- Walmart has been steadily building an advertising business in-house that competes with Amazon's dominance in e-commerce advertising.
- Walmart confirmed this week that it worked with Microsoft on a bid to acquire the US business of TikTok, partly because of TikTok's ad business and young user base. In theory, Walmart could gain access to TikTok's lucrative Gen Z audience, helping its ad business expand to a new group of advertisers.
- Walmart wants to go head-to-head with Amazon in advertising. Advertising experts said that its business is nascent compared to Amazon, but has the opportunity to get a leg up because it is rolling out new technology to advertisers and has a massive amount of data from its stores.
- But Walmart also has a smaller group of advertisers and uses a process for ad-buying that some advertisers said holds the company back.
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Walmart wants a piece of the advertising business — again.
Walmart confirmed on August 27 that it worked with Microsoft on a bid to buy TikTok's US business, which has been under intense scrutiny from the Trump administration. Walmart and Microsoft view the possible acquisition as a way to compete against e-commerce giant Amazon. Walmart cited TikTok's small but growing ad business as part of the reason why it's interested in TikTok.
"The way TikTok has integrated e-commerce and advertising capabilities in other markets is a clear benefit to creators and users in those markets," Walmart said in a statement to Business Insider. "We are confident that a Walmart and Microsoft partnership would meet both the expectations of US TikTok users while satisfying the concerns of US government regulators."
It's not clear how much of an impact TikTok would have on Walmart's advertising business, but the hot video app has been making inroads with big ad agencies and brands that want to reach its lucrative Gen Z audience. TikTok also recently launched a self-serve ad platform, which could in theory help Walmart attract a new group of advertisers outside of its core consumer-packaged-goods advertisers.
Walmart declined to comment further on both its bid with Microsoft to acquire TikTok and its advertising business.
Walmart has made a big push into advertising over the past year, poaching talent from large media companies and agencies. After splitting from longtime agency Triad, Walmart has been building an ad business in-house that rivals Amazon's growing ad business by selling ads to consumer-packaged-goods brands and others that place ads on Walmart's app and website.
Business Insider spoke with five e-commerce agencies and adtech companies about how Walmart's ad business stacks up against Amazon. They said that while Walmart is ramping up its advertising business, it's significantly smaller and less sophisticated than Amazon's.
Curtis Rummel, lead client strategist at e-commerce agency Marketplace Strategy, estimated that clients put 5% to 10% of the budgets that are spent advertising on Amazon with advertising on Walmart. He added that Walmart pitches its advertising business as the company starting from scratch with limited features, even though Walmart had its advertising business Walmart Media Group for years through the now-defunct, WPP-owned ad agency Triad Retail.
"It's probably not going to be a huge 2020 opportunity but it will probably be 2021 or 2022 when we start to see it pick up pace," he said.
Advertisers say that they want similar measurement on Walmart and Amazon
In January, Walmart formally launched a self-serve ad platform and API that lets advertisers and a small group of adtech companies buy and manage campaigns on their own. In July, Walmart rolled out a measurement tool that tracks how online ads drive in-store and e-commerce sales.
Rummel said that Amazon's reporting tools are limited and built using old software, which could give Walmart an opportunity to provide better tools to advertisers.
Most retail sales take place in stores, and Walmart's ability to tie in-store programs like marketing in store aisles with digital ads gives the company an advantage over Amazon, said Doug Chavez, EVP of digital commerce and media for North America at ad agency Geometry.
However, Walmart measures one key metric differently than Amazon. Walmart measures attribution, a metric that tracks how many people bought a product after clicking on an ad, in three-day or 30-day windows after someone clicked on an ad. The company also reports how many people saw an ad but did not click on it and purchased the product within one day. To compare, Amazon only calculates clicks into its attribution metric and looks at how many people bought a product within two weeks of clicking on an ad.
Similar to how Facebook, Google, and others measure video views differently, Rummel said that Amazon and Walmart intentionally use different ad measurements as a way to differentiate themselves in pitching advertisers. He also said that Walmart's attribution measurement using views is generous and could potentially give Walmart more credit for driving sales than is accurate. He estimated that the return on ad spend, a metric that measures the efficiency of advertising, is 50% less on Walmart than Amazon.
Melissa Burdick, president of Pacvue, which sells e-commerce software to help brands buy ads on Amazon, Walmart, and Instacart, said advertisers want the same measurement for attribution across platforms. Amazon's model is becoming the industry standard and is more straightforward, and some buyers have wanted Walmart to change its attribution model.
Burdick added that Walmart has fewer targeting features than Amazon. For example, brands cannot target ads for their competitors' products — a common practice that big advertisers like Coca-Cola and Pepsi have used on Amazon for years.
"Advertising has been a margin helper to Amazon," she said. "Each of these platforms like Walmart, Instacart, and Kroger are moving towards the Amazon blueprint. I see that trend continuing."
Bidding on Walmart ads is more expensive than Amazon
Advertisers also use a different process of bidding on advertising prices with Walmart than other e-commerce sites that makes Walmart's ad prices more expensive.
Walmart's ad business uses a first-price auction, meaning that if two advertisers are bidding for buying an ad, the advertiser that pays the most will win and pay the exact price that they bid.
Amazon and Instacart's ad business runs on a second-price auction. In a second-price auction, the highest bidder only pays a tiny bit more than the second-highest bidder. If the highest bid is $10 and the second-highest bid is $3, the winning advertiser could only end up paying $3.01, for example.
While Walmart's auction is more straightforward, it also makes advertising prices more expensive, which could be a concern for performance-focused e-commerce advertisers.
Himanshu Jain, senior director of product management at e-commerce software firm CommerceIQ, said that Walmart uses a first-price auction because there is less competition for advertising on Walmart than on Amazon. CommerceIQ estimates that Amazon places an average of eight ads on a page of search results compared to two ad placements that Walmart places on search results.
"Walmart is trying to get more bids in as well as increase the actual bid value," he said.
Walmart's ad business relies heavily on working directly with sales reps
Walmart rolled out a self-serve advertising platform this year with the goal of making it easier for advertisers to buy ads on their own without needing to work with a sales rep. Major advertising companies including Facebook, Google, Amazon, and Snap have also rolled out self-serve platforms as their ad businesses grow to handle more demand from advertisers.
A source at a large advertising agency, who spoke on the condition of anonymity because they were not authorized to discuss the matter publicly, said that Walmart's self-serve platform does not include Walmart's grocery business. The person said that consumer-packaged-goods clients want to run self-serve ad campaigns in Walmart's grocery section because Walmart has touted its growing grocery business, particularly during the pandemic.
The exclusion of the grocery section from Walmart's self-service platform has likely pushed many of the company's top advertisers to use its managed products.
Marketplace Strategy's Rummel said that most top 100 brands use Walmart's managed services to run campaigns, including buying a prominent ad format called Search Brand Amplifier that promotes a group of products at the top of search results.
"Walmart is very focused on running the ad business as a managed service versus as a self-service," he said. "It reminds me of what Amazon used to do."
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