Online ads in limbo as cookies fall apart

  • Internet marketers ‘tsunami’, similar to the GDPR rollout
  • Traditional publishers can benefit from the backlash over privacy

every few weeks, private eye It publishes a list of real-world marketing mistakes. They are often horrific: a news article about a local drowning accompanied by an advertisement for swimming exercises, for example, or a story about a plane disaster next to a budget airline deal. In most cases, an overzealous algorithm read the article’s keywords before spotting a frighteningly inappropriate ad.

These slips are becoming less common. While “contextual” advertising still exists, online marketing specifically targeted at the reader has gained serious ground. If you Google a pair of sneakers, for example, a bunch of similar shoes will be wandering around your screen in a matter of minutes. Sometimes the mere thought of a product seems to conjure up its own digital animation.

The pendulum may be about to swing again, but this highly targeted – often very intimidating – type of marketing is threatened by Google’s plans to scrap third-party cookies, which now threaten to dramatically change the online advertising market. Beneficiaries are so far looking to include tech giants and smaller publishers with a clear user base, such as newspapers in the past.

Cookies are small pieces of code that allow websites to identify users. They are often very useful. First-party cookies, for example, are the reason you don’t have to type in your username every time you visit a website, or start your online shopping cart from scratch every week. The cookie is controlled by the publisher or site owner, and the data is collected for their exclusive use.

The third party cookies are not created by the website you are visiting but by something else – often a social media company or an advertiser. Then they track you as you go online, collecting information about your interests, location, age, and habits. Unsurprisingly, it has proven to be a popular target for privacy advocates.

Internet browsers Safari and Firefox have already blocked third-party cookies. However, it was Google Chrome – which accounts for nearly two-thirds of global browsing traffic – that upped the ante. After several delays, Google intends to phase out third-party cookies by the end of next year.

Big tech companies can get bigger

The change will have a major impact on digital marketing, according to Kathleen Peters, Partner and Head of Marketing and Commerce at Deloitte Belgium. “It’s as if GDPR happened and we – as marketing experts – thought the end was near. This is another of those tsunami that severely impacts the way we can do marketing.”

Question: Who is drowning and who is swimming? As usual, it looks like the biggest tech companies have taken over a lifeboat. Analysts at Peel Hunt have argued that the likes of Meta (US: FB) And the Alphabet (US: Google) It can become increasingly powerful over time as it collects more data on individuals without having to share it, thus building higher “walled gardens.”

It is important to restate the difference between first-party data and third-party data here. The first is information that the company collects directly from its customers and owns itself. In return, third-party data is purchased from third-party sources.

Big tech companies already have a huge amount of first-party data about their users, so they have an immediate advantage over their smaller peers. “The potential to find new prospects on many channels will be lower when third-party cookies cease to exist, and the only thing left are the large platforms,” Peters said.

Tech giants have already demonstrated an uncanny ability to protect their finances from the impact of privacy laws. A Citigroup study on the consequences of GDP finds that Big Tech is well positioned to handle regulatory burdens. As such, “it is possible that these companies have offset the direct costs of the GDPR by capturing a larger market share at the expense of their smaller competitors,” the report concluded.

Facebook’s user base increased from 2.3 billion in 2018, when the regulation went into effect, to 2.9 billion in 2021.

Hope for vulnerable publishers

“You could say that the disappearance of third-party cookies is a threat, but I also see it as an accelerating factor in a really big trend toward more regulation and concern about data privacy,” Peters said.

There is further evidence for this. In 2021, Apple (US: AAPL) It introduced an App Tracking Transparency Policy, forcing apps to ask for permission before tracking user behavior to display personalized ads. This has proven to be painful for the likes of Meta and Snapchat (US: SNAP)which failed to meet earnings expectations this year.

Privacy concerns may lead to the re-emergence of contextual ads, which are not dependent on identifying individual readers.

“I believe the end of third-party cookies will help premium publishers,” said Sam Tomlinson, partner and leader of media and entertainment at PwC. Context has always been important but has been somewhat overlooked in the past decade. Getting back to people thinking about the quality of the contextual environment… is good news for the advertising world.”

Targeted ads are not going away anytime soon, however, publishers who know their readers well will be in a better position than others.

“Those with a subscription model will benefit greatly from the disappearance of third-party cookies because they can benefit from first-party data,” said Nils van Schuris, Senior Director of Marketing Consulting at Deloitte Belgium.

“But people who have switched to an advertising model recently have a lot of anonymous visitors, and they will need to rethink their business model and strategy. They will definitely feel the impact.”

future (FUTR) Here is an interesting case study. The media group owns a range of niche magazine titles covering everything from gaming and sports to women’s lifestyle and photography.

Given that each of Future’s publications has a relatively niche readership, a large portion of its revenue is generated from “direct” advertising, which involves companies going directly to magazines to approve marketing campaigns.

Analysts at Peel Hunt predict that Future’s share of direct advertising will increase as the third-party cookie problem persists. The direct approach is often more attractive because it offers higher returns than automated advertising, which uses automation to purchase ad space.

Mirror her Access (RCH) – which is currently transitioning from print to digital media – has more to worry about. Currently, its digital strategy relies largely on third-party data, rather than a regulated consumer view. As it strives to change this – it launched a “one-click” registration process in October – analysts have suggested that the demise of third-party cookies may have a short-term impact on its core revenue.

Advertising Technology Under Pressure

In addition to magazines, news channels, and social media sites, there is another type of company that will be most affected by the phasing out of cookies. Ad tech companies deal in digital advertising technology and produce a dizzying array of acronyms including SSPs, DSPs, OMPs, and PMPs.

The acronyms alone give an idea of ​​the complexity of this work. Simply put, an interlocking supply chain – known as “software pipelines” – connects companies wanting to market their products and publishers wanting to display their ads. In 2020, research by PwC found that 15 percent of ad spend is lost somewhere along this continuum.

The ad technology companies involved in this process are now urgently trying to find alternatives to third-party cookies that will still adhere to privacy rules. Several American advertising giants such as The Trade Desk, Nielsen and Verizon Media are leading the way in this matter.

However, it’s worth looking at smaller tech companies that are closer to home because they don’t rely on third-party data. Alasdair Young, an analyst at Panmure Gordon, said Aim-traded Diagnostic (DNM) They look “increasingly well off” because they specialize in contextual advertising.

CentralNic (CNIC), which started as a seller of domain name subscriptions but now has a rapidly growing marketing arm, is also an interesting proposition. Like Dianomi, it doesn’t rely on third-party data, and instead uses the traffic going to its domain names to match ad buyers and sellers. Talking to Investors facts Earlier this year, CentralNic CEO Ben Crawford said the sector was doing very well, regardless of Facebook’s recent “shock” earnings.

The economic situation has changed dramatically since the beginning of the year, however, companies are looking for ways to cut costs. True or false, spending on marketing is usually one of the first things to go through. Meanwhile, the end of third-party cookies will make it difficult for companies to accommodate their audiences, which could further dampen their appetite for ad spend. Regardless of which way the cookie crumbles, the next year looks tumultuous for tech giants and aging publishers alike.

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