Alphabet-owned Google recently confirmed it will stop selling ads based on user-tracking browser data – a big announcement with significant implications for those working in the online advertising industry. Historically, some online advertising platforms relied heavily on gathering data about consumers through their browsing habits – more data creates better user profiles which enables advertisers to improve ad targeting which then increases their return on advertising spend. Third-party cookies were the tool of choice to gather this data.
To be sure, the company had already announced last year that it would remove support for third-party cookies by 2022. Though the most recent statement puts a clear line in the sand with regard to online tracking and user privacy using Google properties moving forward. Google’s Director of Product Management (Ads, Privacy and Trust), David Temkin, made this clear in a recent blog post.
“We’re making explicit that once third-party cookies are phased out, we will not build alternate identifiers to track individuals as they browse across the web, nor will we use them in our products.”
The company acknowledged that others may still attempt to offer their own variants of ad-tracking across the web, though it wouldn’t participate in the activity itself, stating “we don’t believe these solutions will meet rising consumer expectations for privacy, nor will they stand up to rapidly evolving regulatory restrictions, and therefore aren’t a sustainable long-term investment.” In their place, Google has created a new methodology to profile internet users that places them into cohorts based on similar interests, demographics and other factors, which advertisers can then use for ad targeting.
Whatever the intentions, the announcement has two very important implications. Firstly, the new model will likely appease online privacy advocates as it anonymises individual users within the cohorts. Secondly, the new privacy-first direction will place an advertising premium on those with the most first-party data on consumers gathered within their own sites and platforms, as the new online advertising model will transition from targeting people based on their browsing habits to those that can build the best profile on consumers using their own data.
Google commands over 90% share of the global online search market and has vast amounts of data to access via its Search, Maps and YouTube businesses. For context, its search engine reportedly conducts over 5 billion search queries per day and over 1 billion videos are viewed every day on its YouTube service. The company has accumulated incredible amounts of data on its users over many years, who regularly obtain significant benefits from using its platforms at no financial cost. There are very few other online advertising platforms that can replicate similar scales of first-party data on consumers.
How do we see this playing out? Its latest move is a win-win for Google – increased user privacy and entrench its advertising business. The new policy may have a small impact on non-Google advertising properties, which account for less than 13% of its revenues and will likely continue their decline as a proportion of its total revenues. The relative gap between the company and smaller peers just widened – as did its moat. Although this was a voluntary move by Google, the company is admittedly anticipating changes in the regulatory environment around data use and user privacy. As we all know, increasing regulation usually favours the incumbents. In this case, that’s just the way the third-party cookie will likely crumble.
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