What happens when two mega trends collide? A whole lot of advertising.
This week we analyze the impacts of automation on delivery services, what it means for advertising and who buys advertising for “bananas” on Amazon???
Side note – I’ll be in New Zealand for the next two weeks and if anyone knows any AI/ML enthusiasts in New Zealand to meet up with, please let me know!
When mega trends collide
Not too long ago riding the NYC subway meant being bombarded with ads for delivery services. Alcohol, dog food, real food, birth control, dog birth control (ok, that was a lie), whatever you needed, there was a startup trying to deliver it to you by land, sea, air or foot. Originally, it was wise to be skeptical about these services, but many of those companies now command billion dollar plus valuations, with some analysts attributing a $20bn market capitalization to Uber Eats.
In a parallel world, and probably a coincidence, the autonomous vehicle craze was also just taking off. Autonomous vehicles were not just meant for driving people around, but for delivering things, and almost every major company, Amazon, Alibaba, Postmates and startup, after startup, after startup has plans to deliver everything and anything autonomously. Even at a hotel I was staying at recently, the hotel deployed robots to deliver toiletries to people who forgot them. Here’s a picture…and don’t worry, I didn’t follow the robot to the persons door.
When these mega trends collide, it is going to be significant: automation could reduce the cost of delivery so much that it’s practically free. Research done by Ark Invest shows the cost of delivery falling by 96% if done by autonomous robots
All of this got me thinking
When you start to think about the second order effects of this technology, especially within the advertising sector, things become interesting.
For one, advertising opportunities will be aplenty
It’s pretty obvious delivery will ultimately change how retail is done, and how retail companies approach advertising will change. But if we just focus on one industry, grocery, large disruption may occur. If consumers start ordering more groceries online, and go to the physical grocery store less , this will displace the “pay for shelf space” market. It is becoming increasingly known that companies pay grocery stores for premium shelf space, and estimates of how much companies spend is around $130 mn.
And while the size isn’t that big, it is going to be increasingly important where food companies items land on grocers websites, which opens a potentially lucrative advertising revenue stream for grocers. If grocers need any inspiration for this, just look to Amazon, which could make $14bn off advertising in 2019. Amazon has also turned almost any grocery related search into an ad spot. Seriously though, I tried searching for coffee, cheerios, kind bars, banana, YES, EVEN BANANA has been infiltrated by Amazon ads and has a sponsored page for the term BANANA. If banana is for sale, then grocery stores will want to cash in.
|Food delivery companies cash in too|
As TechCrunch points out, any market that users can discover something, lends itself to ads. Companies like Grubhub, DoorDash and Uber Eats all serve as a platform to discover restaurants and where a restaurant shows up in the search results will have enormous implications; something that can be controlled by restaurants buying ads. This type of advertising will be especially important for “Ghost” restaurants, a new trend where restaurants don’t have storefronts and only do online delivery.
Advertising with these platforms is just starting, but Uber Eats has already started doing something like this In India where restaurants that offer discounts on their food can be awarded premium placement in the app. Doing some back of the envelope math based on Yelp revenue metrics (they make ~$900mn a year off ads), I estimated if food delivery companies started showing ads in a similar way that Yelp does, the total advertising revenue could be $1bn in 10 years time. If robots start delivering, most likely causing an acceleration of growth in delivery, it could be much larger.
Source: Cloudy Estimates
Google Doc Link to full forecast
Since I am just counting food delivery, and not every other product that could be delivered, the potential ad revenue would be multiples of this.
Advertising and Autonomous Cars
If you expand this type of analysis to autonomous vehicles in general, things get more complicated. I wrote about this in 2017 and the same trends apply: car companies are one of the largest advertisers and autonomous vehicles on demand could result in lower ad revenue for agencies, companies like Uber and Lyft will have to start reward programs, which they did, and how will advertising work once people actually get into the car?
We will have to wait and see.
PS – Hypothetically people could also advertise on the robot itself, something which costs about $300 per ad on NYC taxis per 4 weeks, but I am sure people would get sick of that real quick.