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What happens to the advertising ecosystem if the cookie goes extinct?

Published: November 15, 2013

Author: Ron Fusco

As we in the advertising industry understand it, the cookie is on the verge of extinction. On the surface, it sounds like advertisers will suffer; ad buyers and retargeting companies will really suffer, and the richest names in the business – Google, Facebook – are poised to get richer.
Cookie Monster
In this post, we’ll examine the trend away from 3rd-party cookies, the impact on the industry, and where we go from here (and who benefits most).
It’s not just Google.
The industry has been moving away from 3rd-party cookies for some time. Consider:

o Browsers such as Firefox include a “do not track option” that enables users to express a preference not to be tracked online. Over 10% of Firefox users worldwide have “do not track” enabled; for North America, the European Union, and Australia, the number is much higher.
o Ad blockers such as Ghostery allow the user to block just about any cookie-based tracking mechanism.
o Apple has created an Advertising Identifier which replaces their device ID. This enables advertisers, apps, etc. to track users with this ID instead of with cookies.

This will have a big impact on tracking, retargeting, and users.
There are obviously a ton of ramifications ahead for if (when, more like) cookies disappear. Many companies relying on tracking or retargeting will be in rough shape if they’re not able to do a quick pivot – even Google has cookie dependencies at the moment (we presume they’ve got a well-defined plan in place, of course).
Here’s who’ll be most affected, and why:

o Most web tracking still uses 3rd-party cookies, so disabling tracking or enabling “do not track” will block the majority of tracking solutions.§ One tracking solution has seen a recent large uptick “do not track” and the adoption of ad blockers such as Ghostery) such that they are not able to track over 20% of display impressions.

§ Google uses 3rd-party cookies to track conversion activity through AdWords; this is generally set in thegoogleadservices.com domain.

o Advertising solutions also rely on 3rd-party cookies; blocking these cookies will impact those companies and, in turn, the user browsing experience.§ Frequency caps are set using cookies, so users opting out of cookies may see the same ad repeatedly.

§ Retargeting depends on 3rd-party cookies; this is a major driver for display advertising, including the Google Display Network.

§ Behavioral targeting, a fast-growing display targeting method, relies on 3rd-party cookies. Shutting down cookies would impact advertisers’ ability to find a targeted audience; it would also impact the quality of ads that users will see. To be sure, users will still see ads, but since cookies make it easier to serve relevant ads, removing cookies means users will be far more likely to see random (and more annoying) ads.

So what happens next?
With the industry moving away from cookies, all signs are pointing to a movement towards user IDs. To absolutely nobody’s surprise, the major players are way out in the lead on this.
–        Apple has already moved in this direction for iOS.
–        Facebook may be layering in third-party data, but they’ve also set a great foundation of data with user IDs.
–        Google is also moving in this direction. They’ve devoted a lot of resources (including TV commercials) to promoting universal sign-in and product tie-ins.
This creates a select few major players with the network size to make this viable. As with any market consolidation, this is ominous; if the trend continues, it will certainly be more costly for advertisers and may well require regulation. A few potential pieces of fallout:

o Tracking will have to rely on data mashups of post log files, which is taking a huge step backward in many respects.
o There’s a lot of talk about personal data lockers where users can determine what data is shared and sell to the highest bidder.
o While these solutions may work relatively well for the advertiser, they are not always in the best interest of the consumer, so ultimately there will be push back.

As you can see, the industry (and society, which is currently grappling with all manner of privacy breaches) is in line for a fair amount of chaos. There’s no telling exactly how it will play out, but smart advertisers are knee-deep in research for their options for success in a post-cookie world.

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