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Sponsored Search and the Impact of Third-Party Platforms
Sponsored Search has often been considered the easiest entry point for brands within the retail media landscape.

Its effectiveness varies by network, but brands can often realize strong gains from sponsored search regardless of investment size. The value derived there can then inspire the faith necessary to test other avenues offered by retailers; avenues such as on-site and off-site digital, social via Facebook, Instagram and Pinterest, and beyond. These tactics take advantage of the true selling point retail media networks have to offer – their wealth of first-party data.

The funny thing is, despite search being the early adoption tactic for brands dipping their toes into retail media, the majority of retailers still lease their on-site search technology. In fact, Amazon Advertising, Walmart Connect and Instacart are the only retail media networks that have developed their own, in-house sponsored search platforms. Everyone else uses someone else’s technology for their on-site ad serving experience.

Third-Party Sponsored Search Platforms

When it comes to third-party sponsored search technology, there are only a few major players: Criteo, PromoteIQ, Quotient and Citrus (which was recently acquired by Publicis – more on that later). They work with a variety of retailers in various ways, but their main method is serving up their search functionality for use on retailer sites.

Historically, these interactions have been a one-to-one relationship. For example, in order to buy paid search ads on Kroger’s site, advertisers have to run through PromoteIQ. To get access to Target’s search inventory, an advertiser would need to enlist Criteo. Each retailer leasing ad serving technology would lease it from exclusively one partner.

This type of interaction can obviously lead to complications. Take Criteo, for example. Criteo – up until recently – had exclusive access to the likes of Target, Lowe’s, Best Buy, Costco, Bed Bath & Beyond and more. These are huge retailers that haven’t had either the funding, resources or bandwidth to create their own ad serving technology, so they’ve had to partner with someone else. Criteo is also very unique in that not only do advertisers pay the CPC-related fees to run search media through these retailers, but they also pay a platform fee to Criteo (upwards of 25% of media, in some cases).

Everyone Needs to Profit

This is a great example of a scenario wherein everyone needs to profit from the same interaction. Criteo is making money leasing the technology to Target, but they also know it’s not an evergreen relationship. At some point, Target is going to develop their own ad serving technology, taking everything in-house. Knowing this eventuality, Criteo has every right to try to profit while it can off its technology via its agreement with Target and the aforementioned platform fee that profits (again, upwards of 25%) from every click.

And seeing as there historically has been no other way to access Target’s on-site search inventory, advertisers had to smile and eat Criteo’s platform fee. Cost of doing business, as they say.

A Leveling of the Playing Field

Enter Citrus into the Equation. Bucking the previously stated norms, Citrus, a sponsored search offering that had recently focused heavily on grocery chains, inked a deal with Target for a split of their search inventory. This split would be between themselves and, you guessed it, Criteo, which previously had a monopoly on said inventory.

The big deal here is Citrus doesn’t charge a platform fee. Advertisers simply pay for the media. They have the same serving logic and now the same access to search inventory on Target (and Lowe’s as well). This obviously complicates every advertiser’s relationship with Criteo while also leveling the playing field a bit. And recent updates point to their no platform fee approach staying put following the Publicis acquisition.

Given the Option to Choose

Search has always been an environment with few choices. With paid search, advertisers have always known it’s either Google or Bing. And let’s be honest, more often than not, it’s just Google. With this newer iteration of paid search via retail, advertisers have been given a choice, but it’s really been a choice of one retailer or another. Whether it’s Amazon, Walmart, PromoteIQ or Criteo, they all had access to exclusive inventory. You had to live and die by their CPCs, their minimums, their rules.

But now, with the divvying up of Target’s inventory, search advertisers have a divergent path they can take. And this option is going to really test the tensile strength of a platform like Criteo. One that knows it has a shelf life and has tried to profit as much as possible during that timeframe. Advertisers can immediately begin testing the newly acquired Citrus to see if they can get the same output they received via Criteo minus the platform fee.

For a real-world example of how the platform fee can truly hurt overall performance, take a product retailing at $30, converting at a 20% clip, and seeing a $1.00 base CPC via Target sponsored search. That SKU will see a ROAS of 4.8 via Criteo, and a ROAS of 6.0 via Citrus.

A Landscape That’s Changing for the Better

The recent news related to Citrus and Target has clear-cut micro implications specific to that retailer. Advertisers looking to run search via Target now have a choice of who to run with. Criteo will likely have to bend a bit by reducing (or eliminating all together) their platform fee. If this happens, Citrus will have to prove its technology is stronger than Criteo’s, which their recent acquisition by Publicis may help answer. Having the financial backing of a bona fide holding company should supercharge their roadmap, shoring up any product development inefficiencies sooner than previously thought.

There are also macro implications for the industry at large as more and more retailers join the fray. In reference to choices, advertisers can look beyond the large retailers—the Amazons, Walmarts and Targets of the world—and maybe find a more efficient play (teamed with a growing audience) via a Family Dollar, for example.

The Publicis acquisition also throws another wrench into the situation. Now players outside retail and tech are joining the fray. The meteoric rise of retail media is enticing enough on its own to bring in a variety of suitors. The acquisition of Citrus could be seen in the same light as other holding companies who have acquired or partnered with various companies they deemed essential to agency work. These acquisitions have historically provided a variety of services around retail media – from acting as the buying arm for retailer audience-driven off-site media to actually building networks from scratch for certain retailers. These moves carve out a path (initially to revenue and, potentially, to data) that others likely weren’t considering and could possibly lead to others following suit.

It’s an interesting time to be a search advertiser. Search is traditionally the tactic that’s handcuffed to one vendor. It’s always been Google or bust for paid search. Search advertisers have never really had anyone vying for their portion of the budget. Google’s stance has been, “Go ahead, give the dollars to Bing, see where that gets you,” while Bing’s stance has been, “If it’s not going to Google, then it’s probably going to us, so just let us know”.

With sponsored search in retail media, search advertisers now have a choice as to where they allot their budgeted dollars. And soon, those retailers, and their platforms, are going to have to work a little harder to get those dollars.