Ad Tech Isn’t Dying amid Privacy Changes. It’s Transforming
The online advertising industry is experiencing a period of massive upheaval. A bevy of sweeping regulations, chief among them the European Union’s General Data Protection Regulation, are dramatically reshaping how advertisers can reach consumers online.
At the same time, adtech giants Apple and Google are introducing new privacy tools to protect user data. While the digital advertising ecosystem is in a state of flux, new approaches to advertising technology offer the promise of gathering robust, yet anonymized, user data in new and privacy-compliant ways.
The Next Frontier
The current shift toward more privacy-forward advertising approaches is being driven by government regulators, large tech companies and individual consumers, each with their own set of priorities and objectives. As a result, adtech firms are scrambling to develop strategies that avoid tracking individual users while retaining the ability to place relevant ads in users’ sightline. This spells the end of cookies. Instead, aggregated and anonymized methods of understanding online behavior are on the rise.
Google has announced plans to end the use of third-party cookies across its popular Chrome browser by 2023. The online advertising behemoth is replacing this well-established tool with new technology in development: Federated Learning of Cohorts, or FLoCs. Rather than following someone’s individual clicks around the web, FLoCs aggregate thousands of people with similar browsing habits into large cohorts that obscure their personal identifiable information.
The new technology has drawn criticism from other companies and privacy advocates, who argue it introduces a new array of privacy concerns. An alternative solution from ID5, which is GDPR compliant and deployed extensively, employs cookie-less user data tracking among consumer-approved vendors only. (Progress Ventures, the venture capital arm of Progress Partners, invests in ID5.)
In addition, Apple has made major moves toward user privacy, recently requiring apps to ask user permission to gather and share data on Apple devices. Removing Apple users’ identifying information will have widespread implications for how Facebook, Instagram, and other social media platforms reach folks, particularly on mobile devices.
There’s little doubt this evolving adtech landscape will spur a resurgence of contextual advertising, where ads are displayed based on the content of the webpage being viewed, rather than the profile of the user doing the viewing. Even amid the return of contextual advertising, there is still ample room for innovation as advertisers explore novel strategies to better understand, reach, and convert consumers.
One such strategy is eschewing third-party data collection, instead gathering data directly from users with their consent. This first-party data collection can spur publishers to acquire supportive technology solutions and build first-party capacity. Such first-party outreach could include using reward programs to incentivize the sharing of data to serve targeted ads or expanding email marketing and other digital outreach efforts to glean customer insights.
This change will transform online advertising as we know it: Within a stricter regulatory environment, smaller publishers depending on conventional third-party tools are likely to disappear or consolidate. Movement will accelerate creative deal making and drive the sharing and scaling of data assets.
A Booming Adtech Marketplace
Despite the tightening regulatory grip on adtech, online advertising as a whole is booming. Venture capitalists invested more than $2.7 billion in the market last year. That figure is on track to more than double this year, according to Crunchbase. Digital advertising accounts for a whopping 70% of total U.S. spending on advertising. The strength of the industry will insulate it from near-term financing pullbacks, even with uncertainty surrounding new privacy standards.
Instead, the types of adtech companies receiving funding will shift. Winning the post-cookie identity race offers an enticing multibillion-dollar opportunity. Anxiety is high among publishers and tech firms around profound change happening quickly. But companies have been preparing for this day for years, and have devoted extensive time, research, and resources to developing next-gen solutions.
The Trade Desk is working hard on leading the charge for alternative cookie-less solutions, spearheading the Unified ID 2.0 project, an open-source framework that encrypts email addresses while offering consumers privacy and transparency. Its consortium includes high-profile collaborators such as Buzzfeed and PubMatic. Beyond this effort, subscription-based publishers and other companies that have laid the groundwork to better use proprietary first-party data are well positioned to pivot to a more privacy-focused model.
With the tide of technology and public opinion turning against cookies, other open-source, interoperable cookie substitutes have traction and are worth watching. As anonymized identifiers are poised to be adopted across the industry, they will become the baseline upon which advertisers can layer additional, more specific solutions.
Domenic Venuto is Chief Operating Officer at Progress Partners.