We’re excited to share this piece from 6Pages, a new kind of market-intelligence service focused on far-reaching shifts in business & technology. The post below has excerpts from the 6Pages brief: Publishers & retail brands adapt to the coming death of 3rd-party cookies. The full-length brief will be available for a limited time at 6Pages.com.
The advertising industry is taking a sizable hit during the pandemic, with US ad spend down a projected 13% this year. At the same time, it is facing an enormous privacy-driven shift away from 3rd-party data, which has gained momentum over the past year.
Today, over 90% of websites have 3rd-party cookies – a news site like The Washington Post might have 40 cookies. However, the norms around consumer personal data are changing rapidly. The combined pressures of tightening privacy regulation (e.g. GDPR, CCPA) and sweeping privacy-focused changes by major web browsers to phase out 3rd-party cookies are driving a shift in advertising away from 3rd-party data.
The journey to a “post-cookie world” is reshaping advertising and will impact companies from automakers to consumer packaged goods. Those who can capitalize on distinctive 1st-party data assets collected directly from users are now repositioning themselves to do so.
Key drivers of the shift away from 3rd-party data
- Privacy regulation: Since the EU’s General Data Protection Regulation (GDPR) in 2018, other countries (e.g. Brazil, India, Canada, Australia) have followed in writing new national privacy bills or laws restricting how companies can collect, manage and use personal data. The California Consumer Privacy Act (CCPA) in the US, treated as national law by some companies, takes aim at 3rd-party data, requiring companies to notify consumers if their data is being sold and allow them to opt out.
- Privacy updates by major browsers: Most of the major browsers – including Google Chrome, Mozilla Firefox, Apple Safari, Microsoft Edge, and others – have added features to either block tracking by default or make it easier for users to block tracking. These new restrictions have focused on 3rd-party cookies, which are commonly used to follow users across the web and gather browsing data for, among other purposes, retargeting of consumers with ads on other sites.
The shift away from 3rd-party data to what?
The natural next question becomes: If companies can’t rely on 3rd-party data, what options are left for targeting consumers with relevant ads and personalizing their experience? Models are emerging (or re-emerging) across industries for consumer targeting and personalization that may not rely on 3rd-party cookies, or any cookies, or any personal data at all.
Considered one of the more likely alternatives to 3rd-party data, contextual targeting relies on the context of the interaction rather than the identity of the user. For instance, an ad may be served up based on where a user came from and the content of the webpage the user is browsing. AI-powered text analysis and semantic algorithms can gauge tone and nuance, as well as incorporate metadata, video transcripts, comments, and related keywords. With a better understanding of the content, contextual targeting can also lower the risk that a brand’s ads are served next to undesirable content.
Advertising “walled gardens”
While the term “walled gardens” is usually used to refer to the digital-advertising behemoths (e.g. Google, Facebook, Amazon), large publishers and retailers with reach and scale are also now positioned to build their own advertising walled gardens. These players are using 1st-party audience data gathered through consent mechanisms such as registrations and logins.
Some are calling publishers’ user-identification data the equivalent of a “publisher-side cookie.” Data from large publishers – which can be authenticated, high-quality, and enriched with user interactions across a large body of content – can be very attractive to advertisers if there’s an overlap in addressable audience.
Data alliances & “clean rooms”
Publishers are exploring ways to collaborate and share data sets that pool their 1st-party data – kind of an “ecosystem of walled gardens.” For publishers both large and small, data-sharing can help increase the leverage and value of their data, as an alternative to Google or Facebook’s platforms.
“Data clean rooms” (such as Google’s Ads Data Hub and Amazon Marketing Cloud) are an approach to pooling data from multiple entities in a controlled space without direct access by any entity. Clean rooms are growing in demand as a way to combine aggregated data from the big walled gardens and customer data from advertisers (such as Unilever), while maintaining privacy.
To maintain compliance, marketers will largely have to transition from anonymous cookies to fully-consented identities. This approach depends on the effectiveness of anonymized identifiers in matching users to activities across websites, sessions and devices, along with good consent mechanisms. Players are considering how to position themselves in an ill-defined future environment with a 1st-party “universal identity infrastructure.”
Login alliances – which let users use a single login credential across different media brands – are still early stages but growing in adoption, especially in Europe. Login unions have formed in Germany, France, Switzerland, Finland and Portugal. Other vendors are exploring shared ID approaches that don’t involve 3rd-party cookies, such as a shared ID that can be stored on a 1st-party publisher cookie or encrypted email addresses.
Other approaches & avenues being considered
- Consent strategies are being updated by most 1st-party players – for instance with consent management platforms that can track consent at the user level and share with advertising partners, and authenticated consent solutions that sync user preferences across platforms and devices.
- Google’s Privacy Sandbox, launched in Aug 2019, is looking to bring a technical solution to life over the next two years that can balance user privacy while enabling personalization and an advertising-based business model. It has a number of current proposals brewing.
- 3rd-party cookies disguised as 1st-party cookies: This approach moves 3rd-party cookies to a publisher URL, effectively turning them into 1st-party cookies.
- Device-based advertising IDs and their alternatives: Mobile advertising is heavily reliant on device-based, user-resettable advertising IDs. However, some industry watchers are expecting advertising IDs to gradually go away in favor of more privacy-oriented mechanisms.
- Device/browser fingerprinting: Considered somewhat unsavory for its invasive approach to privacy, device fingerprinting pairs probabilistic methods with attributes like operating system, browser, language settings, screen size, fonts, installed plugins, and especially IP address to “fingerprint” the unique device.
- Geo-targeting: An off-shoot of device-based tracking, geo-targeting uses location indicators (e.g. real-time GPS, IP address) to drive contextual ad targeting. At the zipcode level, location can be a proxy for demographics (e.g. income) and business information (e.g. SIC code).
- Direct compensation to consumers: Some players are experimenting with paying users to contribute data, consent to its use, or watch ads.
- Alternative media channels: Marketers are rethinking how they are deploying advertising dollars to be more strategic. There has been renewed interest in targeted advertising on media channels that don’t rely on cookies, such as connected TV (CTV), podcasts, and retail media.
The response from ecosystem players: Publishers
Publishers such as the New York Times, the Washington Post, News Corp and Vox Media are developing their own ad-targeting platforms for advertisers, using and monetizing 1st-party data directly collected from readers rather than 3rd-party data from other sources. Registration walls for non-subscription readers are also growing in popularity because they can help collect more 1st-party data.
Publishers are also experimenting with different types of value exchange – from offering an “ad-light” experience for a reader’s email address (Forbes), to unlocking content or a contest entry (USA Today) in return for a registration.
Large publishers like the NYTimes have advantages that stem from their scale – notably the ability to operate their own walled garden. NYTimes’ recent investment in a 1st-party data ad-targeting platform is only viable because of its scale and trusted brand. Smaller publishers will be disproportionately impacted by the shift. We can expect to see continued industry consolidation, especially amongst the smaller high-quality players.
The response from ecosystem players: Retail brands
Large retailers and consumer platforms are becoming advertising companies. Like publishers, they have access to swaths of 1st-party data – from user logins, transactions and online searches.
The extraordinary success of Amazon’s advertising business – which generated $14B in revenue in 2019 (up more than 4x since 2016) – has spurred other large retailers and some consumer-facing platforms to follow in its footsteps. Some of the larger retail brands, such as Walmart, Target, Kroger, and eBay, have followed Amazon in developing their own advertising platforms.
While few companies can replicate the full range of Amazon’s assets and capabilities, the larger retailers can capitalize on the most critical leverage points – the full-cycle view of the customer journey and the direct tie between ad spend and customer purchase.
The advertising opportunity – proven to be highly lucrative for the big tech firms – is alluring for fast-growing consumer brands that generate swaths of 1st-party consumer data through their core day-to-day business. This is especially true for the likes of Uber and Instacart, which are seeking avenues for profitability. Expect to see more consumer platforms follow the path of Uber Eats into advertising.
Adtech as partners rather than intermediaries
The end of 3rd-party cookies and shortening of the value chain between brands and publishers will be hugely disruptive to the advertising ecosystem. This is especially true for adtech companies reliant on 3rd-party cookies such as data management platforms and attribution vendors. We can also expect to see a shake-out and wave of consolidation among supply-side platforms (SSPs) serving publishers and demand-side platforms (DSPs) serving advertisers.
There will be an opportunity for adtech players to help companies enrich their 1st-party data with more data and insights (e.g. through machine learning or propensity models). 3rd-party data isn’t going away altogether, though it is becoming harder to use.
Advertisers will take a short-term hit but eventually adjust and benefit
Advertisers face an adjustment period in which they may see lower ROI on their ad spend from contextual targeting. They will also face greater limitations in cross-site tracking as the industry becomes more publisher site-centric. Advertisers will have to build new adtech partnerships and competencies. Some – including smaller advertisers – may revert to the known walled gardens of Google and Facebook to simplify the adjustment, at least in the near term.
The forward-looking large advertisers, however, recognize that opting out of publisher and retail audiences would limit their opportunities, and are already exploring direct strategic relationships with large publishers and retail brands. Advertisers with large pools of their own data are better equipped to work with large publishers and engage in statistical approaches like probabilistic ID graphs that can ensure a specific audience without matching specific identities.
In the longer run, advertisers will adapt to a world without 3rd-party cookies and be the beneficiaries of more advanced tools from publishers and retail brands, better attribution, and less fraud. With contextual targeting, they also benefit from improved brand safety and lower likelihood of ads being placed near misinformation or inappropriate content.
Not everything is changing – big tech will still be among the winners
One major theme in all of this is that being big offers an outsized advantage – for publishers, advertisers and big tech firms. Google, Facebook and Amazon – together 70% of all US digital advertising spend in 2019 – will assuredly emerge among the winners here. If the one clear effect of the end of 3rd-party cookies is that the owners of large pools of 1st-party data will gain leverage and power, then the big tech firms with their massive stores of data will come out on top.
The biggest risks to these big tech firms are consumer trust and antitrust. With all three of them facing antitrust scrutiny right now, it’s a delicate time to be enacting changes that disrupt industries and disproportionately impact smaller players while leaving the big tech on top.
All paths going forward will lead to and through consent
Depending on your role in the ecosystem, this might be an exciting or alarming time. In the past, consumer data typically came with implied consent – through choice-based interactions with eCommerce retailers, banks, airlines, hotels and other sites. Over time, consumer data gradually became decoupled from the consent of the human beings that the data describes.
All paths going forward will lead to and through consent. Consent is the reason why 1st-party data is garnering so much attention, and why large publishers and retail brands are gaining more power and leverage. If the original sin was the decoupling of personal data from consent, then the solution lies in bringing them back together. Consent is becoming the standard for privacy regulation – and moving beyond just checking the box.
The real winner here is the consumer. 3rd-party cookies have allowed, to some degree, marketers to become less connected to potential and existing customers. If 3rd-party cookies do go away, it means that advertising will need to be more relevant to real consumer wants and needs, and brands will have to be more diligent and dedicated to their consumer audience. At the end of the day, that’s good news for us all.
Our thanks to Mike Banuelos (Vice President of Strategy, Hawke Media) and others for their comments on this brief.
Disclosure: Amazon and Google are vendors of 6Pages.