With a growing body of legislation aimed at protecting the privacy of consumer data on the internet, headlined by the European Union’s General Data Protection Regulation (GDPR), the online advertising industry is in a state of flux. Rather than accepting defeat and settling back into antiquated, pre-cookie methods like contextual advertising, the adtech industry is rising to the challenge. It is scrambling to develop new, privacy-compliant means to reach its target audiences, says Domenic Venuto, COO, Progress Partners.
As regulation dictates the direction of the industry, advertisers and adtech providers are facing the impending demise of one of the most potent tools in their arsenal: third-party cookies. In short, cookies are tiny strings of code stored on web users’ computers, collecting user data as they browse to inform a virtual profile useful to advertisers for personalizing and targeting ads. As consumers have become increasingly aware of the vast amounts of their data being harvested by third parties, rallying cries for increased privacy regulation have grown to sky-high decibel levels in recent years. The volume and clamor can no longer be ignored by tech companies or lawmakers.
Beginning in earnest with the EU’s GDPR and closely followed by the California Consumer Privacy Act (CCPA), policies are beginning to take effect that severely limit the abilities of advertisers to track consumer behavior online. This resulted in a reckoning in which the adtech industry must determine how to balance an unprecedented need to respect consumer privacy while still offering the personalized and targeted ad experiences that advertisers have come to expect. While it’s too early to say which exact methodology (or even if it will be only one) will replace the cookie, a broad range of contenders have been put forth by several leading players in the adtech ecosystem. These new methods promise that the precise identities of the users being tracked will remain anonymous to the company or companies doing the tracking. This is a seismic shift for the adtech industry, which will create knock-on effects that have yet to emerge and are hard to predict.
Innovation on the Rise
Very few industry executives expect to see a resurgence of contextual advertising as a result of the crackdown on data privacy. Instead, we can expect to see innovation in the following areas:
The use of first-party data
- While third-party cookies are being phased out, first-party data — data collected by the operator of a website directly and voluntarily from its users — is still fair game. Companies can collect and use this consented data on that domain to create personalized ad experiences that cater to the users’ individual interests. Expect to see richer, more immersive, and value-added content, experiences and services behind log-in screens to entice more users to provide personal information in exchange.
Cookieless identity solutions
- The concept of a “cookie alternative” is currently the principal focus of many in the adtech and identity landscapes. Several such solutions have been proposed, and many more are likely to emerge in the coming years. Google’s FLoC (Federated Learning of Cohorts), which serves targeted ads by collecting and analyzing large groups of users with similar interests, rather than individuals, is one of the most notable examples of this sort of post-cookie solution. Other top contenders include open-source, interoperable cookie “replacements” such as Unified ID 2.0, which is being developed by The Trade Desk and supported by a broad consortium of industry stakeholders, as well as ID5, a unique and GDPR compliant universal ID solution delivering a shared identity infrastructure to adtech operators and publishers alike.
Creative M&A dealmaking and partnerships
- One byproduct of this shift with near-immediate and highly visible effects is for smaller publishers who rely on third-party data tools to make their money. Publishers at the smaller end of the scale (revenue and audience) will be forced to consolidate, lest they face the prospect of shuttering completely. This movement will accelerate creative dealmaking and drive the sharing and scaling of data assets.
Adtech Market Is Taking Off
This is all happening against the backdrop of an ad market that saw more than $2.7 billion in venture investment poured into it globally last year. This volume is already on pace to more than double in 2021! The unprecedented number of adtech companies that have gone public in the last year serves as another signal of a piping hot market. Given that we’ve anticipated these regulatory shifts for many years now, it’s unlikely that the mere fact that they are now taking effect will lead to anything resembling a near-term pullback in funding for adtech companies. What is more likely is that we’ll see a change in the types of adtech companies that are being funded in the future, rather than a reduction in the amount of overall dollars available in the market. Winning the post-cookie identity race is, after all, a multibillion-dollar opportunity, and there’s no reason why investors wouldn’t want a piece of that pie.
With the tide of public opinion and regulatory scrutiny turning against cookies, the industry needs to leverage open-source, interoperable substitutes. Anonymized identifiers offer promise and, as they’re poised to become more widely adopted, they will become the baseline for advertisers to layer-specific solutions.
The future of the adtech industry is worth watching. If history has taught us anything, the industry may be unpredictable at times, but the one immutable truth of adtech is its resiliency. Determination drives innovation and collaboration, making the long-term prospects for the industry very bright.
- Published via Toolbox Marketing