How Agencies Can Thrive as Data Restrictions, and Walled Gardens, Gain Strength

Privacy policies such as Apple’s IDFA changes and the ongoing deprecation of third-party cookies are leaving advertisers looking for customer data. Agencies are in a similar boat, as they must figure out how to help clients navigate this new era of digital ad targeting.

In addition, the privacy movement is handing Big Tech’s walled gardens, with their own endless supply of customer data, an advantage. Agencies must navigate this, too, as they make the case to advertisers that it’s still worth working with middlemen.

But agencies may still determine a path forward.

How agencies can respond to privacy changes

The main role of agencies amid the current privacy and identity crisis is to help their advertising clients weather the storm and chart a future path. That help takes multiple forms.

“Marketing agencies have to step in here and help their clients (the advertisers) connect the dots,” said Udayan Bose, founder and CEO of NetElixir. “To connect various channels and to build a robust media mix, the agencies will need to invest in building (or buying) technology platforms that are custom-built, implemented per advertiser, and use first-party cookies.”

But the job does not stop at identifying and implementing new identity and targeting solutions. Agencies are also responsible for “educating their clients” and helping them experiment with new tools, Bose said.

What consolidating walled gardens mean for agency market share

Platforms such as Facebook, Google, and Amazon are known as walled gardens because they possess immense amounts of customer data and attention. Combined with their own powers to serve ads, this makes the digital advertising triopoly a self-perpetuating ad tech powerhouse that can keep out agencies and other companies who connect advertisers with publishers. Facebook, Google, and Amazon are ad tech, publisher, and agency all in one.

This dynamic where Big Tech triumphs over smaller ad tech firms and agencies could become even more unequal as privacy standards rise and data sharing declines. The companies have an access to a virtually never-ending glut of customer data. But their smaller rivals will lose a lot of that access as data sharing becomes harder.

“The channels stand to benefit by directly servicing the advertiser instead of the agency,” Bose said. “This poses a challenge for agencies and tools that focus exclusively on managing specific channels, and the channels taking greater ownership of their value chain may lead to a massive impact on the agency revenues and as a result market shares.”

But Bose believes that agencies can survive getting squeezed by walled gardens. The key, he said, is a “horizontal approach that works in close collaboration with the advertiser.”

Bose continued, “Marketing agencies need to morph into data-driven media mix management firms that work on the behalf of their clients, the advertisers, and try to help them maximize the return on their aggregated media spend.” This, he said, is a horizontal approach.

How NetElixir is adapting to privacy changes

NetElixir is implementing its own identity and targeting solution to service clients amid the increasing restrictions on data collection and sharing.

The company’s customer intelligence platform, LXRInsights, helps clients create customer segments and predict behavior.

“We have built our tracking system on first-party cookies that track basic data about [clients’] own websites’ visitors,” Bose said. “Instead of creating a user_id by LXRTracking system, we can use the user_id defined by our clients for their users. Our tracking script won’t be able to read first-party cookies, but by setting up a data layer using first-party cookie data, it can be passed to our database. This kind of data transfer between data partners is sometimes called a second-party cookie.”

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Joe Zappa is the Managing Editor of Street Fight. He has spearheaded the newsroom's editorial operations since 2018 and compiled the daily newsletter since 2016. Joe is a journalist who has written widely about technology, business, and politics. You can contact him at jzappa@streetfightmag.com.