A world without Cookies
“…Quite simply, the big platforms know more about advertisers’ customers than the advertisers do themselves, and take full advantage…”
It sounds like just another obscure technical adjustment to the umpteenth iteration of a web browser, of interest only to hard-core developers. But Google’s confirmation that third-party cookies will be phased out from Chrome next year threatens a ‘cookie apocalypse’, destabilising the digital infrastructure on which online advertisers have built a $300bn industry.
“…Burger King mobile app users received a notification offering a Whopper for one cent when their device’s GPS detected they were within 600 feet of a McDonald’s outlet…”
Third-party cookies are tiny parcels of data placed on browsers as users move around the web, allowing marketing teams to track customer journeys from site to site, gathering data used to deliver targeted ads and measure their effectiveness in converting clicks to sales. Google’s adjustment, following in the footsteps of Apple Safari and Mozilla Firefox, will be the final blow against a 25-year-old technology whose frequently underhand use has generated increasing privacy concerns.
In recent years global privacy regulations such as the General Data Protection Regulation (GDPR) and California Consumer Privacy Act (CCPA) have required websites to obtain user consent before cookies can be served. But even if users take the time to actually read the clumsy consent notices and dreary privacy policies that most hastily dismiss as they move through the web, they still cannot see the advertisers on behalf of which third-party cookies are set, so don’t know exactly who is viewing and processing their data. Bombarded by slow loading and often irrelevant ads that follow them round – even for items they have already purchased – many have taken matters into their own hands and installed ad blockers. When Chrome, which handles some two thirds of all web traffic, blocks third-party cookies, they will no longer be a viable user tracking technology.
“…Although the McDonald’s app has a remarkable 156 million users, Just Eat has been able to use the knowledge of McDonald’s customers it has acquired through its delivery service to pitch its own services, sending them, for example, offers for a tempting Chinese takeaway when its data suggests they are most likely to be considering a meal…”
The implications for companies that have not yet rethought their online advertising strategies are stark. Advertisers will no longer be able to track users from site to site and deliver personalised ads. As the deadline looms some are considering desperate workarounds. Some mobile developers for example are exploring possibilities for continuing to follow users opened by ever evolving device-based online tracking capabilities that do not depend on cookies. ‘Device fingerprinting’ allows apps and websites to recognise repeat visits from the same smartphone by analysing unique configurations of identifiers such as phone model, operating system, internet connections, battery or language settings, and patterns of usage.
But enterprising entrants to the field are embracing the possibilities a cookie-less world is opening, taking it as an opportunity to develop stronger relationships with customers, moving on from practices that are often surreptitious and downright ineffective: browsers already block some two-thirds of the cookies advertisers attempt to set.
One is Electric Guitar Capital, an acquisition vehicle seeking to invest in ventures committed to the evolving marketing strategies that take advantage of the cookies that will continue to exist: the first-party cookies that facilitate core website functionality like user registration and logins, and interaction with shopping carts. First-party cookies allow companies to refine their online service through direct open relationships with customers prepared to make their data available in return for a service they value. Indeed the use of first-party cookies is just one tool in a set of techniques marketers can draw upon to develop rich customer profiles, including online registrations, subscriptions, purchases, downloads, mailing lists and social media interactions, and offline communications encompassing customer surveys, call centres, and conversations with staff in stores.
First-party data relationships give marketers higher quality information about their customers, and give customers the confidence that their data is being used with respect. User willingness to make personal information available in return for a valued service has been amply demonstrated by the runaway success of the big social media platforms. Equipped with rich customer data, companies are able to offer their customers genuinely useful personalised services. Good customer information also allows them to design more intelligent forms of contextual advertising. Knowing precisely what appeals to their clients, they can deliver quality advertisements tailored to niche audiences on websites where they are likely to be found, rather than blindly following them round from site to site.
Quality first-party data relationships promise to win back the trust that advertisers have lost through insensitive online tracking. Surveys by the Advertising Association (AA) show that the proportion of UK consumers well disposed towards advertisements has fallen from roughly half in the early 1990s to less than a quarter today. That is partly due to privacy concerns – the UK’s data protection regulator is currently investigating certain companies for illegal personal data sharing – but even more to excessive and irrelevant advertising. ‘Advertising without trust is just noise,’ says the AA’s president Keith Weed.
The old model overwhelmed
The imperative of prioritising first-party data relationship upends the business models advertising agencies have built upon the sale of digital media inventories that rely on third-party data: advertising space on digital platforms that depends on the ability to track user journeys. Large agencies have purchased such space at bulk, and sold it on at a premium to advertisers. The third-party cookie phase out breaks that model. As do the fast evolving challenges of ‘digital piracy’ and privacy-driven litigation.
Digital piracy refers to the ability of giants like Apple, Facebook and Google to appropriate the data of organisations that advertise through them to refine targeting products which are sold back to advertisers at a premium. Quite simply, the big platforms know more about advertisers’ customers than the advertisers do themselves, and take full advantage.
Facebook has increased its rates by 30pc over the past year, and Apple has introduced privacy measures to block access to data on Apple devices, while introducing new products that allow it to use the data to sell more advertising. And Amazon is using the sprawling platform and massive customer base that gives it a ‘god’s eye’ view of entire marketplaces.
The fierce battle to capture the rapidly growing online groceries space highlights Amazon’s power to draw on vast reservoirs of customer data to muscle in on an an £16.8 billion market that grew by a third last year, pushing aside established rivals with extensive physical infrastructures. Amazon is drawing on its long established relationship with hundreds of millions of customers to promote its nascent online grocery service, Amazon Fresh, customers simply ordering through the Prime subscription service with which they already familiar. Amazon is then able to put its world-beating logistics to work to offer same-day delivery within one or two hours.
Newcomer delivery companies like Ocado are also taking big slices of the pie. Ocado, the UK’s fastest growing brand last year, has taken advantage of the wealth of customer data generated by the delivery service it has run for Waitrose and Marks & Spencers to take its market valuation to £21.7bn, more than Tesco’s £21.1bn.
Even the worlds biggest advertisers are not immune to aggressive “digital natives”. McDonalds, one of the best known brands in the world, is being taken on by Just Eat, which is less than ten years old.
Although the McDonald’s app has a remarkable 156 million users, Just Eat has been able to use the knowledge of McDonald’s customers it has acquired through its delivery service to pitch its own services, sending them, for example, offers for a tempting Chinese takeaway when its data suggests they are most likely to be considering a meal.
Just Eat Have recently merged with Takeway.com in Europe and are in the process of acquiring Grub Hub in the US for $7bn giving them 30% of the US food delivery market. So soon McDonald’s will be doing battle with this digital interloper, at scale, on its home front.
McDonald’s has also been targeted by ‘geofencing’, the use of mobile GPS technology to inform customers of opportunities close by. The most daring example so far is the Burger King ‘Whopper Detour’ campaign that ran in New York in December 2018. Burger King mobile app users received a notification offering a Whopper for one cent when their device’s GPS detected they were within 600 feet of a McDonald’s outlet. If they took advantage of the offer and placed an order the app directed them toward the nearest Burger King to retrieve their food. Word spread and for a few days the app became the most popular in Apple’s App Store, downloaded more than a million times in just two weeks.
Then there is the fear of ruinous litigation. Relatively few legal actions have been taken against organisations on privacy grounds, which has further encouraged a freewheeling attitude towards customer privacy. But now they are facing increasingly aggressive claims. In March, Experian, the credit reference agency which promotes itself as ‘the world’s leading global information services company’ was hit by a $34bn class action for the alleged selling-on of data collected from nearly 50 million UK customers to advertisers for targeted marketing without their permission. Some consider the action speculative, but it highlights the potentially devastating impact of privacy driven litigation: the action is nearly equivalent to Experian’s market value of £25bn.
Breaking out of the walled gardens
Big players like Amazon, Google, Apple, and Facebook have the power to leverage their oceanic knowledge of the world’s consumers to turn the online retail experience into series of walled gardens. Their respective ecosystems are now so extensive and refined that many customers may never leave them, staying put as their favourite online giant adds more and more services.
Google, for example, has the power to make Chrome an indispensable intermediary for advertisers that need data to target adverts accurately and track their effectiveness. Once third-party cookies are phased out Google will give marketing teams other tools to target users with ads according to their online behaviour, but the data itself would be under the control of Google. For James Rosewell, director of the industry group Marketers for an Open Web (MOW), the possibility of retreat to walled gardens threatens the very concept of an open web ‘based on a decentralised, standards-based environment that is not under the control of any single commercial organisation.’ MOW estimates that the change would see revenues to publishers that use cookies to sell online ads fall by two-thirds.
The world’s fastest growing marketing companies are putting the patient cultivation of quality first-party relationships at the heart of their strategies. They charge advertisers for technology and infrastructure which is used primarily to generate first-party data. S4Capital, for example, Sir Martin Sorrell’s new venture after leaving WPP, which has grown from a standing start in 2016 to a market cap of $3bn in five years, is focused on helping advertisers leverage first-party consumer information to plan, personalise, and optimise their digital media and content.
Sir Martin, who describes first-party data as ‘the holy grail’, said Google’s decision meant that ‘CMOs should take note that this reiterates, once again, the importance of first-party data and how consumer trust and privacy are moving to the forefront of marketing. In the coming years,’ he continued, ‘digital consumer relationships will be earned by customer experience and value exchange. With Google Chrome removing support for third-party cookies by 2022, the time for marketers to start investing in the future is now.’
Industry stalwart M&C Saatchi offers another interesting case study. Technology entrepreneur Vin Murria, who takes a similar view of the future to Sir Martin, has taken a 13pc stake in the advertising giant, and is using her position on the board to push a first-party methodology. Then there is the high-flying marketing company, You & Mr Jones, now valued at $1.36bn, whose founder David Jones observes that the ‘old category of marketing services firms lost $60 billion in market cap over the past few years. The new category has companies doing well from a revenue and valuation perspective.’ Another, The Trade Desk, which provides a platform on which companies can build first-party data ad campaigns, has more than doubled in value since January, reaching a $28.6bn market capitalisation that is bigger than Omnicom and WPP, the world’s biggest advertising empires, combined, on revenues no more than a fraction of what they earn.
Looking to a first-party data future
In a world without third-party cookies companies need to design first party data relationships strong enough to keep customers out of the big players’ gardens, while respecting user privacy. Many are still puzzling how to plug the cookie-shaped hole left in their digital marketing strategies. According to a recent study, nearly half of marketing leaders say they are not adequately leveraging first-party data sources in their marketing decision-making. Even though nearly two-thirds identify the value of first-party data and analytics platforms in their onboarding processes, only 44pc say they’re currently investing in first-party data platforms. And less than a third say they have built a mature onboarding approach to leverage such information effectively.
So the door is wide open for those willing to invest in high quality relationships with audiences willing to provide first-party data in return for a trusted service. Electric Guitar aspires to be one, believing the turn to first party data will electrify the industry just as Les Paul’s new instrument supercharged popular music when it first appeared in the 1950s. Unencumbered by the old way of doing things, and starting from the outset with a laser focus on first party data strategies, Electric Guitar seems well positioned to take advantage of the exciting new opportunities emerging in the advertising space.
