Google’s Cookie Fight Will Shape Future of Digital Advertising
Google’s Cookie Fight Will
Shape Future of Digital Advertising
Shifts in the way data is
shared threaten Facebook and other rivals in the $330 billion industry.
By Alex Webb July 16,
2020, 1:00 AM PDT
You may not have noticed, but
the web is on the cusp of a revolution. Groups of engineers around the world
are beavering away on the biggest upheaval to it in a decade. The shift has the
potential to drastically reshape the power dynamics of the internet and
the $330
billion digital advertising industry that supports it.
It’s all about cookies. If
the web is an unfathomably complex machine driven by billions upon billions of
cogs, then cookies are the lubricant that keeps the thing moving. That’s
because the web is, for the most part, funded by ads. And the tiny little text
files known as cookies determine which ads get shown to whom. For now. Come
next year, that’s all going to change.
The overhaul might also give
publishers, not least the media industry, a chance to mend their bungled
approach to making money in the era of digital consumption. If they get their
act together, that is.
Whenever an ad seems to stalk
you, cookies are to blame, but their origin in the mid-1990s was innocent
enough. Engineers at the then-popular web browser Netscape needed a way for
websites to remember what you’d placed in an e-commerce shopping basket, or
simply your preferences. They put a small text file on your device noting the
data. Then, when you returned to that site, you didn’t have to log in again,
and your basket still contained a VHS of Titanic, a Furby doll, and
whatever else people bought in the ’90s.
Over time, advertisers
realized that such cookies could also be used to track users across the
internet. They started piggybacking on websites, with those sites’ consent, to
drop “third-party” cookies onto devices, as distinct from the first-party
cookies coming from the websites themselves. (You—the user—are technically the
second party, but you don’t produce cookies.) The more websites in an
advertising network, the more complete a picture they could build of users’
browsing habits and, by inference, their likely purchasing preferences. Knowing
that you were interested in the film Titanic, Furbys, and the BusinessWeek website was
valuable data.
In the intervening years, a
vast cookie economy has developed where hundreds upon thousands of companies
trade user data to target ads more precisely to would-be customers. Agency
trading desks use demand-side platforms to buy ad impressions programmatically
from ad networks and supply-side platforms on exchanges running a real-time
bidding process. It’s confusing and opaque.
“It has historically been
really easy for third parties with no legitimate agency or claim to the
consumer’s data to gain an understanding about the user and then monetize and
re-sell that understanding,” says Wil Schobeiri, chief technology officer
at MediaMath Inc., a New York-based firm that manages
online ad campaigns. “The debate now is,” he says, “who gets to control that
and make decisions about the user and the user’s privacy?”
Apple Inc. Chief Executive Officer Tim Cook has
identified user privacy as a key selling
point for iPhones, iPads, and Macs. In 2017 the company introduced
tools for its Safari web browser that made it easier to block third-party
cookies. Last year, Mozilla Corp., the maker of
Firefox, followed
suit. But the biggest upheaval came in January when Google, whose Chrome browser has more users than
everyone else combined, announced that it would phase
out third-party cookies over the following 18 months. The ad
technology industry took a deep breath.
Google was preempting the
inevitable. The European Union’s General Data
Protection Regulation, introduced in 2018, had already started to unpick
the cookie economy by giving citizens more control over their data and letting
them opt out of ad-tracking efforts. An array of copycat legislation such as
the California
Consumer Privacy Act, which went into effect in January, is rolling out
around the world. The cookie’s days were numbered before Google’s announcement.
Discussions now focus on what
comes next. Every week, members of the World Wide Web Consortium, or W3C, an international standards
organization founded by a creator of the web, Tim Berners-Lee, dial into a
video call to work out the options. The standards organization has a group
focused on improving web advertising that consists of more than 200 members.
About 80 join the weekly call: engineers from Google, Facebook, Microsoft, Amazon.com, Apple; publishing giants such as Hearst Communications, Axel Springer, and the British Broadcasting Corp.;
advertising agency groups such as WPP;
and plenty more besides. Anyone can join for as little as $300 a year.
Discussions continue online in a series of open groups on GitHub, the coding repository and
forum owned by Microsoft Corp.
The participants are all
trying desperately to nudge the tiller in a direction that satisfies their
needs. But the captain steering the ship is undoubtedly Google, whose $162
billion in 2019 revenue makes it the gatekeeper for almost half of all global
digital ad spending. It has the biggest ad exchange (where brands bid against
one another programmatically to show you an ad every time you open a web page);
the biggest ad network (virtual real estate where it can place ads on
websites); Android, the biggest mobile operating system; and, in Google Search,
Maps, YouTube, and Gmail, the most
valuable web properties for serving ads. Most significant, Chrome is the
biggest web browser, with a 64% market share, according to the web traffic
analysis firm StatCounter.
Even without third-party
cookies, Google will be able to track users’ activity so long as they’re on
Chrome. Whatever it decides, goes. It already vetoed a plan to extend the role
of W3C’s web privacy group, Bloomberg
News reported last year. So while your data may no longer be traded
willy-nilly around the internet, there’s a good chance that Google will still
be able to use your browsing history to target you with ads tailored to either
your interests or products you’ve already considered buying. Just how it will
do that is as yet unclear. Google dubs its latest proposal Turtledove, which
stands for Two Uncorrelated Requests, Then Locally-Executed Decision On
Victory. It replaced an earlier effort called Private Interest Groups,
Including Noise, or Pigin. If you find the ornithological acronyms confusing,
you’re not alone; other advertising technology firms have complained about the
lack of clarity.
“Chrome is driving this
process, and the rest of us are providing feedback,” Alan Chapell, a lawyer for
a number of startups, wrote in a July 6 email to fellow participants in the
W3C’s advertising business group, or WABG. “Please note that the success or
failure of many in the WABG are already contingent upon maintaining a good
relationship with Google. As such, there is likely to be some perceived risk to
being openly critical of the dominant market player in a public forum. And that
is likely to color some of the feedback provided.”
A slew of companies will go
out of business after whatever Google decides to implement. Even Facebook Inc.
is likely to encounter some difficulties. At the moment, if you see an ad for a
pair of sneakers on the Instagram app on your phone, then decide to buy it a
week later through the Chrome browser on your laptop, Facebook can tie the
events together through third-party cookies, because you’re likely signed into
one of its services on the laptop. It estimates that in cases where an ad was
converted into a sale within 30 days, just 20% started and ended on the same
app and the same device. Severing Facebook’s ability to measure the
effectiveness of its ads is a threat to its business. And if that poses a
challenge to the world’s second-biggest ad tech player, imagine the peril to
the hundreds of smaller companies.
For another group,
publishers, it presents a tremendous opportunity. In web parlance, that means
anyone producing online content. But it’s particularly acute for the news
industry, whose failure to manage the transition from print to digital has been
well chronicled: U.S. newspapers’ cumulative advertising revenue fell from a
2006 peak of $49 billion to an estimated $14 billion in 2018, the lowest in 40
years, according to the Pew Research Center. Google’s U.S. ad revenue jumped
from $11 billion to $63 billion in the same time frame.
That divergence isn’t just
because print advertising has disappeared. It’s also because media
organizations have all too willingly outsourced the responsibility for serving
their audience with ads to other companies, not least the Google Display
Network. That seemed like a good decision 15 years ago, automating the marketing
sales process while eliminating the need to invest in costly engineering teams
to develop the technology in-house. But it also meant that the value of each ad
was tied to the identity of the person looking at it, rather than where it
appeared. A brand might pay the same amount for an ad alongside a Pulitzer
Prize-winning investigation as it would a fake news story written by a kid in a
dorm room, because they were targeting the same person.
That undermined the
importance of context, the idea that the website where an ad appears can
accentuate or diminish a brand’s appeal. According to Sam Tomlinson, a partner
at PwC specializing in the measurement of ad effectiveness, “publishers have
always had to have a strong granular understanding of their audience to create
the compelling content that sees their audiences coming back time after time.”
The loss of control has
been highlighted by
Covid-19: U.K. newspapers have warned they could lose £50 million ($63 million)
in advertising revenue over three months, even as online readership has spiked.
Brands have added vocabulary associated with the coronavirus to so-called
blocklists, which means that their ads won’t appear alongside news stories
containing those words. While intended to avoid advertising alongside
conspiracy theories, the effect has been far broader, and news groups are
beholden to the whims of the ad tech industry.
News organizations have in
recent years started to make up the ad revenue shortfall by leaning into online
subscriptions. And encouraging users to register, whether or not they actually
pay a subscription, can also result in harvesting personal information. In the
absence of third-party data generated by cookies, the value of first-party data
will increase. Knowing someone’s name, address, and interests is valuable: A
user can be grouped with a cohort of others with similar interests and income
levels—with that person’s permission.
The New York Times Co. has just started
that approach. It’s inviting users to fill out an optional questionnaire and
informing them that the results will be used to build audience segments that
target ads on its website. “We are not interested in sharing our users’
information into broad open networks that re-create the cookie universe we’re
in today,” says Allison Murphy, the newspaper’s head of ad innovation. Instead,
it may sign agreements with brands that have their own first-party data and
target ads that way. “If both of us have first-party data, we can match that in
environments that are secure and respect the consent we have from users,”
Murphy says.
Given the regulatory pressure
against Google, it may also be in the Mountain View, Calif., company’s interest
to reinvigorate the media industry’s revenue streams. The U.S. Department of
Justice could bring an antitrust
case against the company as soon as this summer. Sacrificing a chunk
of the $22 billion a year it makes from the Google Display Network might help
its antitrust case, even as it squeezes out other ad tech players by making the
case for better privacy. That’s surely an outcome Chief Executive Officer
Sundar Pichai would prefer to a deeper breakup of Google’s ad tech business and
the control it has over the buying, selling, and bidding processes.
If they can get it right,
media organizations might be able to reclaim some of the billions of ad dollars
hemorrhaged over the past 15 years. Sure, it will be easier for companies with
the scale of the New York Times, Condé Nast, or Gannett than it will for independent
regional organizations. But the cookies are disappearing from the jar, and
everyone should prepare to scramble to catch the crumbs.
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