How to Build a Commerce Media Business Part 1: Structuring your Business

Commerce Media is still in its infancy, and exponential growth will likely occur over the next five years… So how can you best structure your business to take advantage of this opportunity?

Affiliate marketing has been with us for well over a decade, but we are still in the early stages of a Commerce Media advertising revolution that will see ever larger portions of marketing budgets pulled from branding and put into performance-based sales strategies.  

As display advertising continues to commoditize and create a CPM race to the bottom, Commerce Media represents an opportunity for content publishers to replace and grow those declining revenues, for agencies to build new expertise and remain of critical value to their clients, for retailers and brands to drive massive increases in sales and ROAS and ad/martech to provide the tools that ease, accelerate and optimize outcomes for the industry.

Traditionally, advertisers have had difficulty measuring the impact of their ad spending on sales. Affiliate marketing emerged as a low-maintenance strategy that seemingly checked the box of measurable sales. As both the ease and the collection of first-party data grew, players in the space realized the value of their audience, and affiliate marketing became just one channel of the larger commerce media revolution. The term now refers to a catalog of tactics that can connect ad impressions to omnichannel transactions and business results. Advertisers have come to expect a level of measurability in their spend and better control over what levers to pull for optimizations that bring desired business outcomes.

While big data served as the catalyst of broader omnichannel Commerce Media providing the ability to further segment audiences and deliver against off-site KPIs, the industry witnessed a notable acceleration during the pandemic ecommerce surge. Now as the demise of the third-party cookie stunts the effectiveness of former advertising solutions that once offered the trifecta of performance-based marketing (cost-efficient, scalable and full-funnel), commerce media has emerged as the increasingly favored alternative. As long as advertisers remain focused on a return on their investment, the Commerce Media we know today is just the tip of the spear. Once the digital media landscape evolves its offerings to take advantage of the opportunity, Commerce Media will emerge as the foundation of sales-focused media plays displacing traditional display advertising as the primary channel for digital marketing.

According to recent research by McKinsey, commerce media will drive $1.3 trillion in enterprise value (EV) by 2026. While the bulk of that EV accrues to retailers/brands ($820b), McKinsey sees ad tech, publishers and agencies accruing $160b, $50b and $5b respectively. One of the key conclusions though is that $280b of EV will accrue through higher returns on ad spend (ROAS). That is the glue that will further tie these digital media players together over the coming years.

The question for all digital media players and their clients is not whether or even when to build a business to take advantage of the $1.3 trillion EV opportunity Commerce Media represents, but where their business fits in and how they can best take advantage.  

The emergence of commerce media and the new set of revenue streams it provides represents a mammoth opportunity for content publishers, brands, retailers as well as the agencies and ad/martech companies that support and service them. As corporate capex and consumer spending cycles are somewhat different than traditional ad budget cycles, commerce media also represents an excellent revenue diversification strategy.  

The primary opportunities within commerce media break down along these lines:

• Retailers/Brands
  • Diversified/strategic distribution channels
  • Increased ROAS
• Publishers 
  • Increased ad revenue driven by increased ROAS for their ad partners 
  • Improved audience outcomes
  • Increased content licensing opportunities
• Agencies 
  • New fragmented advertising opportunities where clients require guidance, advice and expertise to optimize ROAS outcomes
• Ad/Martech 
  • Optimizing across channels for all players

Affiliate marketing has been around for years now, but the shift to broader Commerce Media businesses is still in the early stages and there are varied approaches to building a business/business line that can take advantage of these opportunities. However, early movers across the media landscape like WireCutter, Trackonomics and Geniuslink have begun to attain critical mass and first-mover advantages have eroded. As new players look to jump into the space and existing players seek to continue to grow their businesses and improve their products and capability, the margin for error has decreased and the importance of getting the business and organizational structure correct is critical to a successful allocation of resources. 

As we continue our analysis of the opportunities Commerce Media presents, the next article in this series will focus on the revenue line components of a Commerce Media business.

Read more from our series: How to Build a Commerce Media Business

How to Build a Commerce Media Business Part 2: Revenue Components. By Chris Carlson

How to Build a Commerce Media Business Part 3: Cost Components. By Chris Carlson

How to Build a Commerce Media Business: Paid Content in Commerce, Driving Advertising Revenue through Affiliate. By Albert Murillo

How to Build a Commerce Media Business: Diversification in Paid Media for Affiliate Marketing, From Concept to Execution Strategies. By Serena Wong

Chris Carlson is an innovator and growth leader.  He has built d2c and b2b commerce businesses across a wide range of industries, from publishing to consumer technology to finance.  His businesses have helped millions of consumers and driven over $2.5b in sales.

images in this article (besides Chris) generated using stockimg.ai