Breaking down walls for new growth in digital advertising

Over the last few years, advertisers have grown increasingly dissatisfied with the limitations of walled gardens: inflated costs, unclear ROI, potential brand risk and lack of visibility into consumer behavior across platforms.

Retail media networks are capturing their share of programmatic ad spend, which has been exacerbated by the shift towards cookieless. This shift creates an imperative for first-party data, enabling advertisers to gain deeper insights into their audience, enhance targeting precision and improve campaign effectiveness.

In response to this evolving landscape, walled gardens are starting to transition to a new model: walled compounds, ecosystems formed through collaboration between different walled gardens, allowing them to combine their first-party data in "data clean rooms" to deliver better-targeted ads.

The Shift to Walled Compounds

The walled compound model offers several advantages including the flexibility to collaborate with multiple partners, facilitating a better and more comprehensive view of the customer across platforms.

Building expanded ecosystems enables advertisers to reach wider and more diverse audiences while adhering to regulatory and compliance restrictions. Advertisers benefit from expanded reach, increased visibility and higher ROI. Platforms, in turn, can offer better products by addressing data siloes and blind spots, attracting more advertising dollars. Consumers benefit from receiving more relevant ads without compromising their privacy.

Partnerships have already cut across critical strategic spending areas, including the following:

• Pinterest allows Amazon to sell inventory via Amazon Ads, further connecting social and retail media.

• Meta and Amazon are testing Amazon product sales inside Instagram and Facebook.

• The partnership between X (formerly known as Twitter) and Google demonstrates what happens to platforms struggling to attract sufficient advertisers.

The walled compounds are not limited to platforms. For example, Disney's partnership with Kroger enables brands to target streaming audiences more accurately using shopper data. Other recent partnership examples include Albertsons Media Collective and Omnicom Media Group, Dollar General and Meta and Google’s retail media solution in partnership with Lowe’s. These RMN-lead walled gardens have the potential to reshape the ad market in the coming years.

Retail media networks (RMNs), which are on track to be the fastest-growing ad channel across media by 2027, growing more than 20% each year, will benefit as they play a key role in walled compounds given their broad exposure to consumer behavior.

These networks are otherwise competing, with a scale disadvantage, against large digital platforms that provide advertisers with integrated and data-rich environments for targeted advertising. Retail media networks can provide unique visibility to platforms that often fill key signal gaps such as specific segments, stages of the funnel or location-based insights.

Building a walled compound

It is only getting easier and more simplified for advertisers to reduce their platform partners. This does not come without risk.

Advertisers may have to change their approach to these combined platforms. Brands that had built distinct teams to manage spend across different channels may have to figure out how to either combine them again or build frameworks that allow more collaboration. Without that reorganization, increased spending in one place will only create additional headaches.

The future of digital advertising lies in the flexibility, creativity and collaboration of businesses willing to step beyond the confines of traditional walled gardens.

Our Generative AI for Customer Growth survey reinforces the importance of using Gen AI as a catalyst for new strategies such as walled gardens. Our analysis found that business leaders are 5.6X more likely to believe that generative AI can bring radical innovation to marketing.

To prepare your business for the era of walled compounds, consider the following steps:

1. Evaluate your partner strategy.
   
   The right partnerships can provide access to a richer and more comprehensive data pool. In an environment dominated by large platforms, access to detailed user data allows for more targeted and effective advertising campaigns.
   
   Partnering with companies that have complementary targets can enhance understanding of consumer behaviors and preferences, leading to improved performance and ROI.
   
   Partnerships extend both your audience reach and visibility, attracting more ad buyers. Platforms are attractive partners for retail and media companies looking to access a sophisticated ad tech stack that can significantly streamline development cycles and capex requirements. Retailers and media companies are attractive partners for platforms to expand reach, relevance and data access.
   
   
2. Know your gaps and fill them quickly.
   
   As competition intensifies, platforms must ensure they are not only retaining their current market share but are also equipped to capture a share of a market that is expected to reach $400 billion by 2027. This requires a proactive, and rigorous, assessment of existing capabilities against industry demands, such as advanced data analytics, cross-platform advertising integration and enhanced user privacy protections.
   
   Quickly addressing these gaps through strategic investments or partnerships is essential. For instance, incorporating AI for better predictive analytics or forging alliances with technology innovators can significantly boost a platform's competitive edge.
   
   By doing so, platforms can offer more robust and integrated solutions, attract a broader range of advertisers and secure a dominant position in the increasingly complex digital advertising ecosystem.
   
   This was a very real problem that Uber was able to solve by centralizing its ad sales operations and consolidating its customer data into Salesforce Media Cloud. This allowed Uber to move and modernize over 100 processes and created over 75 custom dashboards to give teams visibility into operations. Uber is now intaking advertising demand 50% faster and the speed of their end-to-end ad sales process has increased by nearly 70%.
   
   
3. Upgrade your infrastructure to support an AI-enabled, secure data clean room
   
   Investing in future-ready infrastructure, particularly to enable data clean rooms and data pipelining, remains a critical weak spot for many.
   
   Data clean rooms allow for the secure sharing and analysis of data across different parties without compromising user privacy. This is key for advertisers who want to activate retail media data across platforms for targeting and attribution.
   
   For example, platforms like Pinterest benefit from hosting data clean rooms so that advertisers can leverage retailer data. This capability is increasingly important across platforms and retail media as advertisers demand precise targeting and measurement while still adhering to data privacy regulations.
   
   By upgrading infrastructure to support these secure environments, platforms can facilitate deeper, data-driven collaborations with advertisers and partners, enabling more precise targeting capabilities and accurate closed-loop attribution.
   
   This supports the walled compound model by reinforcing the platform's control over data, which is a key competitive differentiator in today's market. Platforms that prioritize these required tech investments can better meet advertiser needs and will be best positioned to drive growth and profitability in key segments.

Conclusion

Walled gardens will be a major force of change in digital advertising in the coming years that will reinvent competitive boundaries. They will unlock new opportunities for advertisers, platforms and retailers.

Regardless of market position, now is the time for leaders to ensure they are positioned well in a market driven by walled gardens.