Deprecating the cookie: The impact of eliminating third-party identifiers

This article was contributed by Josh Perlstein, Chief Executive Officer of Response Media

The digital marketing world is becoming even more complex: 62% of customers prefer personalized products and services, but almost the same number (61%) feel like they have lost control over how companies use their information.

Today, the value in data to drive efficient marketing and relevant relationships with prospects and customers is more apparent than ever. At the same time, both regulatory bodies and consumers see the need for additional control over data because it’s so prolific. With the growth of data breaches, data misuse, and identity theft (there were 1,387,615 cases of identity theft in 2020; an increase of 53% over 2019), there is a greater sensitivity and fear about what happens if the wrong people get ahold of consumer data or use that information maliciously.

The powers-that-be seem to agree with consumer concern over the usage of data. New privacy regulations are introduced and added almost daily. Changes to Apple’s Identifier for Advertisers (IDFA) and App Tracking Transparency (ATT), the rise of ad-free browsers, and Google’s (almost here, but often delayed) elimination of third-party cookies bring sizable shifts to the market. Regardless of where they sit in the digital media ecosystem, companies realize people want more privacy and control of their data.

Regardless, the future of removing third-party identifiers and the resulting marketplace changes will make it much more challenging to target users effectively. This loss will also make measurement difficult. Higher acquisition costs and lower revenues will likely result. What comes next in the industry is uncertain. Understanding the potential outcomes and implications will help marketers stay agile and provide the best chance of success. Here are the likely scenarios for publishers, technology providers, and brands with the elimination of third-party identifiers.

The impact of eliminating third-party identifiers on publishers

The deprecation of the third-party cookie in the not-so-distant future is a bad thing for publishers, right? Not so fast. Recently, the online publishing trade group Digital Content Next (which represents The New York Times, The Washington Post, The Wall Street Journal, and others) found “significant evidence that the current system with third-party cookies…has not served trusted publishers’ interests.” Yet they also claim, “while Google’s proposal to deprecate third-party cookies…could have a dire impact on the digital advertising landscape, preserving third-party cookies could have an equally dire impact on the ecosystem.”

Prominent publishers have an advantage in the brave new cookieless world. Larger publishers leverage first-party data to target their audiences at scale. Smaller publishers are at a disadvantage; resources (development and sales) to build successful first-party data strategies are expensive. Further, direct advertising deals are harder to come by for publishers with smaller audiences.

Non-premium publishers will see the effects the most because they are selling the most inventory within exchanges. Traditional publishers must recalibrate their measurement solutions to prepare for cross-channel engagement and consumer privacy. Publishers must learn more about their audience and deliver better, more personalized experiences to prosper in the new world. First-party data is key to all of this.

At the same time, the rise of retail media networks will cut into traditional publisher income. Amazon, Walmart, and even Dollar General have started to monetize their high-quality first-party data. Closed-loop measurement solutions allow advertisers to leverage data to influence in-store and online conversions. Beyond the walled gardens, when retail data combines with programmatic media, it creates a compelling opportunity to drive awareness and lower funnel actions. Publishers stand to gain in the cookieless world if they do the following:

• Hone and package their first-party data offerings through careful strategy, collection, and productization. The focus for publishers must be on unique data that can be captured at scale and can add value to advertisers.

• Step up efforts to allow visitors to register and authenticate within their ecosystem. Think about how the brand can identify unique people within its digital properties. For instance, publishers have unique “walled gardens,” which can warrant a premium for advertisers looking to reach unique attributes and audiences.

Ad tech players

Since the invention of third-party cookies in the mid-1990s, ad tech vendors have discovered many ways to take advantage of them. Third-party identifiers track websites people visit and then link the information to massive datasets, including income, demographics, and addresses. Identifiers offer an easier way to reach the right audience and have brought scientific rigor to digital advertising.

Today, advertiser reliance on tracking data has created an elaborate industry of hundreds of ad tech firms, each using third-party cookies to facilitate (and perhaps, complicate) the process of buying and selling digital ads. How big might the issue be? In 2019, advertisers in the United States spent nearly 60 million U.S. dollars on programmatic digital display advertising. By 2022, expenditures are expected to increase to nearly 95 million U.S. dollars.

One of the reasons why the industry has grown so much is because it is measurable. Brands and agencies can target specific cohorts using third-party cookies as part of that ecosystem. Now, many ad tech business models relying on collecting and analyzing vast troves of user data are in jeopardy. The most apparent beneficiaries from the death of third-party identifiers are the web’s walled gardens, especially Google and Facebook, which have vast pools of data about users and their browsing habits and no one else can access it.

The future for ad tech will depend on what system of identity wins. Should a browser-based model (like Google’s FLoC), ad tech vendors, especially those who run independent ad exchanges or rely on granular, individual-level user tracking, may become obsolete. If a new identity-based tracking solution emerges, it will likely benefit the ad tech industry more broadly. Regardless, there will be consolidation and clear winners and losers. The Ad Tech world stands to lose the most unless:

• They evolve to identity-based methodologies which can identify unique people using authentication or another tech not reliant on cookies or device IDs.

• They plan for how to deliver unique value to the digital advertising ecosystem by aligning both advertiser data with publisher data for new world cookieless targeting and tracking.

Brands

The brand marketing ecosystem is only just now coming to grips with a cookieless future. And it is looking as if the industry is not ready. There will be a lot of waste and a lot of inefficiency from a measurement perspective until brands and companies figure out how this new ecosystem works. Yet on the other side of the coin, when identifiers go away, brands will find the value of a direct engagement with consumers will increase greatly. Seventy-eight percent of brands say they struggle with “data debt” or not having enough quick data about their customers to not launch relevant personalization tactics.

Marketers must act now to compete in a first-party data world and brands heavily investing in first-party data will be more prepared than others. Building a database with quality data and a comprehensive identity strategy is critical for brands. First-party data is a significant competitive advantage (and differentiator), regardless of the future of identity.

First-party data is the fuel for personalization, customer retention, cross-sell, and up-sell opportunities. Beyond these essential applications, brands should incorporate data from all possible data sources (research, purchase, surveys, CRM, and partners). Enhancing and enriching proprietary data creates a solid foundation for future first-party data strategies that are consumer-friendly and built to last in a cookieless world.

Brands have an urgent imperative to act now. Begin planning how to capture, store and utilize first-party data, and think about maximized growth in both declared and behavioral data. Here are a few questions for brands to think about:

• Why would the target audience want to give their information to the brand?

• What value can the brand provide in return?

• What data is most valuable to the brand and how can the brand leverage it?

• How would the brand utilize this data to maximize its value?

Brands that invest in first-party data growth today to become ready for the near future digital world will build a very valuable asset and will get a significant jump on their competition as more changes begin to take place.

Third-party identifiers: Where we are today

Consumers are genuinely concerned. They have seen what happens when brands aren’t responsible with their data, yet they appreciate when data is used to create more personalized products and services.

How does the industry find the magic point between being unfair to businesses leveraging data for good and protecting consumers?

It is simple: Companies should follow a consent-based approach to acquire and use first-party data. If companies are collecting the proper level of consent, they are being transparent with data stakeholders and taking the appropriate steps to manage data appropriately.

No matter if a publisher, ad tech player, or brand, everyone in the marketing ecosystem needs to be thinking ahead as to what a cookieless future looks like and the best strategies to engage and compete effectively. Those that take these necessary steps will typically be less impacted by the elimination of third-party identifiers and better set up for the changes ahead.

By Josh Perlstein, Chief Executive Officer of Response Media