Digital Ad Business Faces $600B Challenge from Google’s Cookie Change

⏱️ 14 min read                            

Digital advertising. This is an industry worth $600 billion, and it’s hanging on just a few words. That's the reality as Google, the search giant, reversed its cookie policy, sending shockwaves through the advertising world. As companies prepare for an epic battle over the phrasing of a simple user prompt, the future of digital ads is at a crossroads. There are many complexities, stakes in the game, and potential fallout from this pivotal moment in digital advertising history. 

Welcome to That's Life, I Swear.  This podcast is about life's happenings in this world that conjure up such words as intriguing, frightening, life-changing, inspiring, and more. I'm Rick Barron your host. 

That said, here's the rest of this story  

Google cookie policy. Courtesy of Anonymania

Chrome's tracking cookie saga takes an unexpected turn as Google steps back from its plan to eradicate these digital identifiers. However, the fate of these long-standing pillars of online advertising revenue might still be sealed.

Rather than taking direct action, Google is shifting the responsibility to its users. If past trends are any indication, this approach could still spell the end for tracking cookies.

British regulatory bodies overseeing the process have revealed that Google intends to implement a feature allowing Chrome users to decide whether they want to accept or reject cookies. This key pivot comes after a prolonged four-year campaign to phase out and supplant the tracking technology – an endeavor that faced numerous setbacks and resistance from advertising stakeholders.

The digital publishing and ad-tech sectors are eagerly awaiting details about the implementation of Google's user choice mechanism. The exact phrasing and timing of this prompt will significantly influence user opt-in rates and consequently, the volume of data available to the industry.

Marketing professionals are apprehensive about the possibility of Alphabet's subsidiary adopting a stringent consent prompt, reminiscent of Apple's 2021 privacy initiative. Apple's "Ask App Not to Track" feature, which significantly impacted the digital advertising landscape, serves as a cautionary tale. This prompt inquires whether users are willing to allow app developers to monitor their activities across various platforms. According to data from mobile analytics firm Adjust, approximately three-quarters of U.S. users choose to opt out when presented with this option.

As the world's most widely used web browser and the last major platform to support cookies, Google Chrome plays a pivotal role in the global digital advertising ecosystem. This industry is projected to generate a staggering $677 billion in revenue in 2024, as reported by Insider Intelligence.

So, let’s provide some clarity here. What does $677 billion dollars look like? Here’s an analogy:

Imagine you have $677 billion dollars in $1 bills. If you were to stack these bills one on top of the other, the stack would reach approximately 45,365 miles high. To put that into perspective, that's nearly twice the circumference of the Earth!

Or, consider $677 billion dollars in terms of time. If you were to spend $1 dollar every second, it would take you over 21,000 years to spend all $677 billion dollars. To give this more context, 21,000 years ago, woolly mammoths roamed the Earth and humans were just beginning to form agricultural societies.

Eric Seufert, a respected voice in mobile marketing and venture capital, warns that "a withdrawal mechanism coupled with an ominous prompt could effectively eliminate cookies under the guise of user choice." This statement underscores the potential far-reaching consequences of Google's approach to user consent for tracking technologies.

Understanding Internet Cookies: A Brief Overview

Internet cookies come in two distinct varieties. The more benign type is known as first-party cookies. Allow me to give you an analogy:

Imagine you're visiting New York city for the first time. As you explore different shops and attractions, you're given a special visitor's badge. This badge is like a Google cookie.

The badge has your name on it and a unique ID number. As you go from place to place, each shop or attraction you visit makes a quick note about what you looked at or bought, linking this information to your badge's ID number.

Now, when you return to a shop you've visited before, they can look at your badge and say, "Oh, welcome back! I see you were interested in our blue sweaters last time. Would you like to see our new collection?"

Similarly, other shops in the city can look at your badge and say, "I see you've been to the art museum and the bookstore. You might enjoy our gallery of local artists!"

In this analogy:

• The city is the internet
• The shops and attractions are different websites
• The visitor's badge is the Google cookie
• The notes made by each place are the data collected about your browsing habits

Just like how the badge helps personalize your experience in New York, a Google cookie helps personalize your experience on the internet. And just as you could choose to take off your badge, you can also choose to delete or block cookies.

However, it's worth noting that while this analogy helps explain the basic concept, real Google cookies are more complex and can track more detailed information across multiple websites and over time.

On the other hand, third-party cookies serve a different purpose altogether. These digital trackers follow your online journey across multiple websites, primarily to serve targeted advertisements. Whether you're browsing for kitchen utensils or any other product, these cookies enable marketers to tailor ads to your perceived interests. It's this invasive capability that made advertising companies resist Google's initial plans to phase them out.

Google's Shifting Stance on Internet Cookies

Initially, Google announced plans to prohibit third-party cookies in its Chrome browser, citing user privacy concerns. However, the tech giant has now changed course, stating that cookies will remain, but users will have enhanced control over their usage. While specific details are yet to be disclosed, the U.K. competition regulator overseeing Google's cookie strategy has revealed that users will be presented with an option to enable or disable cookies.

A Google representative stated, "We're investigating an approach that prioritizes user choice." This strategy may sound familiar to those who recall Apple's introduction of App Tracking Transparency in 2021. Currently, when iPhone users download a new application, they're often greeted with a prompt asking for permission to track their activity across other apps.

Ask App No to Track option. Courtesy of Directpaynet

In his newsletter Mobile Dev Memo newsletter, Eric Seufert, notes that most users opt for the "Ask App Not to Track" option, which is prominently displayed. He anticipates Google's prompt will follow a similar pattern.

Eric states and I quote: "Apple's prompt wording provided users with no compelling reason to permit tracking. Users perceive no drawbacks in declining and feel their data is being safeguarded,” end quote. This observation suggests that Google's new approach could have significant implications for user behavior and, consequently, the digital advertising landscape.

Past Initiatives and Their Impact

Different approaches to user privacy have yielded varying results. For instance, when California mandated websites to provide consumers with the option to opt out of data sales in 2020, many publishers responded by simply adding an inconspicuous link at the bottom of their homepage stating "Do Not Sell or Share My Personal Information." Major publishers reported that less than 1% of visitors engaged with this option.

Rajeev Goel, CEO of ad tech company PubMatic, expressed the advertising industry's hope that Google will "take into account the insights and obstacles encountered in previous endeavors, such as Apple's initiative."

Goel emphasized, "As we strive to innovate in ways that empower user choice and protect privacy, it's crucial to maintain the economic framework that sustains a free and open internet."

Should a significant portion of Chrome users decide to opt out of cookies, it could have profound implications for ad-tech firms and web publishers who rely on consumer data. To illustrate the potential impact, consider that Apple's tracking prompt led to Facebook suffering a $10 billion revenue loss in 2022 alone.

However, Goel remains optimistic about his company's position, suggesting that advertisers would likely redirect their spending to alternative targeting channels such as streaming and retail media - areas where PubMatic has been expanding its operations.

At a recent conference call with ad-tech executives, Google representative Alex Cone revealed that the company has yet to finalize the language and implementation timeline for its new cookie opt-out feature. This information was disclosed in meeting minutes reviewed by The Wall Street Journal. Cone assured attendees that Google would continue developing and testing its "Privacy Sandbox," an array of cookie alternatives.

When approached for comment, a Google spokesperson referred to the company's recent blog post, which mentioned exploring a strategy that "prioritizes user choice."

The cookies under scrutiny are snippets of code that monitor users' online behavior across various websites, enabling marketers to deliver targeted advertisements and assess their effectiveness. These differ from first-party cookies, which store basic information like login details for specific sites.

While Chrome users can currently opt out of cookies, only about 8% do so, according to ad-tech firm Index Exchange. This low percentage may be due to the option being buried in browser settings.

The UK's competition regulator, which is overseeing Google's cookie policies, has stated it will carefully evaluate the company's new approach and seek industry feedback. Google has committed to collaborating with the regulator on any changes and plans to implement them globally.

Anthony Katsur, CEO of IAB Tech Lab, an ad-tech industry group, cautioned: "We may find ourselves in a scenario where cookies are effectively phased out due to widespread consumer opt-outs."

Implications for Google's Business Model

Marketing technology professionals are keen to understand if Google will apply the same level of transparency to its data collection practices for web searches and YouTube viewing habits. Some industry insiders suggest that if not, this move could potentially favor Google's position in the market.

Jeff Green, CEO of The Trade Desk, a Google competitor in the ad-tech space, commented on the unpredictability of Google's next steps: "They're navigating a complex landscape, trying to balance privacy advocacy with monetizing their proprietary content like YouTube, all while addressing regulatory concerns."

Google has stated its commitment to avoid preferential treatment of its own products, as per its agreement with the UK's Competition and Markets Authority (CMA). 

Meanwhile, web publishers have been proactively developing systems and strategies to gather user information, anticipating the eventual phaseout of cookies.

Matt Prohaska, CEO of Prohaska Consulting, which advises web publishers and brands, noted that publishers heavily reliant on advertising revenue have the most at stake. They're currently assessing the potential impact on their earnings if Google implements prompts similar to Apple's.

Matt expressed the industry's frustration: "There's a sense of wasted effort and resources in preparing for a new landscape that's now shifting again." This sentiment reflects the ongoing challenges faced by the digital advertising ecosystem in adapting to evolving privacy standards and technological changes. 

What can we learn from this story? What's the takeaway?

While privacy advocates had celebrated Google’s cookie-crushing plan, advertisers were against it, saying it would only give the search giant even more of an ad-vantage. The argument: if Google eliminated third-party cookies, then advertisers would be forced to move spending to Google’s ad products to get better targeting data. 

Footnote: As of July 26, 2024, Google announced that they won't deprecate third-party cookies. Instead, Google says they will introduce a new experience in Chrome that lets people make an informed choice that applies across the users' web browsing, and the user would be able to adjust that choice at any time.

Well, there you go, my friends; that's life, I swear

For further information regarding the material covered in this episode, I invite you to visit my website, which you can find on Apple Podcasts/iTunes for show notes and the episode transcript.

As always, I thank you for the privilege of you listening and your interest. 

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