Cookies have been around since the creation of the web. It’s a mechanism used by browsers to facilitate users’ navigation. In 2019, Google announced it would phase out third-party cookies in 2022 – aimed at tracking users’ navigation and following their footprints across the web – and then postponed the phaseout to 2024 as the world was still embarking on the new post-COVID-19 era. There are two types of cookies: 1st-party, the ones for which users proactively fill out a form with their names, the company they work for, their location, and level of education; and 3rd-party, which follows and tracks a user across the web and does not solicit their information but rather relies on a deceptively simple click to “Accept”. Third-party cookies have been the backbone of the ad tech industry during the last 10 years, anecdotally known as the “lost decade” in digital marketing.
Between 2012-2020, the Marketing strategy for any CMO was simple: allot 15% of the budget to display ads, buying loads of impressions with low yield, and backing it up with “lookalike audience models” bidding through the programmatic Ad industry. Taking these formulaic steps would allow them to claim “performance.” From the clicking activity on the ads, researchers estimate that 40% are derived from a bot, which increases the click-through rate and presumably reach and performance, but hardly proves any real-life efficiency. Known as “vanity metrics”, these were used more by CMOs to justify spending on PowerPoint presentations to their boards, when, in fact, online conversions were growing across the spectrum, given global digital penetration as opposed to a specific attribution model created on an ad agency trading desk.
Advertisers globally have spent billions of dollars relying on 3rd-party cookies-based models to find lookalike audiences, as well as consumers from the same profile group who once visited their sites, with the hope of lowering acquisition costs and achieving conversions. With that, creative attribution models came to life to justify the possibility that the money was being spent efficiently. At the end of the day, 3rd-party cookies were dictating ad expenditure, with little basis or audit, since any ad tech or agency could manufacture a model to suit their needs, thus complying with whatever attribution an advertiser sought. The ad tech industry was dependent on this model for a decade without any significant innovation that moved the needle.
The industry can be described through the analogy that Google is a large elephant with hundreds of thousands of little ants walking by its side. If this elephant decides to take a different path, it can crush the tiny ants without even realizing it’s doing so. The ants, in this case, would be the hundreds of ad tech companies and media agencies formed on the back of third-party cookies, who sat in their comfort zones until Google announced the end of the party.
The “big elephant” controls over 65% of the browser market globally, and was joined by Safari (with an 18% market share) when they decreed they would no longer allow tracking of users by 3rd-party cookies in 2020. The ants are now in a perilous situation, rapidly pivoting from the “digital era” when they banked billions from programmatic ads during a lost decade, to a new direction that can hopefully prevent their extinction. So, in this uncharted territory, where do they go from here?
Display ads are a $140 billion industry in America (nearly 3x the once-mighty-TV), and are expected to account for $219 billion by 2026, losing steam from double-digit growth YoY the last 10 years to single-digit growth (accordingly to eMarketer). The fact is, it should slow down, as advertisers will look for fewer display channels, more human interaction efficiency, content-driven ads and experiences, and real-life conversions instead of vanity metrics.
Anyone who sits on 1st-party data, such as consumers’ names, emails, and personal and professional attributes, is in a great position. They will be able to advertise directly to their audiences without relying on convoluted models to find audiences that look similar to the ones they intend to target. It makes the ad more efficient, with fewer bots, less model-centric, and more transparent. It will drive more conversions, period.
According to a Pew Research Center survey, 86% of Americans consume news online, and over 92% consume video content. This means that media companies, which used to rely heavily on programmatic ad revenue from ad exchanges over the last decade, will now own the narrative. 1st-party data requires a person’s intention to provide their data, is less abundant than 3rd-party, which can be multiplied by billions of lines using spreadsheets models and doesn’t ask for much permission to collect. 1st-party employs user self-input data and therefore is scarcer. In a world where consumers are used to registering on sites to consume media content, whoever can offer quality content and do so natively wins.
Advertisers will look for channels where users spend their time-consuming content and seek companies offering a 1st-party audience. Eventually, this will increase CPMs, as quality content and branded experiences are not commoditized, and ad inventory is limited. Advertisers are willing to pay the price for conversions. In the end, it’s better to have 10 clients with a $20K lifetime value than 1,000 with a $2 value.
Who wins in a cookieless world? Whoever carries quality content, holds 1st-party data wisely, and delivers actual results to their advertisers. The vanity metric days are over.
* Kaio Philipe is a media entrepreneur and executive who has worked for Google, Baidu, Kayak, and Bloomberg. Launching, operating, and expanding digital multi-platforms around the world.