick), which help marketers place digital ads and measure their effectiveness.  The acquisition will allow marketers to use rich data – including what people buy and what they search for – to target consumers with ads outside its own walls. The combination of Amazon’s robust data and its ability to target consumers beyond its walls could potentially challenge market-leader Google. And, Amazon could be generating additional revenue by driving consumers to its website through ads marketers buy and place outside its platform.

It’s a fast-moving landscape and few understand what moves like this mean for the future of digital advertising and retail. In the past year alone, there has been a tremendous shift of brands now looking at Amazon not just as a retail partner, but as a powerful ad platform rivaling Google and Facebook. 

A significant take-away for the industry is – other major retailers must embrace this worldview in order to effectively compete by cultivating their own advertising walled gardens.

Walmart isn’t the only one navigating this changing landscape in new ways. Big data brokers are lamenting short lived partnerships with Facebook, marred by bad data, no transparency, and ultimately regulatory issues. When Facebook removed these audience integrations, it left a vacant space – and opportunity. Industry pundits believe there must be a better, more accurate source of data to make social advertising smarter…. enter the likes of Walmart and Target.

Target announced the re-branding of their in-house media agency Roundel, to create campaigns for other companies – even if the brand isn’t sold in the retailer’s stores. Target execs confirm that this provides a way to monetize their first-party data and for advertisers to reach target shoppers.

Reflecting on a similar initiative in 2016 to build-up the advertising ecosystem at Snap, Inc., recent advertising pushes in this direction are a reaffirmation of the ad industry’s new direction in recent years. Walmart and Target are forming their own digital advertising technology ecosystems, a sign that the industry’s “walled gardens” are just starting to multiply. 

Bringing a data-centric media offering to advertisers is a smart move for many reasons. Firstly, this will allow organizations like Walmart and Target to leverage their customer data for maximum advantage and avoid the need to use competitive platforms to reach its customers through multiple digital avenues. Also, by leveraging anonymized data that walled gardens gather from its sweeping consumer base, they can generate even richer data sets to understand and even predict future behavior and interests of its customers. That’s an opportunity for monetization that no major retailer should overlook in this new era of “walled gardens”.

Look closer and you’ll see the “when” is just as strategic as the “why.” The timing here is everything. Until recently, access to customer data for targeting across platforms was plentiful. Data brokerage was running rampant with companies like Acxiom, Oracle Data Cloud (Datalogix), Experian, and Equifax offering data from an array of sources to sell in the open market for digital targeting. But following a series of big moments for the ad tech industry, like the introduction of General Data Protection Regulation (GDPR) in the EU and last year’s Cambridge Analytica scandal, the value of permissions-based, first party data—the data Walmart is currently sitting on for example — went through the roof.

Here’s the kicker: This first-party data offers gobs of potential value not just for its owner, but for any brand interested in selling to the audiences represented within the owner’s walled garden.

Stepping back a bit— to evaluate what recent developments could indicate for the future of the industry—it is important to note Walmart and Target aren’t the only companies whose targeting data has quickly grown in value. Amazon, for instance, continues to rise in the ad game because it possesses something most companies don’t: key visibility into purchasing behavior with a user base consistently in “buying mode.” In the same vein, Walmart and Target bring unique opportunities of its own to the table. For example, data on local buying behavior to inform online advertising in local markets, and the ability to measure product purchase at the point of sale. This means knowing how purchase behavior is changing at the old-fashioned cash register.

The opportunity for brick-and-mortar “publishers” with millions of visitors and vast quantities of valuable targeting data, is massive. However, building a full “walled garden” takes a lot more than a 29-person team and a core tech stack. Diverse organizations like Walmart will have to amass a range of capabilities to turn all of its web properties, including Walmart.com, Jet.com and Bonobos.com for example, into a robust, state-of-the-art self-contained advertising ecosystem. 

To ensure its own “walled garden” flourishes, major retailers like Walmart will need tools for its advertisers to build ads and optimize targeting; measurement, reporting and attribution tools with both web checkouts and in-store POS integrations; and product teams that are experts in advertiser and consumer analysis to improve advertising experiences and performance. And by the way—if its self-contained ecosystem of “publishers” isn’t big enough, there’s always the opportunity to expand the walls of its new garden more broadly, reaching into the land of smaller publishers that will be chomping at the bit to serve ads powered by Walmart’s or Target’s data. 

Simply put, major retailers will need everything Facebook and Google already have in order to attract and hold the attention of major advertisers. Though the road may be long, the path is clear. The future of digital advertising doesn’t have to be dictated by the duopoly. In fact, we expect to see other major retailers follow in the footsteps of Walmart and Target’s recent moves.