March 30, 2022
6 min read
In our recent blogs, we have already discussed how the Retail Media Advertising (RMA) business is booming and has no signs of slowing down (if you have not checked out our previous articles, please find the links in the references section). This growth can be evidenced by the stellar financial performance of Amazon who were one of the earliest pioneers in this field. To give an example, the company reported that its global advertising business brought in over $31.16 billion in 2021, up from $19.77 billion in its previous financial year (Statista, 2022). To put this into perspective, the RMA business has now become one of the most important revenue sources of Amazon which generates almost 8% of their third-party marketplace Gross Merchandise Value (GMV) and about 5% of its total GMV, including first-party sales of Amazon Retail (Marketplace Pulse, 2022).
Recognizing Amazon’s massive achievement, other major marketplaces, retailers, and e-commerce platforms have been scaling up their efforts to seize the ever-increasing amounts of investments into retail media by establishing their own ad businesses. The latest examples of building effective in-house RMA include leading retailers such as Instacart, Kroger, and Target. Other marketplaces and e-commerce platforms are also looking to replicate the same success of Amazon and alike.
Having said that, this endeavor might not be too dissimilar from exploring a dark cave without a guiding light. In other words, the overall process might be daunting and far from straightforward, especially when it comes to doing it alone. They may question challenges and roadblocks to be faced while setting up an in-house ad business. Luckily, there are ad-tech companies with state-of-the-art technologies that can partner up with marketplaces in order to make the overall process as efficient and smooth as possible. Therefore, this blog aims to uncover major issues in setting up an in-house advertising arm and clarify the usefulness of the partnership relationships with ad-tech firms.
The first challenging factor for marketplaces is the cost of investment. Let’s have a look at the typical costs incurred in building your own ad business. To begin with, to create a refined and effective platform that would entice advertisers, marketplaces would need a solid team of highly skilled software engineers. On average, teams consist of about ten members, each with salaries ranging in the $100k brackets (Glassdoor, 2022).
Secondly, certain memberships and tools will be helpful in gaining access to important databases and services, as well as keeping up-to-date with the latest technologies, and getting hold of industry’s research and insight. For example, marketplaces may prefer to be part of industry-leading organizations such as the International Advertising Board (IAB) and Maxmind. Marketplaces will also have to cover expenses associated with server fees, as well targeting, reporting, and monitoring tools. All in all, tools and memberships can add up to another $100–200K+ per year. As a result, marketplaces could end up spending over a million dollars in building fees if they decide to solely rely on themselves.
Secondly, establishing and winning an in-house RMA business can be quite an undertaking. The reason being is that it requires a significant time commitment. Building a fully-functioning retail media platform can take a minimum of 12 months and can stretch up to 24 months. For smaller retailers and marketplaces, the whole process might be even more tedious and take even longer. And, the longer marketplaces delay the release of their ad business, the more opportunities lost to earn valuable ad dollars.
While time and money are key considerations, they are far from the only roadblocks. In line with Forbes Technology Council (2021), many marketplaces still cannot fully leverage their first-party data and analytics at scale. To effectively manage this data, marketplaces require deep data, optimization, and attribution capabilities.
However, they lack the proper talent and skills, as well as the data infrastructure needed to operate the RMA business at the required level of expertise. This can be partially explained by the specialized and relatively new nature of the RMA field which makes the process of hiring, training, and retaining the right team difficult to manage.
At the same time, to fully operate the in-house tech, marketplaces must stay cognizant of the latest regulations around customer data protection and safety. Taking into account the fact that the ad tech business is evolving at a breakneck speed, it is easier said than done. For instance, due to the increased consumer awareness around targeting and third-party cookies, governments around the world have been actively introducing privacy laws such as General Data Protection Regulation (GDPR) in Europe, and California Consumer Privacy Act (CCPA) in the US. The consequences of breaching either one of these regulations can be extremely costly for marketplaces. As an example, the EU’s authorities can impose fines that can be 2–4% of firms’ annual revenue (Wolford, n.d.). The recent victim of the GDPR breach was Amazon who were forced to pay a record $877 million for the cookie consent oversight (Tessian, 2022).
On the other hand, there is good news — marketplaces can work with ad-tech providers in order to overcome all the above obstacles in building in-house ad business. To begin with, the time-to-market of the product can be drastically reduced. Marketplaces can expect to have their retail media program up and running in as little as 2 to 3 months. Additionally, all the above costs related to developing ad business are included for free. Just imagine all the saved time and expenses from the earlier release!
Moving forward, by partnering with ad-tech companies, marketplaces can bring in all-important expertise in the programmatic RMA landscape. Ad-tech players tend to have the upper hand when it comes to having skilled talent that is able to fine-tune the platform and provide customized integrations according to marketplaces’ preferences. Therefore, marketplaces won’t have to recruit a countless number of new software, product, and marketing teams from the get-go.
With all this expertise, marketplaces will be able to efficiently streamline the product management process: starting from the development of a product roadmap, establishing effective cross-communication between product and other teams, as well as maintaining and optimizing the product structure such as User Interface and dashboard. Similarly, marketplaces will be able to tap into their first-party data in compliance with the relevant regulations.
In conclusion, venturing into the RMA business can be full of risks, uncertainties, and challenges. Therefore, it is totally acceptable to feel lost and to have many questions. Luckily, ad-tech partners are here to help, so marketplaces don’t have to do it all alone. The right ad-tech partner can help navigate through multiple roadblocks and make the Retail Media Strategy successful.
Previous Blogs’ Links:
“Introduction to Retail Media Ad Types” https://www.gowit.com/blog-posts/introduction-to-retail-media-ad-types
“What are Retail Media Ads?” https://medium.com/gowit/what-are-retail-media-ads-can-ads-promote-marketplace-growth-5b47845c193
Forbes Technology Council. (2021). Council Post: The Survival Of The Fastest: How Retailers Can Accelerate Retail Media Offerings. Forbes. Retrieved 28 March 2022, from https://www.forbes.com/sites/forbestechcouncil/2021/09/23/the-survival-of-the-fastest-how-retailers-can-accelerate-retail-media-offerings/?sh=46b11ba39a30.
Glassdoor. (2022). How much does a Software Engineer make?. Glassdoor. Retrieved 28 March 2022, from https://www.glassdoor.com/Salary/Glassdoor-Software-Engineer-Salaries-E100431_D_KO10,27.htm.
Marketplace Pulse. (2022). Amazon GMV Reached $600 Billion in 2021. Marketplace Pulse. Retrieved 28 March 2022, from https://www.marketplacepulse.com/articles/amazon-gmv-reached-600-billion-in-2021.
Statista. (2022). Amazon global ad revenue 2021 | Statista. Statista. Retrieved 28 March 2022, from https://www.statista.com/statistics/259814/amazons-worldwide-advertising-revenue-development/.
Tessian. (2022). 25 Biggest GDPR Fines To-Date | Latest GDPR Fines | Updated 2022 | Tessian. Tessian. Retrieved 28 March 2022, from https://www.tessian.com/blog/biggest-gdpr-fines-2020/.
Wolford, B. What are the GDPR Fines? — GDPR.eu. GDPR.eu. Retrieved 28 March 2022, from https://gdpr.eu/fines/.
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