Has the Third-Party Cookie Crumbled for Advertisers?

John is a coffee addict. He drinks five cups a day and constantly sources exotic beans to buy online. Martha, on the other hand, likes gardening. She often reads blogs and orders how-to books to help hone her craft. John and Martha may not know it, but their hobbies are far from private.

Tech giants like Google, Apple, and Facebook, along with smaller tech companies, track people's online behaviors and sell their information to advertisers. Those advertisers use the data to target consumers while they're browsing the web.

So next time John reads the local news from TheHerald.com, he may see a Smeg Drip Coffee maker ad appear prominently on the page. Martha, on the other hand, may see a Williams-Sonoma Gardening basket on that same website. Coffee ads will follow John and gardening ads will Martha wherever they go.

So how do tech giants perform such seemingly sophisticated tracking? It turns out it's much simpler than you think. They use “cookies”. 

What are Cookies?

A cookie is a small piece of data stored on the user's computer by the web browser while browsing a website -- building a profile of you and your interests based on the sites you visit and using that to send ads to you. The term derived from a fortune cookie since internet code cookies and fortune cookies both have an embedded message. Most of the time, cookies are used to help improve your internet browsing experience.

There are two types of cookies. First-party cookies are created by the specific websites you visit to remember information like your language settings, login details, and products in your shopping cart. By recognizing such details, your shopping cart will remain intact, even if your computer freezes. Then, there are 3rd-party cookies. From a technical perspective, first and third-party cookies work the same. But their intent and usage couldn't be more different. Third-party cookies are created by websites other than the ones you're visiting directly. Third-party cookies track your behaviors, building a profile of your interests, so advertisers retarget and serve you relevant ads later. These cookies also allow website owners to provide customer service offerings like live chats.

Google’s third-party cookies are on millions of websites that feeds Google information about sites you visit. With recent U.S. House and Senate hearings that forced heads of major tech companies to explain their consumer tracking and privacy policies, the public has become more aware of privacy issues, and regulators around the globe are passing more privacy laws to protect consumers.

What is Changing and Why?

Consumers have become more aware of cookie-based tracking, and many feel it's a privacy violation. According to a Pew Research Center survey, 72% of people think that almost all they do online is being tracked by advertisers, technology firms, or other companies. And they don't like it. As a result, several tech giants have announced they will stop third-party processing cookies. Google continues to make updates across its ad platforms including the latest with Google Display Network and its Chrome browser. Google recently has announced its intention to stop tracking people's browsing for advertising purposes on Chrome and its ad network by 2022. Meanwhile, 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.

Impact on Advertisers:

You might think Google's announcement is a significant blow to advertising and a win for consumer privacy on the surface. After all, Google will stop selling ads targeted to individual users' browsing habits, and Chrome will no longer allow cookies to collect that data. That means advertisers will have to switch up their strategy. But Google will continue tracking users on mobile devices and target ads based on their behaviors on the platforms. The difference is Google simply won't share that information with advertisers­–at least not the way it did before. But there are still plenty of options to deliver relevant content to consumers.

  • Federated Learning of Cohorts - Google is finalizing a system called "Federated Learning of Cohorts," which they say is a privacy-first advertising technology. Under this system, Chrome will track individuals' browsing habits and add them to groups called "cohorts," consisting of users with similar patterns. From there, advertisers can target ads to the cohort rather than to individual consumers directly. This practice is ultimately a much more anonymous route to a similar advertising destination.
  • Unified ID 2.0 – In direct response to third-party cookies crackdowns, The Trade Desk's Unified ID 2.0 has emerged. And major online publishers like MediaVine, FuboTV, and Washington Post are already part of the UID community. UID works by gathering email addresses using anonymous identifier codes when a user logs in to a website or application. When logging into a UID website, users will be able to set preferences on how their data is shared but won't be allowed to disable it.
  • Second-party cookies – Second-party cookies are pieces of data that the first-party website can transfer or sell to another company via a data partnership. For example, a website viewed on a desktop could sell its first-party cookies to a home-office furniture company that can use the information to target those consumers with ads on their desktop computers. In other words, advertisers can partner with individual websites to get similar cookie information they would've previously acquired from Google Ads or Facebook.

The Bottom Line

At Simply180, we think the recent third-party cookies restriction is a healthy step toward making the advertising industry more controlled. Advertising, as we see it, is changing, but it's certainly not going away. We suggest advertisers embrace the new way of doing business and start evolving now to adjust to the upcoming changes.

  • Start building first-party data: Instead of relying on third-party cookies, advertisers should start building programs to gather their own first-party data. For example, they can create campaigns to capture email IDs and phone numbers and use those data points to communicate with prospects.
  • Diversify: Advertising and marketing companies should never invest all their resources in one single channel. Innovative companies must invest in all sides of marketing media, including paid keyword targeting and organic outreach.
  • Target ads contextually: Contextual ads may seem old-school, but consumers consider them far less invasive. Plus, they can work. Through contextual advertising, companies can produce and display target ads relevant to the website a customer is visiting. So, if a company is selling coffee makers, they can place ads on coffee connoisseur blogs.
  • Source new technology partners: Third-party cookies may be crumbling before our eyes but tracking and targeting are not. Now is the time for advertisers to find partners that can provide anonymized data and experiment to find the best practices that suit their audience.

The advertising and marketing world is going through significant change, but successful companies won't look back at what once was. They'll forge ahead, providing more value to their audiences through personalized and transparent advertising that prioritizes both profits AND privacy.

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