Let’s Solve the Hidden Problems With Commerce Media Before They Hurt Retailers

No other advertising channel has ever grown as fast as commerce media. In just five years, the market went from $1 billion to $30 billion — more than twice as fast as it took social media advertising to achieve the same milestone. And by all accounts, commerce media is just getting started.

Retailers have a unique opportunity to get ahead of the curve and future-proof their approaches to commerce media for the years to come. They can do so by applying the lessons we learned, as an industry, when we first embraced programmatic media.

Lessons From a Younger Digital Industry

The gold rush that’s happening in the commerce media space right now is exciting and well-warranted given the unique value proposition that it delivers to retailers, advertisers and customers alike. But it’s also heading down a problematic path for retailers that might not yet be obvious. We have an opportunity to chart a more sustainable and profitable path for retailers today.

Ultimately, the tactic for commerce media that will serve the greatest number of retailers in the best way possible will be one that has served the programmatic ecosystem well for many years: the unified auction. We learned a lot about the benefits of such a unified auction set-up in the online publishing space almost a decade ago. Prior to having the most efficient setup for publishers that came with a unified auction, many millions of dollars were left on the table as the industry accepted that a waterfall approach was the best way to make money.

That doesn’t have to happen in commerce media. Let’s look at the problems that most retailers are overlooking in their current approaches to commerce media and how a unified auction could not only boost revenue, but also provide higher fill rates, clickthrough rates, and overall better customer experiences.

Solving for Suboptimal Revenue

When a new advertising channel rises to prominence as quickly as commerce media, there’s an understandable lack of benchmarks against which to measure success. Forrester Consulting research commissioned by PubMatic recently found that most retailers are satisfied with the return on investment they’ve seen with their commerce media efforts to date, most of which is flowing through sponsored product listings. At the same time, very few have any way of understanding how their current yield stacks up to what’s possible.

We saw this in the digital publishing space when it came to traditional waterfall models, which created a hierarchy in which bidding sequentially passed from one exchange to the next until all inventory was sold (or not). With a unified auction — the model that eventually usurped the waterfall approach in digital publishing — access to inventory is democratized, allowing multiple exchanges to have access to the inventory at once, thereby promoting competition during the bidding process.

As in the early days of digital publishing, waterfall models are predominant in commerce media right now. One might even argue that “waterfall” is a generous term, given that commerce media models often just have one provider rather than a sequential lineup. In other words, major retailers are missing out on relevant demand by only integrating with a single platform. A unified auction approach opens up more demand paths, which is especially useful for retailers with broad category coverage. It's all about maximizing opportunities.

This lost opportunity is virtually invisible to retailers right now. However, by moving to unified auctions, with multiple demand paths and insight into all bids at once, retailers could immediately boost ad revenue by fostering competition among multiple platforms, thereby driving up prices and ensuring retailers capture the highest bids and overall yield.

Improving Auction Efficiency and Fill Rates

There’s also a matter of growing complexity when it comes to the bidding mechanics being used by retailers for their commerce media offerings today. PubMatic and Forrester’s research found that 81 percent of retailers expect the proportion of their commerce media revenue that comes from offsite properties vs. their own websites will grow significantly during the next year. That’s an added layer of complexity in an already complex system.

Waterfall models are inefficient. By operating sequentially vs. simultaneously, they reduce revenue while also requiring complex setup and management. Unified auctions can be achieved via a seamlessly integrated unified user interface for all demand partners. They provide simultaneous demand source access, resulting in efficient inventory allocation and simpler auction management.

Up-Leveling Customer Experience

Many retailers are new to the commerce media space. When it comes to the mechanics and yield of these programs, they’re still learning. But here’s one thing that retailers know better than anyone else: customer experience matters.

There can be a substantial difference between the customer experience delivered via a waterfall vs. a unified auction. By virtue of their setup, waterfall models may increase ad latency on the user side and don't allow retailers to deliver ads based on greatest relevance. Unified auctions, on the other hand, can lead to faster page load times, reduced ad latency, and enhanced ad relevance. And as retailers know, that enhanced speed and improved relevance can be everything when it comes to driving an actual sale.

A unified auction approach to commerce media, as demonstrated by this model’s implementation in the digital publishing space, could help retailers maximize revenue, drive operational efficiency, and deliver a premium customer experience. It’s where the commerce industry needs to go — before the hidden costs of today’s waterfall approach become too much for retailers to bear.

Victor Yakovlev is an experienced product marketing expert with a focus on advertising technology, retail media, and e-commerce. He is currently the associate director of product marketing at PubMatic, where he manages go-to-market strategy across commerce media.