What you need to know:

• McKinsey is behind the creation of some of the world's fast-growing Retailer Media Networks, which it predicts have an $820bn retailer valuation upside in the US market alone if they get it right.
• Advertisers and brands have the next biggest "enterprise valuation" boost because of higher returns from their advertising budgets, per George.
• The onus is now on media companies to link their audiences to retailer SKUs if they want to tap a $50bn opportunity (US market forecast).
• Agencies have a potential $5bn boost and adtech $160bn in the US, per McKinsey. 
• News Corp will outline its plans in Australia next week. 

Retailer media, or commerce media in McKinsey parlance, is more disruptive to publishers and has more upside for consumer goods brands, retailers and adtech players than many admit or realise, said US-based partner Quentin George, who is in Australia to front News Corp’s strategic pitch to advertisers at its annual Decoded event.

Details on News Corp’s move to hitch itself to the commerce media boom is under wraps until next week but George was a co-author of a McKinsey report last year Commerce Media; The new force transforming advertising in which it forecasts an eye-popping $1.3 trillion is at stake in company valuations in the US alone by 2026. 

Retailers are set to be the main beneficiaries with $820bn in potential enterprise value gains; $280bn for advertisers via higher returns from ad spend; $50bn for publishers, $5bn for ad agencies and $160bn for adtech firms who can deliver proxy sales operations for retailers which don’t set-up their own in-house retailer media units. 

Mi3’s 74-page Retailer Media Next report last month covered the outlook for the Australian market and the key challenges that consumer goods brands want addressed – namely measurement, attribution and data sharing – before the sector can realise its bullish macro forecasts.                 

Still, McKinsey’s George said the mid-term outlook for commerce media is “massively disruptive. The reason why we're all getting so excited about commerce media is because it moves from audience or [ad] impression delivery to an SKU-level sale,” George told Mi3 this week. “So it's not just marketing activity, it's business outcomes. And when you can tie an impression to a SKU-level sale, you sit back and you go ‘wait a minute, how did we do it before?’ Well, we put the media in front of people who a media company told us to but what happened? Is there any correlation between that and sales that I see? We suspect so but we can't really prove it.”

Loop, don't spray

George said commerce media allowed retailers to carve out higher margins and revenues by approaching the likes of P&G or Unilever to “stop spraying money around the internet” and tie their advertising impressions to SKU sales.  

“The onus now is on media companies to prove to advertisers how their audiences demonstrably deliver results and I think the great ones are capable of it,” he said. “There are certainly examples of forward leaning media companies that are working with retailers to say ‘we want to create a vibrant ecosystem to tie those impressions and your [advertising] impression logs to SKU-level. And so the conversation and strategic opportunity remains there for a lot of publishers to do that.”

George said retailers had the biggest enterprise valuation upside because they could match their customers with ad impression on their own assets – websites, ecom and instore – and link more broadly to other publisher audiences that could close the loop to a transaction. 

“Retailers are going to want to partner with media companies to have access to their [ad] inventory and so publishers will be beneficiaries of that, even secondarily,” he said. “But now publishers have got an intermediary between them and their customer, which is the CPG [consumer packaged goods brand]. And at some point CPGs are going to say ‘I'll still make sure that I ask that you're on the media plan but it's going to go through the retailer now or a handful of retailers now’.”

Adtech pay dirt

Perhaps most surprising in McKinsey’s forecast on the sector upside from commerce media is the $160bn enterprise value opportunity for adtech providers – VC firms in adtech will no doubt be quivering with delight. George said adtech could act as demand aggregators in commerce media although he ceded “it remains to be seen how robust that number stays over time. Right now, the money flows through the system and there are a handful of intermediaries that have consolidated demand. Let's be realistic and suggest that not every single retailer, even some of the ones at scale, can afford the resources to stand up full sales forces to be able to go after this opportunity. And so there are a number of adtech providers that do more than just the plumbing," he suggested.

"They bring incremental demand. They act as if they're sales forces. And so right now they have an opportunity to get incremental value out of that. I suspect the reason for those numbers being that high is if you're an adtech company, your multiple on your EBITDA is substantially higher than if you were a media company, and substantially higher than if you're a retail company. And so just think about that in terms of getting many [earnings] multiples more for the same amount of revenue that flows through.”

Indeed, George, who at IPG Mediabrands was in the team that created Cadreon, an early agency programmatic trading desk in 2008, said commerce media was currently in the nascent stages of what occurred in online automated advertising trading.

Back then, a lot of people got rich.

“I feel like this is the early days of programmatic, meaning the value proposition is so clear it allows multiple sides of the equation to participate and it will reward winners and punish people or expose people who don't take disproportionate value,” he said.