# S1 E5 History of Retail Media Part 2 - Current State

S1 E5 History of Retail Media Part 2 - Current State 

[00:00:00] Hello, and welcome to the next episode of the Middlemen, featuring myself and my partner Tom Limongello. And this is episode five, the second episode of our three part series on retail media. We're gonna talk about the current state of retail media, um, after last week's, uh, bonus episode discussing the trade desk s and p 500 or 20,000 or whatever it is. 

[00:00:28] Um, we're going to dive back into retail media today. And to start off like, we like to start off with some recent news around the topic. Thankfully, there's lots of news around retail media these days. Last week there were a discussion news around Costco's new retail media network. And I just got it. Tom, before I let you talk about what, what that announcement was or wasn't, um, I just have to say as an aside, can we stop for the love of God calling them retail media networks? 

[00:00:56] They're not networks. There's one site, one retailer [00:01:00] per, they're retail media entities, publisher, retail media, publishers. Yeah. Maybe they're publishers. They're not networks. They're very premium publishers. Right. Yeah, they're premium publishers fine, but they're not rec like if a network, we've been, we've been using the term ad networks for a long time. 

[00:01:15] Yep. It means a network of different publishers. That is absolutely not what's going on here. There's one retailer and so can we please, for the love of God, stop calling the retail media networks. Stop calling. I, I'm totally, or our mps. I am totally okay with that. Yeah. Until somebody is allowed to aggregate them and, you know, it hasn't seemed to be the case that, that it's that easy to do that. 

[00:01:35] Yeah. All we're seeing is a lot more fragmentation. So, um, on the Costco news, I first congratulations to Mark Williamson for launching. Um, but what he launched was not, um, the retail media network. Or, you know, retail media in general. 'cause he's been there for a couple years, they've already been doing retail media. 

[00:01:54] What he, what was announced, um, is something interesting. Um, and [00:02:00] that is. Offsite retail media. And why is that interesting? 'cause a lot of other retails already have that. The reason it's interesting here is that it's a club store. And I remember at Quotient when we were pitching, we tried to pitch Costco, BJ's and others, and it was a little early for doing offsite with the club stores because not, not because they didn't have a large enough, uh, set of people. 

[00:02:25] Costco has like 75 million shoppers. Um, there was a wonder, does it make sense to be marketing offsite to, um, you know. To people in with the idea that yes, you have loyalty customers, but you might also hit some people who are not club members, is that wasted media? Um, and so I think that that was something that needed to get the, the, the retailers needed to get over that first. 

[00:02:52] Um, but I have my own rant about retail media. Um, and that is. We end up calling [00:03:00] it retail media and whether it is onsite sponsored search, whether it was offsite, uh, audience extension or if it's, you know, in store digital at home. Um, and so to me the biggest thing is, you know, separating these different capabilities and talking about them rather than just sort of, it has arrived and it is one big monolithic thing. 

[00:03:21] It should be. Let's talk about offsite audience extension for club stores. So that's my rant. Uh, it's, it's a, a, a perfectly reasonable rant, right? That, that, you know, what, where are we? Because today's episode is where are we, what's the current state of retail media? And you know, I think one of the big things that we're seeing, and, and again, like with, with Costco and others, which is, you know, what's changed from the early days of retail media when Quotient and Epsilon really got this whole sort of thing going. 

[00:03:51] Or triad even earlier than that. What is retailers are, are bringing this tech in-house and [00:04:00] they're no, you know, the, the managed services to an extent declined. Uh, quotient obviously was broken up, and, and I'd really, it'd be good to talk about, as retailers have kind of emerged as these publishers, right? 

[00:04:11] They're, they're buying pub tech, they're not necessarily building anything. We'll talk about what the state of that tech is in a second, but it'd be good sort of as, as. Retailers are acquiring that tech. Like let's give some perspective on, you know, what did you do at Quotient? More on the details in the weeds. 

[00:04:28] Like what are the functions that you provided them? Like what did, what had to happen for a retailer to even get into the business of retail media? Yeah. And it'd be good to understand like what you personally did, your experience at Quotient. 'cause I think it's really relevant to understanding what it takes to be a retail media publisher and be successful. 

[00:04:47] Yeah. I think the best way to do it is to go back a little bit and talk about sort of where we came from. You know, with, with Triad when they, they created a display network for, for retailers. [00:05:00] Um, and when I joined in 2018 at, at, um, quotient, they already had some good relationships. Albertsons already existed. 

[00:05:10] Um, there was a ton of relationships, uh, from the coupon side of the business. Where, you know, almost every retailer worked with us on the coupon side, but we were starting to develop retail media capabilities And just to insert, uh, quotient ran coupons.com, correct? Yeah, that's right. And, um, the, the thinking was, to your point, we were making these retailers into publishers, but. 

[00:05:35] The lesson from Triad wasn't completely learned yet, and that was that display advertising on site for retailers basically was a failure. Um, and there were two really big reasons why it was a failure. One, um, you could say that anybody other than like a Walmart or an Amazon didn't really have enough traffic. 

[00:05:56] To personalize the ads, um, in any way or even [00:06:00] really segment them. Um, we really were just sort of, you know, selling them in a really, uh, you know, very early, uh, you know, sort of 1.0 stage of, of things in terms of display because there just wasn't enough traffic to segment. Um, and then the other thing, which is even more damning was that the retailers didn't like the model of display ads where you would click out to the advertiser's site. 

[00:06:24] I. And so, and that was actually worse than just sort of, you know, the fact that it was, you know, it was sort of, um, not particularly targeted. The more important thing was the retailer really didn't want to interrupt the shopping flow and take somebody to a Mondelez site. They wanted always to keep the using, you know, keep the shopper, um, moving down the funnel and getting to a purchase. 

[00:06:49] And so. It wasn't really until sponsored search became sort of the, the focus and at Quotient we acquired a company called Elevate. [00:07:00] They were out of London. They had, um, relationships with Morrisons and Iceland and I, I think we may have talked about them a little bit in the last episode, but specifically talking about how when we brought that capability of theirs to Albertsons and then to a Do Hayes, um. 

[00:07:17] It really was a perfect product market fit because, um, it was a native experience. So somebody would search or somebody would browse and they would be in that grid of products and there would be sponsored flags on, on certain, you know, maybe the, the first, third, and fifth product on the page. And that, um, was a great experience because if somebody clicked on it, they didn't go offsite. 

[00:07:40] They went just into that category and that PDP. And another part of it was most of these retailers were learning from the Amazons and Walmarts of the world who were very focused on expanding the capabilities and, and the depth and the richness of the product detail page. And so they wanted not only to click to the product detail [00:08:00] page, but also to have that product detail page via really like a whole ecosystem with reviews and um, you know, images and videos and all that kind of stuff. 

[00:08:08] So it really fit the retailer's strategy. To keep the user on site. And what it meant was that publisher ad serving really took a backseat and to some extent didn't really exist for the retailer. So it's interesting that to, to think about that retail media doesn't take off until the retailers move beyond display and you know that your seat, you saw the rise of. 

[00:08:38] Call it ad serving for sponsored recommendations for sponsored search. Credio has offerings in that space. Keble has offerings in that space. And, and as that transition occurred, retailers could go into sponsored search and sponsored recommendations. Suddenly retail media, uh, you know, takes off and, you know, talk about the, the onsite part of it. 

[00:08:58] Yeah, the onsite part of [00:09:00] it. And, and you know, it's interesting talking about your experience, you know, as you and I have talked about your experience at Quotient in terms of. You worked with, your job was to work with brands and get their money for the retailers like your, you worked, you supported Albertsons, correct? 

[00:09:14] Yeah. So Albertson, I mean, I went across all the retailers and you know, I remember early on, um, there was a lot of, you know, initially, you know, anybody who was at Quotient was like, well, our customer is the retailer, so we want to do whatever we can do for them. But there was always this sort of dividing line, like our strategy was really. 

[00:09:34] Retail media, but there was also the retailer themselves had their own brands and they had their own consumer acquisition challenges and things. And we actually split off and had a bit of an agency business. Um, and Mike Halverson actually, who is now over at Albertsons and doing great things, um, with that team he was on, on that agency business that was separate from the [00:10:00] strategy to. 

[00:10:01] Uh, basically monetize the retailer's audiences with the brand and monetize, um, you know, activate across different channels. So in addition to what we bought with Elevate, we bought Ology, which was for, uh, creating micro influencer content that would get served to social. Um, in, in paid campaigns, but it had a, a bit of an arbitrage because that the quality of the posts were good enough so that it actually had a, a, a, an amount of relevance that was better than advertising at the time. 

[00:10:34] Um, and then we also bought a DSP, um, obviously to, to lower our costs on the mobile side 'cause they were a mobile DSP, but they also had digital out-of-home capabilities. So that, um, sort of brings us to one of the, the capabilities that become very interesting for the retailers. Um, one for the out of the store, uh, advertising, but then eventually to bring that same technology into the store on the screens that exist in the, in, in the retailer on the [00:11:00] retailer's floors. 

[00:11:02] So what, what were you, you know, what the pitch to the, to the brands. Yep. What was that like? What was, what really got them to lean into spending on and with the retailers? Well, um, the, what we were really selling, apart from all of the activation capabilities that we put together in our ad tech stack, what we were really selling was activation based on identity resolution. 

[00:11:31] For an audience that was known from the retailer's loyalty program so that we could measure with closed loop accuracy, uh, a first party data audience that we could say. If you advertise against this audience, we can tell you if there's a sales lift and if you spend enough Mr. Brand advertiser, we can actually show you incremental ROAS or incremental, uh, spend that's happening outside [00:12:00] of all the other marketing that you're doing. 

[00:12:02] Um. On the campaigns that we're running. So really you closed measurement, that was the sale. Um, and the activation became sort of a, you know, a one stop shop capability that we put together over time. I, I, you, you touched on a good point, right, which is still driving retail media today, which is the attribution closed of reporting, right? 

[00:12:22] I can, I can identify users, I can identify the conversions and you know, one of the interesting things there is. What was the tech that really enabled that and in a way that retailers weren't giving away their real secret sauce. The data, right. That closed loop. Right. Data and reporting. Well, I mean, I think what's interesting now is that a lot of it, what, you know, to the beginning you had the rant about, you know, about a, a retailer is a publisher. 

[00:12:50] Some of that tech is not new. It really is coming across, um, you know. I would say that there were a few things that really sort of put it together. One [00:13:00] is at Quotient we were taking the retailer's data and segmenting it into brand buyers, category buyers, things like that. And then we were using I, uh, LiveRamp as an identity resolution partner to mobilize that data to, you know, the various DSPs that we use, and then eventually our own DSP, um. 

[00:13:19] Then after that, once that was creating, you know, businesses that went from zero to 50 to $70 million a year, um, as it got a little more mature. There was an interest. The brands wanted to bring their own data to the table because they didn't want to over frequency, uh, the, the shopper, you know, or, or you know, whether they were doing it within the retailer's activation or against the rest of the activation that they're doing on CTV or social or whatever. 

[00:13:47] Um, and so I think that there was, uh, an interest in, uh, clean rooms, which. I think when we were talking about this before, that wasn't new. That was something that came outta GDPR in Europe, but [00:14:00] I think retail media catalyzed the usage of it in the US to a big extent. I think it really wouldn't have been anywhere today if it wasn't for the fact that, um, retail media was like the retailer was afraid of losing the rights of their data. 

[00:14:14] The brand didn't wanna share their data, and so they needed these sort of clean rooms to. Get to a place where they could do mid to higher funnel, uh, campaigns. Well, what's interesting, right? Again, when we look at the landscape and the right clean rooms weren't invented retail media, but they're, they're definitely using retail media. 

[00:14:36] Uh, ad serving wasn't invented for retailers, but they're leveraging it. You know, identity resolution wasn't invented for retailers, but leveraging it. These are all like, what was interesting is there's no new tech that was really required for retail media. But what, what seemed to really catalyze it was the retailers realizing their pubs effectively buying pub tech and then in housing that right, the move away from the managed service that like Quotient was providing. 

[00:14:58] And so as they in-house [00:15:00] it, it really started to take off and has become, you know, probably the, the highest growth area for, for digital media spend, at least in the us. And so, yeah, I think that's interesting is we're seeing, right? And so what's with this in-housing trend and you know, we're seeing Keble, we're seeing Criteo, we're seeing Trade Desk, we're seeing lots of these, these companies, LiveRamp you mentioned, um, in, in, in powering these in-house retail media teams. 

[00:15:26] What's also fascinating is your, you know, to your comment earlier about some of the quotient people we're seeing lots of quotient people end up in these jobs and who are the people who are literally like staffing and running these, these in housing department? I mean, I think, yeah, I think the, you know, you see some product people, you see a lot of sellers, um, you see a lot of those people there. 

[00:15:43] Um, there's, I think there's probably quotient people in almost every retailer and every vendor now, um, across the market. And I think that's great. Um, but I also think that. The, and this is actually like one of the things that Mike Halverson had [00:16:00] said, um, which is very interesting, is that the power of the merchant or the retailer's, you know, in store person, um, is so great that no matter how awesome the tech is, um, if you don't align your incentives with the merchant for the in-store, uh, capabilities or, or that part of the business that your retail media efforts might fail. 

[00:16:25] You know, I think that's, that's sort of, you know, to that point, what's also fascinating to me is that the retailers haven't seemed to hire the ad ops people. Right. This is all at the people who run this, these systems and run this, this software are ad ops people. Yeah. Hiring sellers. They're hiring some product people. 

[00:16:46] But you haven't seen like the wave of Scott Messers, right. Scott Messer well known. Ad ops, uh, guru came outta a leaf group in la. Um, and you know, this is what's fascinating to me is that, you know, you would think you'd see Scott Messer and his [00:17:00] clones, staffing and running these retail media, you know, operations at, within these retailers. 

[00:17:05] So, well, I'll give interesting that we haven't seen that trend yet. I'll give you, uh, my hint or, you know, my, my thinking as to why that hasn't happened. Um, as much as we were, you know, running A-D-S-P-I. We were basically doing a lot of open market buying, and so there wasn't a lot of programmatic know-how that was even necessary to, to run these, these businesses. 

[00:17:27] Um, I think that, you know, the, you know, most of what we were doing was low to mid funnel and it was fairly low CPMs, a lot of mobile inventory. Um, and it was all spot, you know, there was a little bit of PMPs sprinkled in or whatever, but that was not the main, um, thrust of it, mainly because I think it was a managed service game. 

[00:17:51] And I think that the in-housing potentially allows some of that to, you know, sort of find platforms that have a little more transparency to them. [00:18:00] But I also can imagine that. Um, the retailers are still guarding their own managed service capabilities and potentially not giving credit when the media is bought outside of those managed service capabilities. 

[00:18:16] You know, I think one of the interesting things is that quotient and, and still Epsilon right to this day, are offering a, a managed service where they, the entire retail media operation is outsourced and. Now what's happened is, you know, and, and managed service campaigns are being offered to the brands of the retailers. 

[00:18:33] And today the retailers themselves are offering these managed service campaigns. Like there's not like a, it's not a big self-service industry, like big brands don't. Yeah, do self-serve campaigns, they, they hire agencies or they have, they get managed service from the, the publisher or retailers in this case, um, as the case might be. 

[00:18:51] And so it sort of moved from one version of managed service to another, but managed services continue, which again, the people who run campaigns are more like ad ops people, not necessarily [00:19:00] sellers. So retailers, if you're thinking, if you're examining your businesses. I think areas for, for investment, especially human investment, will be on the ad ops side. 

[00:19:10] 'cause you know, the other state of the industry in terms of retail media that we hear is there's this 1% goal, right? Going back to, we talked about this history of retail media, 1% was sort of the co-op kickback that was targeted, um, in terms of the spend from the retailer to the brands. The brands would kick that back as 1% of, of co-op. 

[00:19:29] What we're seeing is, and, and all that I've heard is that. The brands aren't even close to spending 1%. So there's lots of retailers chasing more money. They think they should be eating more. They've all told their boards and whatever that, and their management teams, oh, we're gonna get 1%. And if they're short, I think they can do better by investing in ad ops. 

[00:19:48] I. Delivering great campaigns, compelling campaigns, and you know, to your point, incremental sales lift to these brands would be a, a killer. So I think the ad ops thing will be, um, an area to look, look to [00:20:00] that's a little bit of the future, and we'll talk more about where the market's going and, and the implications of being first party versus third party, especially on the implications in terms of content. 

[00:20:09] Um, there's some interesting ones and, and next time we'll talk about like the impact of, of Walmart buying Vizio, CNET and Best Buy's partnership. There's some interesting stuff that that's gonna happen on the content side, but again, we're gonna save that for, for next time. And so when we look at the, the current state, right? 

[00:20:25] It's interesting that you know, to me one of the real compelling things about retail media, you talk about the data and the attribution, the closed reporting, like that's what we all thought digital media was going to be. Right. And the, the, you know, you've talked about the publishers didn't quite ever have that compelling story, but the Sure the retailers do that closed group reporting is just, just gold, right? 

[00:20:45] That's real value. You're not having to piece together reporting from 16 different players. I think that's just an unbelievable, and why it's such a huge story, why it's really starting to take off. Um, in terms of the implications of, you know, these retailers really are [00:21:00] potentially incredibly compelling platforms to buy ads on. 

[00:21:03] Yeah, I would agree. I think that's probably a good place to call it. 'cause there's lots we could talk about there. Um, but we, we do have another episode and I think we need to, you know, sort of. Show the sort of various areas where there is, there is innovation happening. Um, because I think this episode was kind of the empire strikes back. 

[00:21:26] There was, there was nothing new. There was a lot of down, there's a lot of down and, and dirty in terms of the details or whatever. But I think that, you know, let's, let's save some of the, the fun stuff for, for the next episode. Yeah. And in, and in the next episode, you know, we talk about the future of retail media. 

[00:21:41] Um, there's some interesting trends that, that emerge. Tom talked about. You know, the, the fragmented retail media landscape that is today. And that's a real, you know, we just touched on that, but every retailer is independent. There is no network. And what are the implications and what are the efforts are being done, you know, around programmatic sponsored listings or pro, you know, uh, [00:22:00] programmatic retail media? 

[00:22:01] Is, does that have a future, the future of, of retailers, as you know, if, if you take publishing to its nth degree. Do they start doing more on the content side? Like what's really behind the, the Walmart and Vizio tie up what's behind Amazon and Prime Media. Uh, and, and I mean prime video. And so I think there's some really interesting discussions for us to get into as to where does this all end up? 

[00:22:25] And it's, I, I think it's, it's really gonna be fascinating to see how retail media, many ways is the future I think of, of online and advertising. I would agree and tell. And so tune in. So tune in next week to do that. Like subscribe, uh, pay attention. And thank you for those who've, who've been listening so far and, and watching. 

[00:22:46] And we look forward to, uh, seeing you all, you know, again next week. All right. See you next week.