Today’s broken media business is brought to you by a revolution in advertising. Starting about two decades ago, Google and Facebook figured out how to siphon off most of the ad revenues that had historically gone to support independent journalism. The duopoly is now the target of numerous antitrust actions by regulators around the globe. But the massive damage done to the news industry cannot be reversed. And now the problem is about to get worse.
A new revolution in advertising could have even wider implications for journalism, democracy, and our privacy. Not even Google and Facebook are safe. And though insiders are investing hundreds of billions in this next new big thing, hardly anyone in the wider world has yet to take notice.
It’s called “retail media.” Retailers are becoming media companies by selling your data.
The best way to understand retail media is in a supermarket. You take your shopping cart to the checkout and pull out your loyalty card. You disclosed your address, phone number, and other personal information to get the card. It seemed like a good deal. The card allows you to save a few bucks on selected items. And you might even earn some cash back for future purchases or points you use to buy gas.
Initially, there was nothing much else involved with such loyalty programs. Supermarket chains and other retailers used them to reward customers for not taking their business elsewhere. But eventually, retailers realized that the information they collected on their customers could be converted into big profits. There are far higher margins to be had peddling consumer data than selling milk and eggs. And once they realized that they were mainly in the personal data marketing business, it wasn’t long before they, along with other giant retailers like Walmart, Target, Macy’s, and above all, Amazon took the new business opportunity to a whole new level.
This transformation is exemplified by the proposed merger of the Kroger and Albertsons supermarket chains, announced in October. Most news coverage of this deal stressed that the merger would create an entity with as large a share of the national grocery market as Walmart’s. But that’s hardly the only reason why Kroger wants to absorb Albertsons. The deal would also allow Kroger to gain market share in personal data and then leverage that into advertising revenue, which is far more lucrative. Supermarkets make an average 2 percent margin selling groceries, even when they enjoy local market dominance. But, according to a study by the Boston Consulting Group, selling access to customer data can earn margins up to 90 percent.
For Kroger, the first step down that road began in 2015 when it set up a data science unit called 84.51—the longitude of its headquarters in Cincinnati—that started selling research reports about its customer buying habits. Marketers could use this information to understand, for example, what kind of consumers were most likely to buy their products. Then in 2017, Kroger took it a step further by launching its own marketing agency, Kroger Precision Marketing. It allows marketers to target shoppers visiting Kroger’s website by sending them individualized ads based on what Kroger knows about their buying habits through its loyalty program.
In 2020, Kroger went further by allying with Roku TV. Now marketers could take data about what shoppers put into their carts at Kroger’s website and physical stores and use it to send ads to them when they watch Roku. One case study featured by Kroger describes how a beauty brand could convert women who had stopped using makeup and convince them to buy, on average, five times more makeup than the typical Kroger shopper.
Then in 2021, Kroger launched the ironically named Kroger Private Marketplace. This initiative allows brands and their marketing agencies to target Kroger shoppers with “programmatic ads” placed automatically in locations throughout the web, including social media sites, news publishers, mobile apps, and streaming video services.
This is a potent combination. Suppose, for example, you were a brand manager for Pedigree, a premium-priced dog food label. You want to target people who like to spend money on their dogs but who don’t already indulge them with Pedigree products. Kroger can identify people who have recently bought dog toys but feed their dogs other brands. Marketers can use that information to pump ads to those people—and only those people —whenever they watch Roku’s ad-supported channels. After the ads run, Kroger can show you directly how much your spending on this campaign affected the sales of Pedigree in Kroger supermarkets.
Albertsons took similar steps more recently. The grocer opened an in-house retail media agency, Albertsons Media Collective, in 2021. Like Kroger, Albertsons sells sponsored listings and ads on its website. It also leverages data from its 27-million-member loyalty program “Just for U.” To differentiate itself from other grocers, Albertsons will offer more hyper-local advertising on its various local e-commerce channels, which other grocers do not. “An ice cream brand, for example, could choose to zap ads at areas with warmer temperatures and turn off ads in cold weather areas,” Albertsons’s head of retail media, Kristi Argylan, told Insider in November last year.
Kroger is the nation’s second-largest supermarket chain, and Albertsons is fourth. If the Kroger and Albertsons merger is approved, the new corporation would harness the power of shopping data coming from nearly 5,000 stores across 48 states and the District of Columbia, serving 85 million households in total. As one eMarketer analyst told the Wall Street Journal, this deal is “about building a retail media juggernaut.”
But an even bigger and more pervasive giant is already racing ahead.
Amazon started becoming a giant retail media firm in 2012 when third-party merchants on its marketplace began buying “sponsored product” ads to prop up sales. (In 2016, analysts at Barclays estimated Amazon was already making $1.4 billion in ad revenues.) By 2017, these merchants were noticing that they needed to buy ads from Amazon to generate the level of sales they used to make without ads, according to a report by the Institute for Local Self-Reliance, a research and advocacy organization.
In this period, Amazon also began selling ad space on its devices. So, for example, skincare brands could start placing ads on the screensaver of a Fire tablet or on Amazon’s ad-supported movie platform Freevee. Last year, PepsiCo hired Amazon for a Cheetos Mac ‘N Cheese campaign that included a standalone page on the marketplace and 30-second ads on Amazon’s Fire TV device ahead of the release of the Amazon Prime original series I Know What You Did Last Summer.
Then Amazon took this business model to a place where no mere retailer had ever gone before. Like Google and Facebook, between 2012 and 2016, it created online “AdTech” exchanges where third-party marketers and publishers bought and sold ads. So, for example, Amazon DSP is an AdTech platform that allows big marketers like PepsiCo, Unilever, Kimberly-Clark, or Mitsubishi not only to place ads on Amazon properties but also on websites owned by others. Meanwhile, Amazon also plays the other side of the market through its so-called Amazon Publisher Services. APS is an exchange where multiple web publishers, including news publications, offer up digital space to marketers at a price Amazon sets. At the same time, of course, Amazon is buying and selling ads on its own account in the same exchanges.
All this gives Amazon giant conflicts of interest and surging revenues. In 2021, Amazon reported ad revenues of $31 billion. In 2022, its ad revenues reached $38 billion, more than all Amazon subscription services combined (including Prime, Kindle, Audible, and Amazon Fresh). In a mere six years, ad revenue surged 27-fold and now accounts for at least 10 percent of digital ad spending globally. Last year, Amazon captured 37 percent of retail ad spending. According to the media agency GroupM, the ad revenues Amazon made last year already surpass the revenues of the global newspaper industry.
This is terrible news for journalism. Marketers already think of retailers as “publishers” and refer to their shoppers as “audiences.” In this new system, retailers don’t need to leverage data from news publishers as Google and Facebook did when they started building their ad business. Instead, multiple retailers can now auction their shoppers as “audiences” to multiple brands that target them across the web. When news publishers become part of a retail media network, advertisers target news media audiences because they overlap with those of the retailers. Ultimately, this diminishes the value of editorial content as a proxy to consumer preferences, even more than Google and Facebook have done.
“You could say it’s not really the publishers’ audience anymore because they’re Amazon customers as well,” says John Potter, former chief technology officer at Purch—the publisher of Tom’s Guide and TechRadar. “That is what Amazon brings to the table. Now Amazon sees what is going on in the publishers’ sites and on its own sites.”
Jeff Chester, executive director at the Center for Digital Democracy, also sees a bleak future for news publishers in a world where shopping data permeates digital advertising. “Just as the success of Google and Facebook, retail media networks completely disconnect news publishers from advertisers. Amazon, and retail media networks — they are all publishers. So, news media more generally are on the margins of this system.”
Advertisers have another reason to cut out news outlets and other publications. Placing programmatic ads with conventional media organizations requires using personal data gleaned from and through third parties, such as data brokers or big platforms like Google. But this business model faces increasing regulatory obstacles. For example, to protect privacy, regulators in Europe and California require that internet users be allowed to forbid their data from being sold to third parties or used for purposes they have not explicitly consented to. This threatens the business model of Google and of publications and marketers that rely on third-party data to buy or sell advertising. But retail media players don’t have that problem. They rely on data from their customers, who had already signed away their privacy protections when they signed up for the retailers’ loyalty program.
Recently, I got curious about what CVS might know about me through my participation in its ExtraCare loyalty program. After accessing the CVS website, I requested the records it had about me. CVS—a conglomerate whose mergers and acquisitions include Aetna insurance, Caremark, and physician practices like Oak Street Health—knows a lot about me. In addition to my shopping history of the last 12 months, CVS knows my ethnicity, country of origin, household location, income level, types of credit cards, homeowner status, and interest in weight loss, vitamins, and natural foods. And there are little or no regulatory barriers to CVS using this data to sell me stuff or letting others use it to target me with ads.
What can be done? Minimally, Congress and the Federal Trade Commission should tighten disclosure requirements on retailers so that customers at least know what privacy rights they are signing away when they sign up for loyalty programs. Second, the FTC should use its existing statutory authority to crack down on retailers who use shopping data in ways that amount to unfair methods of competition.
But ultimately, we need policies that prevent a single corporation from gaining oligarchical control of different lines of business that should be kept separate. A simple principle should guide our representatives in Congress: Retailers should not be media organizations. AdTech markets should not be controlled by conglomerates competing with their clients. The Justice Department has brought an antitrust suit against Google that applies these principles by demanding it divest itself of parts of its ad empire. But even as the federal government takes on Google, Facebook, and other platforms, it can’t ignore how retail media is creating a new kind of monopoly.
