Are online advertising platforms a must for retailers?

Discussion
Satya Nadella, CEO, Microsoft, at his NRF 2020 opening keynote - Photo: NRF
Jan 23, 2020
Tom Ryan

“When you look at online advertising, it’s a monopoly, oligopoly — pick your word. The concentration is clear,” said Microsoft CEO Satya Nadella at a keynote session at the NRF Big Show last week. 

“There’s death, there’s taxes and there is ever-increasing online advertising spend,” he said. “There is not much we can do about the first two.” 

Mr. Nadella then urged retailers to build out their own online advertising platforms to even the playing field.

“You have to change the dynamics. You have, as retailers, the most valuable asset: commercial intent and consumer behavior data. The question is: ‘How can you, through your marketing efforts, convert that into effectively new online advertising channels that could benefit every brand, every supplier?’ This, to me, is perhaps what’s needed to reshape retail,” he said.

For brands, online targeting from retailers would offer more options beyond “only one or two channels which have ever-increasing prices.”

Mr. Nadella asked rhetorically, “When was the last time you felt that partnership — as this big spender in one of these concentrated online channels — work for you?”

For retailers, establishing online advertising promises to offer “the highest gross margin business model across what you do.”

Retailers also “need it,” Nadella said, “because, guess what? Consumer expectations are only increasing. … If all you’re doing is allocating to more online advertising elsewhere, but not creating a new revenue stream, you will not have the gross margin to meet the needs of your customers.” 

The consumer experience online also offers other benefits. Mr. Nadella noted that having ad units on Home Depot product pages have been shown to increase engagement.

Finally, keeping advertising in-house can help retailers assure customer data is protected. Mr. Nadella said, “In a world where some of the biggest aggregators also happen to be technology vendors, you have to ask yourself the question, ‘Whom can you trust in the world going forward?’ And if you really don’t have that transparency, I think the retail dynamics can be very, very tough.”

DISCUSSION QUESTIONS: Does Satya Nadella build a compelling argument around the need for retailers to heighten investments in their own online advertising platforms? Are you convinced that retail platforms will appeal as ad targeting tools for brands currently using social media networks and search engines?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Outside of companies that exist to sell other people's brands, there is nothing in it but distraction."
"For the Targets, Best Buys, Home Depots, and Lowe’s of the industry, sure, it may work, but not the rest!"
"This is NOT a way to “reinvent” retail. It’s a fast lane to disaster. It’s just too bad Mr. Nadella is stuck in a digital-centric view."

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11 Comments on "Are online advertising platforms a must for retailers?"


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Nikki Baird
BrainTrust

Ugh. No. Yes there are some retailers that are large enough to be their own media platforms and monetize traffic to their sites without cannibalizing their own sales in the process, but those are few and well-known: Amazon, Walmart, and take your pick of any of the other marketplaces out there.

But outside of companies that exist to sell other people’s brands, there is nothing in it but distraction. I don’t go to a retailer’s website to be advertised to, I go there to shop. For the products they sell. If I wanted to be assaulted by ads, I’d visit Buzzfeed.com.

I’m sure that brands and the retailers who have the traffic will find some kind of mutually beneficial relationship here. The question is, does the customer win? My answer is no.

Art Suriano
BrainTrust

Retailers need to use social media as it is becoming the next big thing for advertising. As more shoppers choose to shop online, what better way to get their attention than with ads targeted to their needs? Today, technology allows for tracking of what a potential buyer has looked at online, and what they have purchased. This ability gives the advertiser tremendous advantages because they can customize and even personalize the ad to appeal to the customer. You can’t do that with any other type of advertising. And other forms of advertising are costly with no control of the placement of your ad. So using social media and all the technology available makes sense for every retailer to be using as a robust method to reach customers.

Gene Detroyer
BrainTrust

Why would I want to see self-promoting ads on a brand’s website? Is there something I am not understand here?

Ben Ball
BrainTrust

It’s probably worth noting that Mr. Nadella and Microsoft have been largely absent from the commercial applications of the physical and software platforms they created. For whatever reasons, and I am certainly not questioning Microsoft’s strategy nor success here, Microsoft has chosen not to venture into those spaces — largely leaving them to Amazon, Facebook and Google. Mr. Nadella makes a fair point about advertisers building and owning their own platforms being a stronger position long term, if they can get there. But how many brands can attract the eyeballs of Amazon to their own home page? How much investment would that take? And who would stand to benefit if they do? Maybe Microsoft’s Azure cloud services?

Ken Morris
BrainTrust

I think Mr. Nadella believes that all retailers sell other people’s product and not their own private label product. I agree with Nikki above, there is no way I would want someone to advertise their products to me when I’m trying to buy something. It’s a total distraction from my mission, to buy the product with one click.

Doug Garnett
BrainTrust

With the headline, I was hoping to learn that Mr. Nadella “got it.” But his comments actually suggest that he seems not to understand retail.

Amazon is, in fact, destroying their goodwill with their advertising platform. Consumers are complaining more and more about the struggle to find what they want on Amazon — BECAUSE Amazon’s advertising is getting in the way.

Retailers won’t be able to compete with Google and Facebook (read Brian Arthur about lock-in for increasing returns situations). It would be a massive distraction. Retailers would end up looking like Amazon — and that’s not good.

Net out, this is NOT a way to “reinvent” retail. It’s a fast lane to disaster. It’s just too bad Mr. Nadella is stuck in a digital-centric view.

Gib Bassett
BrainTrust

This is not a new idea. Several years ago this was a common conversation topic when I worked at Oracle, and I believe some such as Walmart (big MSFT partner) and Kroger have already moved on these opportunities. If you attract a huge online audience then yes, this is great! Monetize your data, sell access and insights to suppliers as part of the overall trade relationship. It can be a win/win – so long as the advertising is relevant and not distracting or damaging to the CX. But I agree with Nikki Baird in the first comment of this discussion. Not all retailers are able to attract a large enough audience to be an ad platform that suppliers can prioritize in terms of their ad spend. In the end, of course, Mr. Nadella is making a business case to have Azure be the platform for all of this (that was the idea at Oracle too) so it’s both self serving and a bit true IMO.

Peter Charness
BrainTrust

Last I looked the purpose of any advertising was to get the most (correctly targeted) eyeballs to see your “pitch” and move them to action, like visiting your website/store, be stimulated to purchase one or more products, or remember your brand. Shilling other people’s products and services to someone who has already made the decision to spend time with you seems counterproductive. Once they hit your website, ideally you can move them quickly to purchase and checkout.

Ralph Jacobson
BrainTrust

As usual, Nikki Baird has articulated my thoughts better than I could. It just doesn’t make sense for anyone but the largest retailers to take this route.

Ricardo Belmar
BrainTrust
The short answer is “it depends.” This will only make sense for the largest retailers, mostly big-box retailers who sell products made by other brands. As cited by Satya Nadella, Home Depot is a good example. If you visit their product pages, you’ll see a very familiar layout if you’re an Amazon shopper with lots of product info from the brand (many powered by Salsify for example) followed by recommendations and sponsored product placements. Those sponsored placements are where these retailers would seek to sell ad units to competing brands. The claim made during the NRF session is that Home Depot sees good engagement with these ads. Of course, if you’re a specialty retailer who has shoppers coming to your site because they want YOUR brand, this doesn’t make any sense at all and would only serve to irritate those shoppers and likely encourage them to leave. This really appears to reflect on Microsoft and shows us who they typically interact with directly in retail — it’s the big boys, not the specialty or up… Read more »
gordon arnold
Guest

Advertising content needs and format has come a long way since the 20th century. Consumers are looking for subject matter information content that is primarily focused on product/service components, safety and performance. Commercials for the now might serve to be platforms to invite consumers to visit a site location where the type of information they want can be found and divulged. I doubt if the commercials of old will be on today’s wish list or need.

wpDiscuz
Braintrust
"Outside of companies that exist to sell other people's brands, there is nothing in it but distraction."
"For the Targets, Best Buys, Home Depots, and Lowe’s of the industry, sure, it may work, but not the rest!"
"This is NOT a way to “reinvent” retail. It’s a fast lane to disaster. It’s just too bad Mr. Nadella is stuck in a digital-centric view."

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