The Story Behind Cookies
Today over 90% of websites have 3rd party cookies (source). Most commonly used for identifying users online and providing personalized browsing experience, cookies play an essential role in the machinery of digital marketing.
When user visit a site that generates third-party cookies, the site places a morsel of data– a cookie – on the user’s browser. The code allows that business to learn about the other sites the user is visiting and build a user profile, including preferences, site activity, and stateful data. With this information, brands and advertisers can generate and launch personalized content and optimize their messaging towards goals, a in practice referred to as “programmatic advertising” in digital media. Third-party cookies differ from first-party cookies, which can only give brand information about the sessions a user has on its own site and second-party cookies, which are shared from one firm to another via data partnership.
The importance of programmatic advertising has ballooned in the past decade, and accounted for 78.4% of US spending on display and video advertising in 2020 (McKinsey). Furthermore, many non-premium publishers depend on third-party targeted ads for their advertising revenue.
History of privacy concerns
While valued by businesses and advertisers across industries, cookies have come under increasing scrutiny by regulators and consumers alike.
A majority of Americans believe their online and offline activities are being tracked - 72% of people feel that almost all of what they do online is being tracked by advertisers, technology firms or other companies, and 81% say that the potential risks they face because of data collection outweigh the benefits. (Pew Research) Additionally, there is a general lack of understanding about data privacy laws and regulations that are currently in place to protect their data privacy, further fueling misinformation and skepticism.
In the last few years, regulators and technology companies are responding to consumer privacy concerns. Highlights include:
Outlook on experience
At one point, third party cookies were considered the key to personalization and creating rich customer experiences. At the same time, the virtue of these cookies have become a major frustration for consumers who feel overly tracked and find hyper-targeted content stale. As the phase out looms there are still many customer experience implications yet to be fully scoped, but a handful of touchpoints are likely to be affected:
Consumers may see the same ad a hundred times while someone else in their target category doesn’t see the ad at all.
Relying primarily on the cookie partnership that exists between advertiser and publisher, retargeting ads in their current form are likely to take a hit. However Google and Facebook remarketing are unlikely to face major disruptions given their reliance on first party cookie data.
Exclusion of converters
Similar to frequency capping, most campaigns rely on third-party cookies to determine who to not serve ads to. While conversion tracking should be unaffected, the possibility of switching of the campaign for consumers who have already converted on site will be disrupted.
Interest & demographic relevance
Cookie data has been critical in helping advertisers serve ads related to consumer interests and demographics. There are moves to shift towards contextual, or topic specific – advertising, where the consumer sees a travel ad while reading a travel article.
As regulatory measures such as CCPA and GDPR put greater emphasis on explicit customer consent, businesses are using cookie pop-ups to tell visitors how data is used, and provide opt out/in options. Given the obnoxious nature of these pop-ups, there are opportunities to find a streamlined solution that can be applied at a macro [browser] level, rather than the website level.
What this means for publishers
The changes will likely have an impact on publishers, however the scale of this impact remains up for debate. In 2019, Google ran analysis that suggests that publishers’ digital ad revenue can be reduced by 52% on impressions, without cookies (Google), and in 2020, Facebook took out full-page ads in newspapers denouncing Apple’s privacy feature. These two giants accounted for 58% of US digital ad spend in 2018 (eMarketer). However, a 2019 independent academic study found that publishers only get 4% more revenue for an ad impression that has a cookie enabled than for one that doesn’t (Study). While publisher revenue outlook is negative given significant declines in overall programmatic spending, those publishers that adapt and adopt a viable solution in advance may be able to strengthen their position in an incredibly crowded landscape.
But There’s an Upside
While privacy efforts by Google and Apple may heavily impact some areas of the marketing and advertising space, many tactics are likely to stay the same. These shifts, while jarring, need not induce panic for business leaders. Furthermore, they create an opportunity for marketers to revisit stale strategies and explore new optimization opportunities.
Privacy & trust
In short, moves to restrict cookie tracking increases privacy, a welcome change after years of wanton data collection by companies and violating consumers’ privacy without their knowledge, consent or recourse. Over the past two decades, many advertisers have collected personal information, often without explicitly asking permission or explaining what is being done with that information. It is important to note that while this increase of privacy is relative, it is not absolute. Major tech companies like Google and Apple still have data on users that are constantly logged into free services like Gmail, Youtube, iCloud, etc, and are actively working towards new ways in which brands can leverage these data capabilities. As such, consumer privacy may never be completely guarded, but steps towards rebuilding consumer trust via consent and transparency should be embraced by brands rather than feared.
Marketers are concerned that the loss of cookies means the loss of the ability to target ads down to the level of the individual. The reality, however is that larger advertisers especially have gone too far down a rabbit hole of targeting in digital advertising, paying extra for hyper targeting – using many targeting parameters and constant retargeting, thinking that equates to relevance. As a response, consumers are finding ways to protect themselves by installing ad blockers. Today, over 27% of all internet users use some form of internet ad blocking. (eMarketer)
Cost savings & efficiency
Analysis of the programmatic supply chain has revealed how the digital media ecosystem hemorrhages cash on its way to publishers by way of ad fraud, with one study finding that about 1/3 of the supply chain fees that advertisers pay cannot be traced. (ISBA). In a similar vein, an obsession with hyper targeting individuals has contributed to a depreciation of brand building and awareness tactics. Brands overly focused on saturating specific segments are potentially leaving money on the table by neglecting to expose new audiences.
Doing away with 3P cookies means that advertisers have a unique opportunity to undo the bad digital marketing habits of the last decade and force a revisiting of strategies, capabilities and budget allocations. The good news is that it is in fact possible for marketers to cultivate better experiences and – and better advertising – by collaborating with consumers in a more human way and offering them greater control.
Potential benefits aside, these changes still pose a disruption to “standard” digital marketing practices and strategies. But don’t panic! At this point, marketers, advertisers, publishers and data engineers are all actively looking for solutions and innovations to influence what will happen next. What will not change, however, is the importance of data. A mindfully-constructed data strategy will still be critical for segmentation, targeting, and performance management, and brands will need to prepare for the transition. Brands will need to proactively prepare for the phaseout while still allowing for adaptability in the long term. Proactively reach out to trusted partners to discuss how third-party cookies are currently being handled as well as their plans for the future. Additionally, consider relationships with new vendors, partners, and platforms to help future-proof digital capabilities.
To learn more about future-proofing your data and digital strategies, connect with Icreon about how we can prepare your business for 2022 and beyond.
Disclaimer: This blog post is not legal advice for your company to use in complying with data privacy laws like the GDPR or CCPA. Instead, it provides background information to help you better understand the implications of these regulatory changes. Please consult an attorney if you’d like advice on your interpretation of this information or its accuracy.
In a nutshell, you may not rely on this as legal advice, or as a recommendation of any particular legal understanding.