Limits on Behavioral Ads Could Bring Higher CPMs for Publishers
This is the first segment of a two-part column. You can find the second segment here: “Publishers Could Gain More Control as Browsers Curb Behavioral Ads.”
Whenever one of the main web browsers announces that it will implement a new default do-not-track mechanism, the ad industry typically responds by slamming the move, suggesting that the new privacy controls will inevitably cause great harm to their business. Case in point, when Firefox recently announced that its next release will block third-party cookies, Mike Zaneis, general counsel at the Interactive Advertising Bureau, tweeted that it would be a “nuclear first strike” against the industry.
But I see these privacy controls a little differently. In fact, I think a shutdown of so-called online behavioral advertising could actually help publishers in the long run.
Context Is Where the Value Lies
When we look at why online CPMs have decreased so much for premium publishers (among whom we can count locally targeted news and information sites), it seems that the main reason is that as marketers become more savvy about online data targeting, the actual site that serves the ad begins to matter less.
Think of it this way: When Mercedes wants to reach people with high household income who are likely to purchase a luxury vehicle, they buy targeting data from a data broker like BlueKai to find people who are researching luxury vehicles and/or have high household incomes. They then bid on those users on an exchange where there is an abundant supply of inventory and they can pay a very low CPM (plus the cost of the data). They will optimize their campaign to some sort of a lead form but will still only pay that low CPM. The company may purchase ads on an automotive-endemic site like Cars.com, but that tends to be so much more expensive that it has become harder and harder to justify the cost. This is a great world for marketers: complete control, and complete tracking of their ads.
But what happens to this campaign if I take away the ability to buy BlueKai cookie data and the ability for the marketer to track the campaign? First, Mercedes is going spend more with the endemic sites because they will be the only way to reach users who are really in market for a luxury car. As a matter of fact, they will probably be more interested in purchasing a high-impact ad unit, since they now have a smaller window to reach these users.
The other way Mercedes would reach their intended audience is to find publishers whose users are known to purchase luxury cars. In this case they may spend more money advertising on national and local newspapers or financial news websites where users tend to have a high household income.
The other factor that plays in a no-third-party cookie world is that the marketer (or their ad technology company) would not be able to track the success of the ad. Because the marketer can’t set cookies even if they are serving the ad, there is no way for them to understand if those users end up visiting their site or performing an action at a later date. While that’s bad news for the marketer, it makes the publisher into a key player. The publisher is able to set cookies that can actually track users from the ad back to the marketer’s website and provide reporting back to the client. This is something that an ad network or exchange wouldn’t be able to do. Overall, this means that it will be better for advertisers to purchase ads from premium publishers.
The type of targeting that this browser feature doesn’t address is location-based tracking. Marketers can still attempt to track your location by IP address. With that said, a lot of the location-based tracking today is cookie-based. The data is collected from things such as declared ZIP code in a form. This type of tracking will only be available to the first-party publishers. This means publishers like Weather.com and Cars.com, which regularly collect ZIP code data on their users will be at a distinct advantage for location-based targeting.
So on an Internet without online behavioral advertising, publishers with a premium audience will be in higher demand, and this will result over time in increased CPMs and increased revenue. It will be a step back in time to where premium publishers and ad networks (not exchanges) were handling most of the media buys. The difference is that more marketers are now spending more money online. And while the movement of ad spend from offline to online might slow as a result of these changes, I don’t think marketers will stop advertising online.
This change will put the supply and demand dynamic of online media more on par with offline media. Anyone who’s sold online advertising knows that the medium’s biggest advantage — that everything could be tracked — is also it’s biggest disadvantage.
Matt Sokoloff is a 2012-2013 Reynolds Journalism Institute fellow working on a project to help local independent websites and bloggers gain additional revenue opportunities. His background is in building digital products for media organizations. Read more about his current work here and respond in the comments or to firstname.lastname@example.org or @MattSokoloff on Twitter.