Microsoft set to close PromoteIQ

Microsoft is reportedly preparing to shut down PromoteIQ, its retail media business, according to industry sources. The move, which comes five years after Microsoft's acquisition of the platform, signals a significant shift in the company's advertising strategy amid a rapidly evolving retail media landscape. While Microsoft has not officially announced the closure, industry insiders suggest that the tech giant is refocusing its efforts on other aspects of its retail media offerings.

The Rise and Fall of PromoteIQ

In August 2019, Microsoft acquired PromoteIQ, a platform designed to help retailers and manufacturers grow their e-commerce and in-store commerce businesses. At the time, the acquisition was seen as a strategic move to bolster Microsoft's position in the burgeoning retail media space. PromoteIQ's technology was touted as complementary to Microsoft's existing retail advertising offerings, with the promise of accelerated growth and expanded reach for both entities.

According to Harsh Jiandani, former chief revenue officer at PromoteIQ, the acquisition was partly motivated by competition for high-profile clients. "At that point, they were like, let's just buy them," Jiandani told Digiday, referring to Microsoft's decision to acquire PromoteIQ after both companies had been vying for Kroger's business.

Early Success and Client Wins

Following the acquisition, PromoteIQ appeared to thrive within the Microsoft ecosystem. The platform secured contracts with major retailers such as Kroger, Hudson's Bay, and Sephora, helping them build out their retail media capabilities. "We had a huge stream of wins and the revenue was increasing," Jiandani noted.

Microsoft's strategy seemed to be paying off, with PromoteIQ serving as a key component in its broader retail media offering. In January 2023, Microsoft announced that retailers using the PromoteIQ platform would be able to monetize their websites with demand from thousands of brand advertisers using the Microsoft Advertising platform. This integration promised to boost traffic to retailer websites at no additional cost.

Challenges in Profitability and Market Dynamics

Despite the initial success, PromoteIQ faced challenges in achieving the level of profitability Microsoft had hoped for. Jiandani explained, "PromoteIQ's ad server business operates on very low margins." Microsoft reportedly struggled to increase these margins on the advertising side of the business.

The company began to reassess the profitability of PromoteIQ, with Jiandani noting, "They just looked at the general profitability of the business [and realized] it was going to be a while until you get to $1 billion [in revenue]."

Loss of Key Clients and Market Shifts

Compounding the profitability issues, Microsoft began to lose some of its larger PromoteIQ clients. In July 2023, Kroger announced that it would be bringing its retail media ad tech in-house, dealing a significant blow to PromoteIQ's client roster.

These developments coincided with broader shifts in the retail media landscape. According to GroupM, the retail media sector is projected to reach over $150 billion in global ad spend by 2026. However, the market remains fragmented, presenting challenges for both advertisers and technology providers.

Strategic Pivot and Partnership with Criteo

In response to these challenges, Microsoft appears to be pivoting its retail media strategy. Rather than continuing to develop and maintain its own technology stack through PromoteIQ, the company is reportedly looking to partner with external ad tech providers.

On July 11, 2024, Microsoft Advertising and Criteo announced a collaboration aimed at simplifying and strengthening the retail media space. This partnership is designed to address market fragmentation by combining Criteo's network of over 225 retailers with Microsoft Advertising's base of more than 500,000 active advertisers across 187 markets.

As part of this collaboration, Microsoft Advertising intends to work with Criteo as its preferred onsite media partner. This move suggests that Microsoft is shifting away from PromoteIQ's technology in favor of Criteo's monetization solutions for its retailer clients.

Transition and Impact on Existing Clients

According to Digiday, Sources familiar with the matter indicate that the transition away from PromoteIQ could take up to a year. During this period, existing PromoteIQ customers are not necessarily required to work with Criteo, although they may be encouraged to do so to maintain access to Microsoft Advertising demand.

The shift has reportedly caused some concern among retailers using PromoteIQ's services. One source told Digiday that some retailers have expressed disquiet at what they perceive as an unwelcome migration.

Industry Reactions and Broader Implications

Jason Goldberg, chief commerce strategy officer at Publicis Groupe, contextualized Microsoft's decision within the broader retail media landscape: "We're pretty much in the second or third inning in the evolution of retail media networks. It's really hard to predict what tools various stakeholders will need and which ones will gain traction."

Goldberg emphasized the need for companies to view their retail media offerings holistically, rather than expecting each component to be highly profitable on its own. "If you want to be a player in the tech stack space, you have to be committed to evolving rapidly and developing new capabilities and integrations," he stated. "You can't necessarily expect huge scale or huge volume on any one integration."

Lessons Learned and Future Outlook

The apparent closure of PromoteIQ offers several lessons for the retail media industry. Nikhil Raj, VP of business and retail media at MoLoCo, described it as a "wake-up call" for the sector. He highlighted two key takeaways: the challenges of overriding legacy technology with a 'built-in demand' centric product, and the importance for retailers to build resilient, 'owned' architectures to mitigate the risk of being 'de-platformed.'

As the retail media landscape continues to evolve, Microsoft's strategic shift underscores the dynamic nature of the industry. The company's focus on partnerships and integration, as evidenced by its collaboration with Criteo, may signal a broader trend towards consolidation and interoperability in the retail media tech stack.

Key Facts

• Microsoft acquired PromoteIQ in August 2019 for an undisclosed amount.
• PromoteIQ initially secured contracts with major retailers including Kroger, Hudson's Bay, and Sephora.
• Kroger announced it was bringing its retail media ad tech in-house in July 2023.
• The retail media sector is projected to reach over $150 billion in global ad spend by 2026, according to GroupM.
• Microsoft Advertising and Criteo announced a collaboration on July 11, 2024, aimed at simplifying the retail media space.
• The transition away from PromoteIQ is expected to take up to a year, according to industry sources.
• Existing PromoteIQ customers are not required to migrate to Criteo but may be encouraged to do so to maintain access to Microsoft Advertising demand.