Are online advertising platforms a must for retailers?
“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?