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Distributed innovation: how advertisers are driving adtech’s next evolution

By David Billings |

EPAM Continuum


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April 19, 2022 | 6 min read

Are we seeing a boom in how media monetizes its efforts? As part of our Deep Dive into Digital Advertising, David Billings, head of digital media at EPAM Systems, looks under the hood of retailers’ latest adtech evolution: bold new media platforms tailored to a post-cookie world.

EPAM on what brands can learn from the changing face of retail and its use of adtech.

EPAM on what brands can learn from the changing face of retail and its use of adtech

In the flurry of recent retail media earnings stats, one of the most eye-catching remains retail store Kroger’s 2021 announcement that its advertising business drove $150m in incremental profit – roughly 5% of total operating profit; the kind of figure that gets shareholders excited.

Retail media is big business. Looking at how Kroger achieved this exposes an even more important industry trend.

Distributed adtech innovation

Kroger drove such impressive results by investing in the development of its own highly-differentiated media platform. Kroger isn’t alone in doing this, but it was an early indicator of a new era of increasingly distributed advertising technology innovation. As a more diverse range of businesses begins to allocate capital to drive this type of innovation, we can expect to see both an accelerated pace of adtech and evolution, and more announcements about the meaningful shareholder value that these platforms unlock.

Until recently, developments in adtech have almost exclusively been driven by technology vendors. Media’s ‘service layer’ – predominantly media agencies – owns some IP, but the best of this has been acquired, rather than built in-house. While advertisers’ media spend has ultimately funded innovation, advertisers themselves have typically been consumers, rather than creators, of this technology.

Today, this is changing. The current retail media boom provides the clearest illustration.

Pandemic-driven growth in e-commerce has simultaneously hit the margins of traditional retailers through increased online fulfilment costs and turned them into sizeable, data-rich digital publishers. This, paired with the public successes of Kroger, Amazon and Walmart, has triggered a wave of retailer investment in media monetization capabilities.

A market reaching maturity?

The speed of market growth – estimated at a four year compound annual growth rate of 25% – has also driven rapid development in market maturity. A year ago, many retailers were content to dip their toes in the water by selling a few display placements via a network model. Today, recognition of the size of prize available, plus an expectation that advertisers will rapidly consolidate spend into two or three retailers per vertical per market, is driving an arms race between retailers as they vie to secure market share.

Leading retailers are responding by stitching together capabilities that span multiple channels, formats and areas of value creation – consumer insights; cross-channel planning; sophisticated attribution. Building a differentiated capability with this breadth and depth can only be achieved by building custom integrations across a complex ecosystem of third-party vendors. Packaging this up into an easy-to-use platform requires the retailer to build its own front-end. At its best, the result is a sophisticated and rapidly-developed media platform, using a combination of third-party tech and retailer IP.

Post-cookie complexity

This movement toward custom platform development is not confined to retailers. In consumer packaged goods (CPG), concern about the impact of cookie and mobile ad ID deprecation has triggered a similar trend. CPGs recognize that mitigating the impact of these changes requires a combination of new technology and their own consumer data.

The sensitive and strategically valuable nature of this data means that they aren’t comfortable outsourcing decision-making to their typical service providers, and are instead engaging directly with complex, customized adtech – often for the first time.

The complex use cases of a best-in-class ‘post-cookie’ media platform (how to match deterministic data sets? How to plan effectively using contextual signals? How to make probabilistic investment decisions when conversion pathways can’t be tracked?) means that, like retailers, leaders are architecting sophisticated, multi-vendor solutions. As with retailers, large CPGs are beginning to package up solutions in a way that fits their specific planning, reporting and reconciliation processes through the development of easy-to-use front ends.

Done well, the result is platforms that enable large advertisers to derive substantially more value from consumer data than their competitors. They can scale this value across organizations by inviting multiple teams – brand managers, media planners, insights, creative, CRM – to operate within a single, integrated product. For large CPGs, the incentive to get this right is substantial, as the promise of genuine technological differentiation paired with the vast troves of data generated by spending billions of dollars on advertising will create an advantage that is hard for competitors to overcome.

It’s still early days, but market leaders across industries are now driving adtech’s next wave of innovation themselves by building impressive, multi-year media product roadmaps, allocating tens of millions of dollars in capital investment and hiring their own development teams. Developing technology is not easy for non-tech organizations, but with such big rewards for those that get it right, expect to see more businesses taking on the challenge.

Read more from The Drum’s latest Deep Dive over at our Digital Advertising hub.

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Our diverse, integrated consulting teams apply a Systems Thinking mindset to get to the heart of our clients’ increasingly complex business challenges.

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