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10 minutes of expert insights every weekday. Your morning ritual for staying ahead in retail media.
Marketplace as an Engine and Ad Revenue
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[00:00:00] Kiri Masters: last week I was on a panel at Mirakl's Annual Customer Summit in New York when the moderator opened with a World Cup analogy. Most of the room had already qualified, he said. They had a marketplace up and [00:00:15] running, but qualifying and winning the tournament are different things.
[00:00:20] I reached for a sports metaphor too, but because I can't fake being a sports fan even if my life was on the line, I got my own sports [00:00:30] analogy wrong on stage. But history belongs to those who write it, so I'm going to just fix it.
[00:00:38] I said that having a marketplace was like getting a whole bunch of people to buy tickets and get to [00:00:45] the stadium, and that the next step was selling them popcorn and drinks. But concessions aren't really where the money is. what, upon further research, actually makes a sports franchise valuable is the media rights and the [00:01:00] sponsorships, the money a franchise commands because it reliably draws an audience.
[00:01:06] You spend years building a team that's worth watching, ~ the enterprise value sits in what you can sell against the crowd. And the enterprise value sits in~
[00:01:10] ~The enterprise value is in what you can sell against that crowd. ~The enterprise value is in what you can sell against the crowd that turns [00:01:15] up
[00:01:15] Now that is the better analogy for a retail marketplace
[00:01:19] The assortment is the team, the reason that anyone shows up. Advertising is the media rights layer on top
[00:01:29] But some [00:01:30] retailers who've built a healthy marketplace and have a roster that people actually come for haven't started selling against the audience at all
[00:01:38] Let's jump in.
[00:01:40]
[00:01:41] Kiri Masters: A marketplace and a retail media network aren't two [00:01:45] businesses that you run side by side. They're part of the same flywheel.
[00:01:50] A healthy marketplace is constantly adding sellers. Those sellers compete for the same shoppers, and on a marketplace, the way you stack the odds in your [00:02:00] favor is visibility, which is to say advertising. More sellers means more competition for visibility, which means more advertising demand, which means more revenue to reinvest in the experience, which attracts more [00:02:15] sellers.
[00:02:15] The marketplace is an engine. The ads that sellers buy is a phenomenal way to monetize the competition that the engine creates. Advertising is the exhaust [00:02:30] of a healthy marketplace. Now I've spoken before about the retail media doom loop, the trap where retailers stand up a network by repackaging finite trade dollars.
[00:02:42] They ride that early [00:02:45] spike in ad revenue,
[00:02:46] But
[00:02:46] Growth stalls when that money runs dry, and they can't justify the next round of investment in technology and people to the company because the growth has slowed. [00:03:00] Marketplace ad dollars are one way out of that doom loop.
[00:03:04] This is net new ad revenue coming from motivated sellers who need visibility to survive, who are spending money that your merchant team [00:03:15] isn't already counting in their P&L.
[00:03:17] At the event, Miracle co-founder Adrian Nussenbaum interviewed Michael the VP of Marketplace at Lowe's, alongside Latoya Towns, the [00:03:30] Stanley Black & Decker leader who ran Black & Decker's launch on the Lowe's marketplace.
[00:03:37] Now, Lowe's uses its marketplace to do things that are hard to pull off in a physical store and are [00:03:45] hard to pull off as in a first-party supplier relationship. So items like above ground pools, infrared saunas, oversized seasonal items, all of that long tail stuff [00:04:00] that a big box footprint can't really hold.
[00:04:04] It lets Lowe's say yes to customers instead of no. it also lets them move fast. Now, I wasn't personally aware of this trend, but everyone else in the [00:04:15] audience seemed to be, which is this, uh, porch goose. It's a goose, like a gnome, a garden gnome that sits on your porch, and for some reason, this kind of took off culturally, [00:04:30] became a top seller.
[00:04:32] and Lowe's was able to have inventory for that trending item, and this is something that their merchant team probably wouldn't have picked up themselves. So this dynamic way [00:04:45] of adding to assortment
[00:04:46] taps into the wisdom of the crowd in a way. Lowe's said that they more than doubled their SKU count inside of a year. Now they have thousands of sellers, and importantly, we'll come back to this later, it is still [00:05:00] invite only. They really want to protect brand trust. And another major plus here is that a real chunk of marketplace customers are actually new to Lowe's, so they're bringing in net new customers as [00:05:15] well. But Lowe's said that they deliberately didn't want to launch advertising for their marketplace sellers in year one. They wanted to launch the marketplace and get that right, and they planned on [00:05:30] bringing it in later.
[00:05:31] But McCluskey from Lowe's actually talked about how they pulled forward their ads program because the sellers themselves were asking for it. They wanted to start spending [00:05:45] on ads. They said they already have budget allocated, and that is the flywheel turning on. You don't have to manufacture demand for an ad business which is attached to a marketplace.
[00:05:58] If a marketplace is [00:06:00] healthy, the sellers show up asking where they can buy ads
[00:06:04] They know that to beat the incumbents to the top of the search results, they have to pay their way up. this is something that I mentioned in a debate that I did [00:06:15] at Shop Talk a few months ago, how I was making the case, and I had to play a caricature of this argument, that retail media is good for the customer experience.
[00:06:26] And one of my points is that the organic [00:06:30] ranking system across most retailer websites is based on things like sales recency, sales velocity, top sellers. Those are the products that show up top of search results. And what that means is that the incumbents get [00:06:45] rewarded and new entrants get buried at the bottom, even if that would provide a really good
[00:06:51] buying opportunity for me as a customer. It might introduce novelty. It might introduce something that I hadn't thought of before. It [00:07:00] might
[00:07:00] be more relevant And this is something that marketplace sellers are used to. They're used to paying their way to the top of search results and this is something that can improve the customer experience as well as give these sellers what they want, which [00:07:15] is a shot at the top.
[00:07:17] And the brand representation on the panel made that case concrete. ~Latoya Towns from Black & Decker~
[00:07:23] ~said that ~Latoya Townes from Black & Decker said that that brand, Black & Decker, has about as much brand awareness as a tool [00:07:30] brand can possibly have, and they still want to spend on retail media, on the Lowe's Marketplace, not to build awareness, but to surface their extended marketplace assortment to customers who don't yet know that it [00:07:45] exists.
[00:07:45] This is a high-awareness brand that is still eager to run ads in order to maintain findability across their whole catalog The rules [00:08:00] of retail media are being rewritten. Discovery is shifting, the economics are following, and the retailers and brands defining the next era aren't watching it happen from the sidelines. Meet the Miracle Ads [00:08:15] team at Cannes Lions June twenty-two to twenty-six for curated conversations, exclusive events, and one-on-one strategy sessions built for where the industry is headed.
[00:08:27] Commerce First Media [00:08:30] starts in Cannes. Click the link in the show notes to learn more the reason that this conversation with Lowe's really stuck with me is that some other private conversations I had that week were with retailers running only half of the [00:08:45] playbook.
[00:08:45] One retailer that I spoke with runs a genuinely good marketplace, and they haven't layered ads on top yet. The demand is probably sitting right there. Their sellers are competing for visibility, whether or not anyone's [00:09:00] actually charging for it. But this retailer isn't capturing any of that upside.
[00:09:05] Another retailer that I chatted with had the opposite problem. They have a thriving retail media business and a leader who wants to add a marketplace precisely [00:09:15] because they can see the net new ad dollars and the more interesting assortment on the other side
[00:09:22] But the internal view at their company is that marketplaces look risky. And marketplaces [00:09:30] are risky if you do them badly. Counterfeit items, quality control, brand safety. If a customer who has a bad third-party experience blames the retailer, not the seller.
[00:09:44] They don't see the [00:09:45] difference. And it's for that reason that Lowe's, Target Plus, and many other retailers have stayed invite-only for that reason, and they've still been very successful at recruiting hundreds of [00:10:00] sellers. But there is a prize here for that effort. A Forrester study commissioned by Miracle in December of 2024 across 160 retailers in North America, Europe, Middle East, and Asia [00:10:15] found that the mid- and long-tail advertisers account for about 28% of retailer ad revenue on average.
[00:10:23] So under a third of ad revenue comes from the mid and long tail. But the top [00:10:30] performing ad networks actually derive 85% of their ad revenue from the mid to long tail. This means that their ad revenue isn't concentrated in a super small group of advertisers, which [00:10:45] could be volatile, where they have more sophisticated needs around measurement and different ad unit types and campaign planning
[00:10:55] Very interesting to see that change of revenue split between the [00:11:00] average retailer and the best-performing networks. I'll leave you with the wrinkle that Dan Brenner, who is a partner at Bain & Company, who was speaking, uh, on the panel that I was on. He said, "Say that you do all of this right.[00:11:15]
[00:11:15] You build the marketplace, you switch on the ad engine, you tap the long tail, you hit escape velocity. There is a version of this story over the next few years where a chunk of those hard-won dollars get disintermediated [00:11:30] anyway, where AI shopping agents assemble baskets without ever passing through the search results and category pages that retail media monetizes."
[00:11:40] Now, I have spent more than my fair share of [00:11:45] word count and minutes on this podcast arguing that same point. But this is where format evolution steps in. Retailer chatbots can bear some ad load, not the same volume [00:12:00] of ad results as on a search result homepage, but presumably these will be more relevant results that brands would be willing to pay more for.
[00:12:10] And there are other ad formats that are resilient to AI-assisted shopping [00:12:15] journeys. I've talked about a number of them in the past. I'll link up to some previous blog posts that I've written about this. So this isn't a finish line. The finish line is changing, but it is a better starting position. The [00:12:30] retailers who get the marketplace and the media business spinning as one flywheel will be in far better shape to adapt to whatever comes next than the ones running a network on fumes from the trade budget.
[00:12:44] Thanks for [00:12:45] listening. I'll catch you tomorrow
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