Ad Agencies Need to Innovate to Win in Retail Media

Total digital ad revenue in the US climbed 10.8% to nearly $210b last year, despite a slowing economy and a myriad of other challenges. While the growth rate is a far cry from the 35% figure in 2021, it still shows that marketers continue to spend online to drive purchase consideration. But there was an interesting stat included in that $210b spent last year – 20% was on retail media advertising. 

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DTC Brands Need a Publishing Arm

Why is a publisher model appealing to brands? An emerging crop of companies with recurring revenue and large customer bases have discovered that “owning” audiences is better than “renting” them according to CBInsights and ultimately a way to reduce CAC and build more loyalty.  Over the last few years, a growing crop of financial service and SaaS based firms have been acquiring media companies – JPMorgan bought the Infatuation, HubSpot purchased the Hustle and Robinhood snatched up MarketSnacks. Make no mistake – this was a play to decrease CAC (customer acquisition cost) and drive up LTV (lifetime value).   A recent CEO said “Every company should go direct to its audience and become a media company.”  While the noise has mainly been centered on businesses with subscription economics, another cohort that would benefit from this trend are the emerging crop of DTC lifestyle brands that have been growing rapidly over the last 5-10 years.  This isn’t unchartered waters; brands have been acquiring media companies for years. Going back to the days following the Dot.com bubble, J&J purchased Baby Center in 2001 for ~$10m with the goal of providing more content to expecting moms. Flash forward to today and the pandemic has created another opportune environment for brands to snatch up media companies. Since the spring of 2020, we’ve seen ecommerce sales skyrocket, digital advertising costs increase precipitously and LTV become paramount leading to the newfound realization that paying to advertise won’t have the same ROI as owning an audience to market to.  One of the largest blights these newly public DTC companies have is that they aren’t profitable – the primary reason being the amount of money spent on marketing. 

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Facebook & Twitter – A Move to Subscription Makes Sense

A recent report claims $TWTR is considering a subscription model to augment a significant decline in advertising revenue. This would be among the first of the big social media companies to consider this approach and I believe could lead to a reckoning in the industry. $FB is currently facing a backlash among advertisers who claim the social media company isn’t doing enough to control controversial rhetoric on its platform and will inevitably see a decline in advertising revenue. A few years ago, the idea of paying to access online “news” content wasn’t a thing. Publishers were primarily in the business of selling ads in offline media and as they built their online presence they carried this business model over. As consumers got irritated with intrusive ads, it became clear they had to change their offering. Newspapers such as the NYTimes piloted new paywall programs to test consumers’ appetite for subscription based products. The result was mostly favorable, and as a result, many publishers today have pivoted their business models to favor subscription over advertising revenue especially as it becomes increasingly difficult to get ad dollars from brands in a world in which the big tech companies ($GOOG, $FB, etc) dwarf smaller publishers in traffic.

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