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Walmart vs. Amazon is one of the great rivalries in business history. And lately the retail giants have found something new to compete over: ad revenue.
We don’t normally think of stores as advertising venues, and the rise of what amounts to retail media networks has happened quietly and gradually. But Amazon in particular has pursued the business with its typical zeal.
Maybe you’ve noticed the prevalence of results labeled “sponsored” when you search the site? Well those (and other ad services) are apparently working, as the company reported ad revenue of $31 billion in 2021, and by one estimate could hit $40 billion this year. On Thursday, the company reported $8.7 billion in ad revenue for the most recent quarter, up 18% from the same period last year, a bright spot amid slumping e-commerce sales. That’s a fraction of its overall business, of course: Overall, quarterly revenue was over $120 billion—but still makes Amazon the third largest digital ad venue, after Google and Facebook.
“We still see strong advertising growth,” Amazon CFO Brian Olsavsky said in the company’s earnings call last week. “If companies are looking to potentially streamline or optimize their advertising spend, we think our products compete very well in that regard, in addition to maybe longer-term things like brand building.”
Walmart brought in about $2.1 billion revenue from advertising last year, so it’s definitely playing catch-up. But its reported 30% uptick in ad revenue last quarter was a bit of good news in an otherwise lackluster period. (More recently the company warned about weaker-than-expected results for the current quarter when it reports in mid-August.) Again this is a small fraction of the mega-chain’s $559 billion overall revenue last year, but it’s not chump change. For context, CNBC points out Snap’s ad-driven business had total revenue of $4.1 billion in 2021, and Pinterest reported $2.6 billion.
The behemoth retail rivals are not outliers in pushing this strategy. To the contrary, they appear to be the vanguard of snowballing trend: According to Marketing Brew, 9 of the 10 largest retailers in the U.S. (including Kroger, Target, Walgreens, and Home Depot) now operate their own “media networks.” This development hasn’t, until recently, attracted as much mainstream attention as one might assume. But in addition to being yet more evidence of the inescapable reach of advertising, it raises some interesting questions about plopping advertising into the consumer/retailer relationship.
Amazon had experimented with advertising for years before breaking out ad revenue in those 2021 numbers, but seems to have ramped up its exploration of the category over time. According to a report from Insider, search ads still account for most revenue, but the company is also pushing ad placement on Twitch, Fire TV, and other media properties, as well as ad data analytics capabilities built on the infrastructure of its Amazon Web Services cloud business. Most notably, Amazon can offer consumer data that advertisers can use to analyze the effectiveness of their online campaigns, almost in real time, and adjust accordingly.
The company has even begun to experiment with extending its ad network offline, through digital signage and screens on shopping carts in its Amazon Fresh stores.
The emphasis on shopper data is part of what makes the burgeoning retail media ad market worth keeping an eye on. And while Walmart can’t match Amazon’s digital reach, it’s telling advertisers its own data story. “I know how America shops more than anybody,” Jeff Clark, officer and VP of Walmart’s ad network, Walmart Connect, told Marketing Brew earlier this year. Some 230 million (global) customers a week visit its physical stores or site, he noted: “We’re not just a grocery store, we’re not just a pharmacy, we’re not just an auto-care center; we’re all those things.”
As with Amazon, that means Walmart’s ad business ambitions go beyond sponsored results on its own site. The idea is that purchases made at a Walmart store or online can link shopping behavior to (anonymized) demographic data, to offer insights to advertisers that, cross-matched with other data sets, help them target pitches.
As it happens, the rise of retail media ad networks is now intersecting with a softening of the digital ad market, brought on by a combination of macro-economic factors, and more secular shifts in the online-ad business resulting from Apple tightening the ability to track user behavior across the Web. Facebook, for instance, just posted a 36% drop in profit from last year, citing ad-market woes. A recession is bound to affect ad budgets across the board. But tighter tracking rules might make the data that retailers amass even more valuable to advertisers.
Either way, this business is only lately coming into more public view. And one fair question is whether you want the retailers you frequent to track and monetize your shopping habits. Another is whether the increasingly commonplace practice of privileging “sponsored” product results in e-commerce site searches might ultimately undermine consumers’ relationship with an online retailer. (A 2019 survey found half of shoppers didn’t realize that some listings were essentially ads.)
“Ads are a valuable part of the Amazon shopping experience,” an Amazon spokesperson told Fast Company. “We are focused on showing customers the offers we think they will find most helpful based on where they are in their shopping journey, and delivering a shopping experience that keeps them coming back. Advertising only works if we make it useful for Amazon customers, and when we create great customer experiences, we deliver better outcomes for our selling partners.”
Walmart declined to comment on specifics of its ad business, citing the quiet period before its next earnings report later this month. But a spokesperson provided a statement on the category. “Retail media is becoming increasingly relevant today and has evolved to become the fastest-growing digital marketing channel out there,” it said. “Marketers want and need to connect more directly with customers. To do that – they need to know their customers better, the key for that is first party data. […] Large retailers, like Walmart, sit on a gold mine of first-party retail-powered data.” Moreover, the statement said, Walmart’s platform uses shopper data in ways that help consumers as they search and shop.
Maybe these optimistic pronouncements will prove out—and certainly they seem to be convincing to advertisers. Sure, it could be risky for a retail brand to try to insert an entire advertising business in between itself and the customers whose trust it relies on. Right now, it looks like that’s a risk that Amazon, Walmart, and other retailers are apparently willing to take.