The War for the Living Room

This is Add Speak from Add Week. For Roku, you kind of have it having to choose between Godzilla and King Kong while they're fighting and Roku just hopes to sort of not be destroyed in the rebel. A little over a month ago, Roku struck a deal with Amazon, where advertisers could use Amazon's ad buying platform to purchase ads that appear on Roku. Now partnerships between companies are, they're usually kind of duds from like a newsworthy standpoint, honestly. But this one is really fascinating because you've got all of these major platforms, these pivotal advertising giants forming these uncertain alliances to seize audience and share in one of the biggest growth areas out there, streaming TV. Amazon's deal with Roku is great for Amazon, a possible deal with a devil for Roku, and is also a major blow for the trade desk once AdTech's Wall Street darling that lately has been facing a bunch of headwinds. This week on Add Speak, we're going to look at how this Amazon Roku alliance has made waves beyond just Amazon and Roku, and what it means for all the companies trying to gain control of streaming TV advertising and your living room. With me is our senior media reporter Mark Stenberg who recently examined the winners and losers of the Amazon Roku alliance. Welcome. Yeah, happy to be here. So Mark, explain this Amazon Roku deal. What can advertisers do now that they couldn't do before? Yeah, essentially, they're able to use the Amazon DSP to access people who are logged in Roku users, which is to say people using the Roku OS. It's important to note that the Roku OS is the biggest OS in terms of televisions across the United States. And that's in the Roku TV as well as the box that Roku sells. Yeah, it's anyone who's got a Roku dongle or a Roku TV. So those are the big ones. Additionally though, people watching the Roku channel or any other Roku owner-operated programs. But specifically what Roku really brings to the table is something like 50% of all CTVs are using the Roku OS. And as a result of this deal, people buying through Amazon are now able to target and identify Roku viewers as essentially similar to Amazon viewers. So it just dramatically expands the pool of addressable inventory that people can get when buying through the Amazon DSP. So why would Roku and Amazon want to start working now of all times? Well this goes back a little bit. So as you pointed out, there are a lot of uneasy alliances in the CTV space. And really the genesis of this particular alliance in many ways dates back a little bit to a development that happened several months ago. So historically Roku has been a big partner with the trade desk. And in recent months, really over the last 18 months, Roku's had this really big initiative to say we will work with clients however they want to work with us. Whatever DSP they want to use, that's the DSP that we'll work with. And in order to do that, they've really prioritized the trade desk as their primary DSP of choice. So trade desk Roku bedfellows. Last forward to about October of last year, all of a sudden the trade desk decided to launch its own operating system called Ventura. That was a little bit of a shot across the bow to Roku which has built its entire business as an operating system. So all of a sudden you have Roku waking up and realizing, wait a minute, this person that we've struck this alliance with, that we've worked with for so long in such a serious way, is getting into our bread and butter business. A lot of analysts had suggested that was a bit of a wake up call moment for Roku, made them realize we need to diversify a little bit, not put all of our eggs in one basket, six months later, whatever the case may be. Here comes Roku signaling this brand new partnership with Amazon which is probably the primary competitor DSP to the trade desk. So is this just really kind of a supply deal or is this something more? And something more, I think this is a part of a bigger brand evolution for Roku specifically. They're really moving to become this sort of like connective tissue of the CTV space and becoming really buzzword interoperable. So this helps them advance on that goal. They want to be able to be incredibly easy to use and Amazon's DSP. Now this allows that to become a primary platform for ad buyers even more than it was already. So on the Roku side, this is about them strengthening their appeal to marketers. On the Amazon side, this is a really big win because again, Roku doesn't have much in many ways. It's kind of a little fish in a big pond, but what it does have is this massive logged in audience. And so Amazon in partnering with them now gets to call that audience its own. When we say Roku doesn't have much, obviously it has the operating system, that sort of dominance there. But what is it lacking? Is it the demand to fill all of that ad inventory? Is it the amount of ad inventory since obviously the broadcasters and the content owners that are on Roku are selling the bulk of it? Yeah, it has an original programming element with the Roku channel, but it doesn't really have a prominent DSP that people are using. It doesn't produce a lot of the hardware specifically. It's primary mode is this operating system that's really, really popular. And so it's trying to leverage what its best asset is in order to strike a deal with another tech partner that brings something to the table that Roku doesn't have, which is the basically retail data that Amazon has to bear. And people love Amazon retail data. Amazon for its part, obviously has the DSP and it has its retail platform, but it has Twitch and it has Prime Video and it has Whole Foods and it has all these other touchpoints where they're constantly pulling in shopper data. And so now if you're buying through the Amazon DSP and you're buying Roku inventory, that gets saturated with a lot of the shopping data. So it basically upgrades the quality of Roku's inventory and makes it more appealing because you can now have those strong consumer shopping insights lined up with Roku inventory. I want to go back to what you said about Roku taking this philosophy that it wants to be interoperable. Whatever DSP you want to bring to bear, you can use. Why? Yeah, I actually put this to some Roku executives in a small interview. Of course I got, I think the kind of corporate answer there. I think at one point one of them said something like, we know where we are on the list. So some analysts have described their situation to me as a little bit desperate. I don't know that I would go that far, but they are really trying to make it easier to buy wherever ad buyers want to do their transacting. And in the CTV world, as in the web world, sort of the primary pain point for a lot of people is fragmentation. A marketer wants to go to one DSP and be able to buy a massive audience and then segment it in whatever way they want. Roku has not really been able to bring people to its DSP in a serious way. So now they're saying, you know what? You don't need to come to us. Just go to Amazon where you're already buying because it has all this data. It has all these other touch points and we'll just strengthen that appeal. So it's a little bit of saying we're going to pick the battles that we think we can win. And we don't really think that we're going to be anyone's first choice from an ad buying perspective. But if we can align ourselves with one of the competitors for first choice, then we can enrich that and we benefit kind of like the minnow attaching to the shark. Right. And here's what Roku exec miles Fisher said about all of these partnerships. We're really focused again on what's best for the marketers, advertisers and consumers. We partner and compete with a lot of companies. We are an operating system and some of the publishers that are on our OS, we sell media inventory against, right? We compete against some platforms that are on our OS and that could be Prime or YouTube and we can have competing OS's like Fire TV and Google TV and we can still partner with TV 360 and Amazon DSP. And it's safe as to be said for some of the retailers we sell devices in. So again, one of the really fun things about working on Roku is the dynamics of the relationships and how we partner and compete and collaborate with all different touch points. And really this is about kind of rising tides. The end of the day, like if we can move more dollars from linear into streaming via this Amazon partnership, that's better for the entire streaming ecosystem. That proving a dollar in streaming is better than a dollar in social or a dollar in linear. And that's really what this is all about. So this is great for Amazon, but what about the trade desk mark? I think one of the reasons is so interesting to the ad buying community is that a macro narrative of the entire year is CTV trade desk versus Amazon. And more specifically, the trade desk facing headwinds, as you'd mentioned earlier. So Amazon has kind of been nipping at the heels of the trade desk in the connected television space for a long time. And this deal in many ways, I don't know if it leapfrogs them, but it makes that race even tighter. So that's a point of appeal as anybody who's watching the CTV space is concerned because now you have an even more competitive battle between these two giants. And for Roku, you kind of have it having to choose between, you know, Godzilla and King Kong while they're fighting. And Roku just hopes to sort of not be destroyed in the rubble. You wrote in your piece about how Amazon is really kind of the biggest winner here. So why is this such a coup for Amazon advertising? I think one of the biggest things, it's really hard to achieve scale with the snap of a finger. And that's effectively what Amazon's done here. It's gone all of a sudden from a really competitive DSP and ad streaming platform with great data to now you do a deal through the Amazon DSP and you can reach the largest possible audience that there is on the connected television space. So It's really hard for anyone else to sort of expand their pool of addressable audience as quickly as Amazon has done by partnering with Roku, whereas again, Roku is able to sort of benefit because now more people want to buy their inventory because it gets the Amazon data, but Amazon really has become a bit of the top dog in the space overnight. And now it's something like 80% of all CTV users can be addressed through this tie-up. Is this a deal with a devil a little bit for Roku? Like they are certainly gaining some of that Amazon demand, which is very, very powerful. But what are they are they gaining anything else and what are they giving up? It certainly is a deal with the devil to a degree. I think one of the more interesting elements here is that there's sort of three battle grounds occurring in the CTV space simultaneously. There's the hardware battle. What kind of TV are you buying? There's the operating system battle. Often those two are combined, but not all the time you can have one piece of hardware in a different OS. And then of course there's the apps themselves, the streamers. So there's competitions taking place on all three planes. Amazon has its own operating system, the fire TV. Roku's whole business is operating system. And that's the reason that it sort of retracted its alliance with the trade desk is because they threatened that business. So Amazon and Roku doing a deal, Roku is co-zying up to somebody that's a direct competitor in terms of the OS business. So I think they really just had to say what's the greater good here. I say it's a deal with the devil in the sense that Roku is letting Amazon the fox into the hen house a little bit here. But I don't think that they have much of a choice. Their inventory on its own was not as appealing and it's hard to change that overnight. So I think that they had to do this deal but they understand that it comes with some risks. Basically if you're having trouble hitting those fill rates for your advertising then you just kind of need to deal with well with Amazon or somebody that can supply those fill rates even if those companies are competitors like the trade desk, like potentially Amazon. When Amazon in other parts of its business has a bit of a track record for working with somebody and learning what they do best and then copying it or taking it, especially in their retail business. Amazon also historically doesn't have a great track record when it comes to making acquisitions. And I know there had been some chatter about maybe this is a prelude to an acquisition. Maybe Amazon sees how the Roku business is looking and then eventually says we want this. In reality what's probably happening is Amazon's getting a God's eye view into how Roku works and given how Amazon's behaved in the past. My theory would be that that ultimately ends up being something that Amazon uses to better itself with or without Roku. I feel like this is sort of a central tenant of every major platform. I remember the old Facebook connect, Facebook partnership program where it's basically, you know they would get these ad tech companies to come in, add value to Facebook and then they'd be like that's a really cool feature. Let's just copy it and give it away for free. Well, and you talked a little bit about like what does this mean for Roku and what does this mean for the CTV space more broadly? One of the cool things about this deal is CTV, the streamers, the OS operators, everybody's been, we keep our data close to our chest. That's why this partnership was in many ways such a big deal as it's signaled a level of, let's you know put down our swords and shields and link arms. But of course the danger with that is you're letting somebody into your house. And so that's always been one of the primary reasons why these partnerships haven't happened and so now we're seeing this happening and we're talking about all the potential benefits of it. But yeah, potential downside for Roku particularly is that they're giving Amazon a really good view into how their business works and potentially what weaknesses it has. That's what strikes me also about this partnership is it speaks to the varying levels of strength of the different wall gardens. It feels like a few years ago we were talking about well, it's a wall garden, they control everything, they control their audience and their inventory. And now that we see like Roku striking these deals, we are seeing sort of a stratification of the wall gardens like Google isn't letting another platform besides DV 360 by YouTube, right? But Roku is letting other platforms in because it has to. Yeah, exactly. I think to your point, the power hierarchies in the CTV space are beginning to come sort of into clear picture. And the other thing that you kind of mentioned earlier was the sort of three front war that comes with hardware, the operating system and the apps. Earlier this year, Walmart closed its deal with Vizio, right? That gives them a very powerful tool, OEM platform. And I'm kind of wondering to what extent Amazon might have been motivated to strike this deal because of the Walmart Vizio situation. Yeah, very much so. I mean, I think there's also an interesting element. If you look at the trade desk, their deal with Ventura in the way that its operating system worked was. Ventura, is that the LG operating system? Ventura is the trade desks operating system. That was supposed to go on LG? It was supposed to go on Sonos, I think it was. Ah, okay. But then the Sonos deal fell through and so the trade desk has been kind of like left holding this bag of like, oh, we've got an operating system, but we don't have a hardware partner. And so their whole pitch though was the trade desk is not going to take any ad split. They're going to funnel that money back to the OEM, which is to say the hardware provider. That was their way of incentivizing hardware providers to strike deals with Ventura. So that hasn't really worked out yet, although I do think there are some developments on that front in the pipeline. But when you look at Amazon, they're probably having that same consideration of like, what is our pitch to hardware providers? How do we make ourselves more appealing, not just on an OS level, but also on an OEM level? Because they do have prime video, which is obviously a really big player in the app space. They have Fire TV and now they're combining with Roku, so their OS position is really strong. I think the last maybe link in that chain is how do they expand their presence in the OEM market. So that could be an element to watch out for. And yes, certainly potentially responding to Walmart, which to your point is maybe the only other retailer that has as sort of appealing of data as Amazon does. How badly heard potentially is the trade desk though? I mean, that's a good question. I'm glad you asked it because I think sometimes we as reporters can get wrapped up in narrative and intrigue and drama. I put this question to a lot of people out in the real world and they're kind of like, what are you talking about? Like, the trade desk is still a jug or not and it's the one to be. So I think that this is, I mean, a headwind is the best way to put it. It's not advantageous toward the trade desk, but ultimately I don't think that this is disrupting their business in some cataclysmic way. And I also think the trade desk's primary pitch on the open web has always been, we don't have a horse in the race. We're Switzerland. You can buy from us and you know that you are getting the best deal. You know, that was always their counter to Google's dominance on the open web. Now I think that's going to be their counter to Amazon's dominance in the connect television space. Amazon has its own streamer. It has its own OS. So if you're buying through the ADSP, how do you know that you're getting the best deal versus getting the deal that Amazon wants you to have? So it kind of has this like jujitsu type maneuver where like the trade desk's appeal is enhanced as its competitors grow more dominant. It's kind of this like reverse move. So the more dominant Amazon grows, the more people are going to say, well, actually maybe we should keep doing business with the trade desk because we can trust them and they don't have the same sort of self-serving interests as an Amazon does in this case. I feel like as the trade desk has grown over the years, as its market cap has soared, especially compared to other ad tech platforms, it's sometimes easier to lose track of the fact that the trade desk is an underdog compared to Google compared to Amazon. It's not anywhere near the size of those companies and it probably will never be. And they've always been very successful at least in pitting themselves as sort of the alternative to Google. So it seems as to your point that they have this opportunity now to pit themselves as the alternative to the Goliath at its Amazon. Exactly. I don't think that they would ever say that they want to be the number two in all these industries. I'm sure they would happily be the dominant force, but they are like a natural balancer of power in these places by dint of their appeal being we have less reason to be self-serving than our competitors do. So by that logic alone, even a real threat to its power doesn't really imperil it in the same way that it would for a standard competitor. So I was going to ask if this puts a ceiling on the trade desk's CTV ambitions if they're boxed out of really one of the most valuable TV ecosystems. I'm guessing the answer is no. I think that it means that the ball is in the trade desk's court. I think that after its operating system Ventura ran into some early headwinds, I think some of the challenges that have been posed to it throughout this year, I think that the trade desk would need to sign a partnership of its own or really come out swinging in some serious way because it feels a little bit like it's on its heels. But I think it's fully capable of that. And I think that the executive team there is really smart and are probably been working on this for six months, at least or whatever the case. So no, I don't think that there's a ceiling on it, but I think that there is a necessary response that the market needs to see. I feel like that the trade desk is again, kind of used to being in the David position versus the Goliath position. and that's sort of like when the trade does because always it seems to have performed best. Yeah, I agree. All right guys, we're going to take a break but when we come back, we're going to look at why the war for the living room is a three-front battle. All right, so Mark, before we went to break, we described like a war for the living room. And keep me honest, is this really happening with the platforms and the ad tech providers? Yeah, very much so. I think that CTV is the new frontier in terms of where all the ad budget is flowing. Everybody wants to be there. Ad tech companies are moving like crazy there. Every publisher is trying to establish a toll hold in the space and hardware and software providers are also looking at it and just seeing pools of money. So that means there's a bunch of interest in being in the space but it also means there's a sort of three-pronged battle going on at any time. Now we mentioned earlier a battle between hardware software and apps. Who are some of the biggest players in the space? Well, in the hardware space you have Samsung and LG being I think the first and second leaders on that front. In the software space, the OS space, you have Roku with a pretty commanding lead and then you also have Fire Stick is very competitive and LG has an OS. So a lot of the times it's the hardware providers and the software providers are pretty similar because if a TV comes with an OS then you kind of have a pre-packaged benefit. And then of course when it comes to the streamers, you're talking about YouTube, Netflix, Disney, Max or HBO as I think it's now called. I think more people, more consumers are obviously familiar with what streamer are they watching. I think a lot of them don't think about what OS they're using or what hardware provider they're using. And so I've had a lot of conversations over the last several months of how do you get that to be a bigger topic of discussion amongst consumers? I think we talk about hardware and software. Look at Apple's dominance in the US because of the iPhone. They can basically restrict or control the app store and how much of a fine or tax they're able to take on commissions made on the iPhone. I think what we've learned obviously from mobile phones is whoever owns the hardware ultimately kind of owns the battleground. And I think we've been focused a lot on the streaming apps over the last several years and I think we're going to start seeing a bigger focus on the hardware providers and the OS providers. It's interesting also though with TVs, I feel like there's such a commodity. It's really rare. If somebody presses you, I would say I have an LG TV but you kind of have to think about it. And why do I have an LG TV? It was the cheapest on a Black Friday sale. It's rare to kind of choose a TV because of some sort of strange innovation. I think maybe the Samsung frame TV is to my memory, like the innovation that might be actually driving people to a specific manufacturer. Yeah, right. Specifically because it looks nice when it's off, which is like such a funny, funny sort of appeal. But no, you're absolutely right. And I feel like, I mean, for many decades really, the hardware providers of televisions have sold them almost as a loss leader. And so this is why going back to Trade Desk and Ventura, why I think that their strategy is really interesting. They're going to the hardware providers and saying, look, we know you sell the TV and make pennies on a dollar. But if you use our OS, then all the money that we make off of selling ads on our OS will split that with you. So all of a sudden, you as a hardware provider selling TV turns from a penny making operation to a dollar making operation. So I think it's an interesting way of trying to get a told in the market. And it speaks to exactly what you're saying, which is that television hardware providers for a long time, it's been sort of an unglamorous business. Just get the television in somebody's house. And then we'll try and make money off ads or we'll try and make money off cable or whatever sort of subscription process you're talking about. But I think another example of that is even look at Telly. I've done a fair bit of reporting on them. They're like, we'll give you the TV for free. Just fill out a bunch of information. So we have a better idea of what ads to serve you. And then we'll make money by serving you better ads and we'll try and get you to buy things using these call to action, commerce ads, etc. But we're rapidly approaching a space where it's like, it doesn't even matter what TV it is. Just get it into the living room. And then once that's there, you've kind of already won the battle. Yeah. And I spoke with Digitoss CEO Amy Lanzi on why this is such a battle. I think of the TV now as the everything entertainment place. So if you are wanting to watch your favorite something on Spotify, you're going to, and you want to do it in a bigger screen, you're going to do that in your living room. I think this is why we're seeing sports have such a moment from media because this is where consumers are really consuming on that big screen. And it's also time box so we can measure it. We can measure everyone showed up for these things. But gaming is the big to me is the big one that's coming into your point. My own experience with the crazy growth of Grow Your Garden on Roblox. I literally watched a YouTube creator with my son on that big thing in our living room to learn more about Grow With Me and What's Coming from the creator. Right? So this is no different than me watching Friends when I was at age. If that makes sense, this was his entertainment moment with me. So I think if the TV is like the everything entertainment place and it's being liberated from what we did on our phones to here because there's that much, that's so wonderful that doesn't just feel like scrolling on social. You had written that the streaming TV ecosystem is fragmented and just hearing this conversation. Obviously we can kind of get a sense of why. Going back to that Roku Amazon deal. It brings some cohesion but doesn't it also kind of deepen the walls of each garden? Yeah, potentially. I mean, I think it could result in a situation where alliances are struck but the walls between those alliances are even more impenetrable than ever. That could very well be the case. But I like to be optimistic about it even though I probably shouldn't be. There's no real track record on the open web of interoperability really catching on or being a strategic advantage. We're seeing some positive elements at least when it comes to apps and bundling. So I think that there's a greater understanding of the CTV space is headed toward consolidation like so many other digital media ecosystems and ultimately marketers have the power of the purse. So everybody is just trying to make it as easy for them to do business. And that's the force that's driving these alliances and driving consolidation. And if they can be structured in appropriate ways. So long as that's what marketers want, I think that's the direction that ecosystem is going to head in long run. And with Roku and Amazon together now having like the biggest logged in user base and streaming TV, what sort of leverage does that give them? The partnership actually takes effect I think in Q4 of this year. So we'll really start to see how much of a needle mover this is toward the end of the year. But I think the ability to reach 80% of CTV users through the Amazon DSP plus you have that layered in with Amazon data makes it probably the most appealing single point of entry in the CTV ecosystem. And I think that's why there's been a lot of chatter about this. People marketers really don't like having to use a variety of different platforms to get their job done. And I think that this is going to make all of that audience. It's easy to remember because I think it's 80% of the CTV audience and it's 80 million people. But I think that this is going to basically allow a marketer to target an audience of 80 million or from an audience of 80 million. And that's a number that's not really been possible until this partnership. I'm going to go back to our lazy muck raker ways and try to force you into a narrative. So who's best positioned out to kind of win this war for the living room? And and just anyone really in danger of being left behind? I've been personally thinking for the last several months that Amazon is the horse to bet on when it comes to CTV. And I think when they struck that partnership with the New York Times and the licensing deal, I was talking about that with somebody. And I was like, you know, this is not investment advice. But you know, if I feel like Amazon has all the puzzle pieces in a very strategically advantageous position. And I think that it is really building up its presence in the CTV space. So I feel like they are in a serious position to win. Of course, what are users watching? I mean, ultimately, that's what this all comes down to in many ways. And then you have a different conversation around YouTube. And you can even talk about Netflix and TikTok trying to bring vertical video formats to the big screen. I think that's a really interesting trend line to keep watching. But I think if I were to, you know, sort of place money on any single player, it would probably be Amazon. Would you place a little bit of money on video on Walmart? I would place a lot of money on Walmart. You know, I'll have to see, you know, really how intriguing that tie up is to marketers. And I don't want to count out Walmart by any stretch of the imagination. I just think Amazon has more differentiated touch points. And Prime Video is a really appealing streaming service. And Walmart doesn't have anything that really compares. So I think that they are to your point, maybe a snake in the grass, but I think it's too early for me to really give them much. I would I'd say maybe the biggest advantage, Amazon has really over Walmart is that they have a lot of experience being content owners, premium content owners and producing their own content and Walmart really has never been able to get that off the ground. Yeah, and of course, I mean, I'm leaving out some of the other Amazon O&O, like Wondery, the audio podcast platform and that's obviously podcasting is having this massive boom as it sort of merges with video and how does that end up serving Amazon when they have Wondery and Prime Video and of course, Alexa, which is in the audio space normally if anyone's still using it. So I just think that they have a lot of different touch points to be pulling data from and bringing it all in one place, which is the Amazon DSP. So what's next then in this war for the living room to be dramatic? What should we be watching next? I think we watched to see how the trade desk responds and what kind of uptick it's able to materialize with its operating system. I mean, there's been some really great reporting of does Netflix need to be TikTok before TikTok becomes Netflix? So I think like the converging of different content formats and who ends up winning and losing on that front is going to be really interesting. So could you see TikTok getting into the television space in any kind of way? I mean, gaming's another interesting element. Of course, Netflix has been trying to push that to its users. I think that that has probably gone under reported on, but I also think it's been a little lackluster in terms of the results that it's shown, but seeing whether it's social media, whether it's shopping, whether it's sports, where it's a vertical video, whatever the case, kind of having that all come to the big screen. I think we've all seen that on mobile for the last like 10 years. What does it look like when these formats podcast to migrate to your television, your living room? I think that is a space that's really interesting to keep an eye out for. Mark, thanks for your insight. A pleasure as always. Yeah, thank you. 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