“It’s a big change,” he says Guy Aridor, assistant professor of marketing at the Kellogg School. “They are trying to strike a balance between the ability to target advertising in Google Chrome and the protection of consumer data, which have always been in tension.”
One of the ways Google and others have tried to strike that balance is by phasing out third-party cookies, which track users from site to site and collect the kind of analytics that companies—and, increasingly , consumers— find so valuable. Instead, the idea is to classify consumers into cohorts and send only cohort information to advertisers instead of richer details about each individual’s browsing behavior.
So what will these new privacy standards look like and how might companies adapt?
“It depends on the size of the company and its marketing strategy,” says Aridor. “Some may try to go back to non-targeted ads, or at least stop relying so much on targeted ads. However, many companies still depend on advertising that uses this third-party tracking, including many small businesses that rely on the kinds of targeted ads that Facebook and Google have long provided. It’s the bigger companies that could find better solutions.”
When the adjustment starts to bite
of Google Privacy Sandbox it didn’t appear out of nowhere.
While the company may prefer to claim it’s looking out for users, its decision to focus on privacy was clearly inspired by the GDPR regulation passed in 2018 by the European Union. The GDPR it has since become a powerful model for privacy law around the world, with tech giants adapting their global strategies to comply with EU law to avoid the hassle of creating separate data pipelines for each market. This “Brussels effect,” as it’s known in the industry, is analogous to the impact California’s emissions standards are having on U.S. car manufacturers.
In addition, in 2021 Apple released its own privacy protections in iOS—known as Application Monitoring Transparency Framework (ATT)—which allowed consumers to opt-out of the sharing of third-party identifiers on iOS devices specifically.
There are already some signs that these landmark regulations have hurt companies’ bottom lines. In recent documentAridor and colleagues looked at GDPR’s impact on the online travel industry and found a 12.5% drop in the total amount of “observable data” that companies could rely on, ultimately resulting in a corresponding loss of advertising revenue for online travel platforms. Another investigation Similarly, it found a loss of new customer acquisition and revenue in other industries after GDPR.
In later research (currently under review), Aridor and colleagues studied the impact of Apple’s ATT on small business advertisers and found that advertisers most dependent on Facebook suffered significant losses within the first two years of ATT implementation. Without the use of third-party identifiers and reduced data scale, it was more difficult for companies to target specific consumers and track the effectiveness of their ads.
“Clearly, companies are hurting on that front,” says Aridor. “Specifically, small businesses. They just don’t have the customer base to engage in a bunch of different marketing efforts on their own.”
So, while consumers concerned about the invasion of digital privacy may welcome Google’s efforts — as well as Apple’s — the implications may be more complex. The ability of tech giants to shape the digital advertising landscape may continue to raise questions about competition. After all, Google is facing one major antitrust caseone that reveals just how much Google and Apple together control our digital ecosystem.
“Apple and Google can always say, ‘We’re doing this for the betterment of consumers,'” Aridor says. “Regulators must trade off from limiting these companies’ market power, maintaining a healthy advertising ecosystem that small businesses can use to acquire customers, and protecting consumer privacy.”
Finding replacements
With less tracking and fewer ways to target people, companies may need to find new ways to reach consumers. So how will they advertise online in this environment?
“Some may go back to untargeted advertising,” says Aridor. “Which could include moving away from reliance on social media advertising and targeted display advertising.”
In his research on the impact of the ATT on targeted advertising, Aridor found that social media advertising by companies with high mobile usage among consumers, such as Facebook and TikTok, were most affected by this policy and that the of many companies was to advertise in the Google ecosystem.
“If they can’t target Facebook, they’ll just advertise in the Google ecosystem,” he says. “That’s some of the replacements we’re seeing. However, despite this, we still find that advertisers who are most dependent on Facebook are losing revenue, and so this replacement is imperfect.”
However, advertising on Google still involves some targeting — and that’s what Google hopes to preserve. “ATT was intense—you’re either watching or you’re not—whereas Privacy Sandbox is somewhere in the middle,” says Aridor. “I think the big question is: How much will targeting degrade if you use cohorts instead of opting out consumers entirely?”
For some large companies, the end of third-party cookies may not change their marketing plans as much as one might think.
“When you visit the websites or open the apps of the really big companies—Nike, Amazon, Walmart—they’re also collecting a bunch of information about you,” says Aridor. “So it’s not clear how much this particular change will affect them. They may be able to combine their own first-party data to approach what they already do.”
In fact, in a cookie-free world, the shopping data that Amazon and Walmart collect from customers might benefit those companies, as they can use their own websites and apps — their own digital properties — to sell ads. to brands, just as a media property would. After all, who knows us better than our local Target or CVS?
The end of DTCs?
The future of digital advertising depends on how companies respond to Google’s Sandbox, which the company plans to roll out during 2024.
“There will soon be more data that will give us a better sense of the long-term impact of this change. In addition, researchers have begun to dance floor the incremental adoption of the technologies needed to power this change,” says Aridor.
But if retail giants stand to benefit from moving away from third-party tracking, the opposite could be true for their digitally native competitors: direct-to-consumer companies.
“One theory is that the introduction of targeted advertising helped build these direct-to-consumer companies,” says Aridor. “Without social media advertising, it would be very expensive to do.”
The same applies to niche products, whose popularity, has found research, correlates with the growth of targeted advertising in recent years. It is easier for a company to make sweater vests for corgis when it knows from analytics how to go directly to the people who would like to buy them. And some consumers may not be targeted as precisely in non-advertising contexts—as they might, for example, if Netflix stopped giving personalized recommendations for what to watch next.
“From a regulatory perspective, it all comes down to a balance between the value of targeted advertising to companies on the one hand and the well-being of consumers on the other,” says Aridor. “For consumers, there is the question of how to place the right value on someone’s personal information. Then there’s the separate question of whether there’s value in targeting—in other words, showing you ads for products you might actually buy. Achieving this balance is part of the challenge of designing the best Internet.”
