The death of third-party tracking and the impact on digital marketing

By now, it is widely known that third-party tracking for ads is approaching their end of days as Chrome is the latest browser to have set an expiration date for third-party cookies at the end of 2021. Does this change have the disruptive potential to rewrite the rules of targeted advertising or does merely represent a ripple in a diverse landscape of digital marketing?  

To get an overall understanding of the stakes, the digital advertising market is estimated to amount to somewhere between 300 and 400 billion USD annually, projected to reach more than 500 billion USD by 2024. For years, brands have relied on user data tracked across site visits and internet browsing by allowing ad networks, data brokers, and various tracking services to place third-party cookies and capture existing and potential customers mobile identifiers to serve somewhat personalized ads across sites you may visit.

Even though the media landscape has diversified from third party cookies as their primary tracking method, as mobile apps and other smart devices are not relying on third-party cookies the same way this death of third party tracking not only apply to web site cookies. Apple has confirmed that it will begin forcing developers in their upcoming  iOS 14 update to ask permission before they can use their unique Identifier for Advertisers (IDFA) for third-party ad tracking, which means users will need to opt-in to ad tracking rather than specifically opting out in the Settings.

Even though the end of third-party spending may act as a catalyst for change in the digital marketing space, the need for change has been a long time coming with the decreasing cost-efficiency on digital ad-spend.  

For every dollar spent on digital advertising, only close to one half goes to actual ad placements and visibility and the remaining spending is being skimmed along with the advertising value chain to various middlemen like DSP, SSP, and DMPs.

At the dawn of digital marketing, the now century-old quote, half the money I spend on advertising is wasted; the trouble is I don’t know which half, was the go-to argument to get advertisers to transition their advertising spend from traditional media to online ads. Although we now have a better understanding of where the waste occurs, it is tempting to say that the statement is still applicable.

Clicks on paid display advertising is as low as 0,47%, showing a steep decline across channels, an indication that audiences already have ad-blockers in place, both functional as well as mental.

With more than half of online data usage for targeted ads relying on third-party data, the sum of these changes will undoubtedly force brands and marketer to rearrange their toolbox to reach the right customers in the most cost-efficient way.

The impact on publishers is one topic where the jury is still out. Google themselves estimate that publisher’s digital ad revenue will be reduced on average by more than 50 percent without third-party cookies. As digital publishers have built much of their ad-based revenue on partnering with third-party data providers, the demise of the third-party cookie will no longer make this possible, possibly resulting in a large loss of revenue for digital publishers in the short term and requiring them to develop new strategies for revenue generation from the large audience data they produce.

Others believe that the removal of the third-party tracking is just what the doctor ordered to let publishers make use of first-party data. Fortune favors the prepared mind and Nordic publishers like Schibsted and Amedia has already implemented digital identity solutions to identify their users. Their European counterparts like TL Group and ProSiebenSa.1 Media are on their side combining forces to form login alliances that would let people use a single account to register with multiple sites.

While digital identities may be the key to keep up with a new age of digital marketing, it is worth noting that this is an area where tech giants like Apple, Google, and Facebook already reigns supreme, and you will be taking them on their home turf.

It is worthwhile noting that your digital identity is more than your login credentials. This is merely the authentication that connects you with the digital you. Your digital identity consists of thousands of data points that make up a profile of who you are and your preferences. Today, your digital identity is scattered all over the internet, where Facebook owns our social identity, retailers own our shopping patterns, credit agencies hold our creditworthiness, Google knows what we have been curious of since the dawn of the internet and your bank owns your payment history. As a result, we are all analyzed in detail to predict our future behavior and monetize our digital identities.

Those who are in the position to orchestrate a digital ecosystem built on solid user identities and rich user data to provide meaningful content to their users have a significant competitive advantage in solidifying their position in their customer value chain.

Not surprisingly, Google has everything to gain from this move. Not only do they come off as privacy-friendly in a time where online data privacy is an increasing concern for internet users, but this will not affect the use of first-party cookies. And the master of first-party Cookies is, you guessed it right, Google.  

Google will still track and target users on mobile devices, and it will still target ads to users based on their behavior on its own platforms, which make up the majority of its revenue and won’t be affected by the change. In other words, while the announcement will have huge implications for the digital ad industry, it probably won’t for Google itself.

In addition to having most of their revenues from first-party data through their own platforms, Google has for proposed an alternative through their so-called privacy sandbox called Federated Learning of Cohorts, or FLoC for short. The way it works is that Google will track user’s browsing habits across the web and then place the user in a designated “cohort” based on their browser habits, allowing advertisers to target groups of people rather than individuals. In order words, Google will not stop tracking you but will limit third party access to data about the individual.  

This shows how the ad tracking limitations favor the tech behemoth, and in particular, those who have been able to construct walled gardens around their user logins. Facebook has close to 1,8 billion daily active users and Chrome’s market share provides Google with more than 4 billion active users worldwide. Amazon on their side is already dominating eCommerce, and with lack of opportunities to effectively target new customers across the web, this has the potential to further strengthen Amazon’s dominance as the marketplace for eCommerce.  

Givens this development, the ones that are potentially stuck with the shortest straw are brands, marketers, and ad agencies. Another way of looking at the development is that this seismic shift in digital marketing is just what was needed to spark a new wave of innovation.

Either you revert to kicking it old school by placing more of your bets on contextual advertising, newsletters and email marketing (which is showing renaissance) or attempt to make use of performance-based influencer marketing by giving individuals the freedom to create content that promotes your product and measure on actual sales and conversion rather than impressions and likes. There are numerous ways to leverage existing customer data through alternative tools and channels.

The demise of third-party tracking may spell doom and gloom for marketers that are stuck in a rut, for brands and that are looking to renew how they drive customer engagement and maximize the impact of their digital marketing spending, the future is bright.