#86: Chrome, Audience Targeting, and Owning Your Future
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You’ve no doubt heard the news about Google, Chrome, and the lifeline thrown to cookies when they decided not to deprecate third-party cookies. Instead, users will now have the power to choose whether or not to enable cookies. The decision comes after years of delays, extensive industry testing, and feedback highlighting the complex balancing act of pleasing privacy regulation, anti-trust pressures, and the survival needs of the adtech ecosystem.
Your LinkedIn feed is probably flowing with endless commentary of mixed emotions — cheering, frustration, confusion, angst, indifference, etc. It’s kind of reminiscent of U2’s song “Bad”…
This desperation Dislocation Separation, condemnation Revelation in temptation Isolation, desolation Let it go
Quick Recap
Initially, Google aimed to phase out third-party cookies by 2022.
Multiple delays kicked in pushing the deadline to 2024 and then to 2025.
Now Google decided not to deprecate third-party cookies at all.
Instead, they are going to introduce user-choice features in Chrome that allow users to decide whether to enable third-party cookies or not, similar to Apple's opt-in approach. In other words, consumers get to deprecate cookies instead of a single player making the call.
Just a few weeks ago, Google’s Privacy Sandbox initiative was shown by Criteo’s testing to fall short of performance expectations resulting in substantial ad revenue declines for publishers. (See Marketecture’s Ari Paparo thoughtful summary here.)
Google’s policy shift has been met with mixed reactions. While it provides short-term relief for adtech businesses, advertisers, and publishers reliant on cookie-based technologies, it also underscores the ongoing need for privacy-first strategies, the importance of first-party data collection, and faster adtech collaboration vs. competition to provide a viable alternative.
What It Means Under The Microscope of Economics
Let’s lean into utility curves to illustrate what’s going on and take a stab at where things are likely heading. Our Quo Vadis readers have seen similar analysis in previous posts but it’s worth revisiting the core principle of trade-offs that underpin all of microeconomics.
When it comes to audience targeting data, the central trade-off is scale (aka reach) vs data accuracy. Before 2018, 3rd party cookies had massive reach but never really provided truly (or provable) accurate data about a person’s demographic or behavioral characteristics. For example, let’s say you’re a single female, an active athlete, and high income. There is more than a fair chance you could end up in a targeting segment as an older male, with receding hair and medium income level.
In Utility Curve 1 above, everything was groovy before 2018 when Apple kicked third-party cookies to the curb. Before this change, cookies were the “free” crude oil powering all of adtech. Accuracy was terrible, but perception is reality, marketers never bothered to look under the hood and the market grew like mad as budgets flowed to programmatic audience targeting.
That change lowered the utility of cookie-based audience targeting to Utility Curve 2 where ~70% of users are basically invisible because there is no 3rd party cookie(s) providing a signal. Between 2018 and last week, the potential utility of audience targeting with cookies dropped significantly, but the money kept flowing anyway. Where the money went is anyone’s guess, but what we know for sure is the chance that it went toward successful advertising outcomes (e.g. incremental lift) is not great. Perception is reality… there is a market for everything when it comes to advertising.
With Google’s recent news making users the conduit to cookie deprecation, advertisers, publishers, and adtech should expect to see a further drop toward Utility Curve 3. It seems reasonable to assume Curve 3 passes a threshold where real action and change across adech players start to happen. At a certain point, advertisers will realize there is no utility left in the old approach and reallocate funds to the next best alternative. Marketers have always loved the concept of audience targeting so they’ll eventually ask adtech partners to figure it out before re-opening up their checkbooks.
At Utility Curve 4, we’ll see a lateral shift as alternative test cases start to prove out and gain momentum. With scale issues bottoming out, at least marketers can be sold on the comfort that signal accuracy is better than before and improving with every passing day.
As innovation and adoption pick up pace, marketers take an upward journey toward incremental utility with growing reach and increasing accuracy at Utility Curve 5 and so on. In the end, audience targeting alternatives reach utility levels not possible with 3rd party cookies.
Incentives Matter
There is no time waste for adtech players. While marketers might not think of their world in terms of utility curves, behavioral economics suggests that a marketer's mind will arrive at the same conclusion (Utility Curve 3) one way or the other. If they want to spend ad dollars on the best possible audience targeting (scale and accuracy), that’s where the money will flow. And walled gardens are waiting with open arms.
Media Money Flows
If you’re an adtech executive, consider the following exercise. Total global media spend is $900 billion growing at say ~7% annually. Nearly 70% is digital, the other 30% is “traditional” which is mostly linear TV. If you do the math, you’ll find that just ~5.6% flows to open web (e.g. publisher/app display ad inventory).
Note: You can download our detailed Media Money Flows Chart here.
At Utility Curve 3, it seems entirely fair to assume that media money will flow to places where audience targeting is scaled and accurate. That’s where we are today. Walled gardens, which include commerce media solutions, are the obvious and easiest channels that marketers will likely navigate.
If you can think of a better incentive for adtech players and publishers (and agencies too) to start collaborating at a faster and more genuine pace to come up with viable alternatives then we’re all ears.
Cooperative vs. Competitive Games
Cooperative games and competitive games are two broad categories of games that differ fundamentally in their objectives and the way players interact with each other.
In cooperative games, players work together towards a common goal or objective. The success of one player typically depends on the success of the group as a whole. Players collaborate, share resources, and strategize together to overcome challenges presented by the game. They support each other and often need to communicate and coordinate their actions. All players either win or lose together. The game is designed to encourage collective problem-solving.
The sooner adtech companies cooperate more on coming up with a viable scaled solution to target audiences accurately, the less media money flight risk there will be. And the sooner advertisers see how open web advertising is making its way toward Utility Curve 5, the happier everyone will be and the media money will flow.
McKinsey Moment for AdTech Collaborators: 1) Set high aspirations for scaled and accurate audience targeting on the open web… and do it yesterday; 2) Get quick wins soon; 3) Shout about signs of momentum (e.g. Utility Curve 5); Sustain the impact (e.g. when you’re done the system runs on its own).
Look, alternative identity signal companies already have mountains of invested capital and technology already in place. It’s just a matter of coordinating for the common good of all players before it’s too late.
The unwise choice across key adtech players is to continue playing a competitive game and conflating it as cooperation. In competitive games, players compete against each other to be the first to reach a winning condition. The success of one player often comes at the expense of others. Interaction is usually adversarial where players might engage in direct conflict trying to outmaneuver each other or use tactics to hinder their opponents’ progress.
Does that sound familiar? If you work in adtech, it probably does. There is a lot at stake. Faster cooperation sooner seems like the right and obvious choice if the open web is going to survive and thrive
“If you don't like change, you're going to like irrelevance even less.”
— General Eric Shinseki
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