How Does Your Walled Garden Grow? Insights for Media Companies

Why retail media networks are already opening up to grow their businesses–and the potential risks for the long-term

Retail Media Networks (RMNs) have seen tremendous growth in recent years. With direct access to shoppers and rich customer purchase and intent data, RMNs have valuable first-party data that can be leveraged by any brand. As the deprecation of third-party cookies looms, RMNs have only become more important. Retailers’ first-party shopper data gives advertisers accurate and relevant information to build powerful and personalized experiences. To understand the growing role of RMNs within the digital landscape, consider Amazon, the 800-pound gorilla of the space. In 2022, Amazon captured 12% of digital ad spend; just over a decade ago, it wasn’t even in the advertising game.   

Over the past few years, RMNs emerged as the newest walled gardens. Like AOL, Google, and Meta before them, these retailers are packaging and selling their own inventory across owned-and-operated websites and apps, handling everything from targeting and trafficking ads to reporting and optimization in-house. 

And yet, recently, some RMNs have started to adopt a more “open web” approach–with potentially dire consequences.

Why are RMNs opting for the open web?

For any retailer except Amazon, scale is a challenge. There simply aren’t enough people visiting a retailer’s site (even a big box retailer’s site) each month to enable the precision targeting to which most digital advertisers are now accustomed. Even for broad awareness campaigns, RMNs may struggle to deliver enough impressions. As a result, some RMNs are choosing to partner with external sites and exchanges to expand their reach and fulfill larger deal sizes through audience extension. 

In this way, RMNs extend their reach across the web, using their first-party data to develop lookalike audiences or using data enrichment to reach their own customers on other websites. Audience extension is proving vital to many publishers as a means to grow their businesses.

But scale isn’t the only reason RMNs are turning to the open web. The modern tech stack is a major challenge. Many retailers simply don’t have the resources or talent to build the proprietary infrastructure required to support a walled garden. Instead, they are turning to existing ad tech companies, from exchanges to identity resolution providers, to help accelerate monetization 

Finally, the reality of buyer behavior–and the difficulty of changing it–is a third reason RMNs are opening up. “Advertisers have been very clear that they have no interest in data silos or being forced to log in to another white-labeled DSP,” Allison Schiff noted in AdExchanger. This is a major reason why big names like Walgreens and Macy’s have gone the open web route, allowing their advertisers to onboard their CRM data to the DSP to match against the RMN’s audiences. 

While opening up may seem like a quick fix for RMNs, the long-term implications for RMNs may be less rosy. 

Playing the long game 

When it comes to building a sustainable RMN, publishers have to look far into the future and consider potential gains and losses. Retailers have a stronghold on their customer data and, thus, a captive market. It is well acknowledged that RMNs currently charge a premium for licensing their data and charge CPMs well above those found on the open web. 

While premium prices don’t guarantee premium outcomes, RMNs who partner with open exchanges to monetize their inventory run the risk of inadvertently triggering a race to the bottom, eroding their own value. As agencies get smarter about supply path optimization (SPO), RMNs may lose out on the direct deals that generate premium CPMs. After all, if advertisers can purchase the same segments at a lower price on the open web–or the same inventory via a third-party DPS–why would they buy directly from the retailer? 

And the concerns don’t stop there. Take, for example, the Twitter conversation that erupted in response to Macy’s striking a partnership with The Trade Desk to monetize Macy’s inventory. Trust Web CEO Judy Shapiro took a particularly cynical view: “Here’s what vexes me. Programmatic, at its core, is built to be opaque. So TTD could easily arbitrage the data in many ways without Macy’s ever knowing or being able to know. Contracts notwithstanding, it seems that Macy’s took their most precious data and commoditized it.” 

Ultimately, when RMNs choose an open-web approach, they risk losing control of their data—and their business model—over the long term. 

The bottom line 

The very thing that makes RMNs so valuable—their first-party data—could be at risk depending on how RMNs choose to evolve their businesses. As some RMNs opt for a more open approach, they will capitalize on short-term growth and may avoid the expense of maintaining a walled garden. Over the long term, however, they run the risk of devaluing their greatest asset. 

To succeed in an increasingly competitive field, retailers must get smart about using their data–understanding it, packaging it, and protecting it. This requires using software that can provide a single source of truth and provide much-needed insight into what’s working for which advertisers and what objectives are on their platform. First-party data can pay dividends for retailers that place a premium on it.