With the ‘cookie apocalypse’ on the horizon, is Electric Guitar in the right place at the right time?
“…With the prospect that third-party cookies will be finally swallowed by the end of the year, ELEG is worth watching over the next few months as a rare example of a small cap focused on a rapidly changing digital marketing sector…”
With its first acquisition now complete, Electric Guitar (AIM:ELEG) is looking forward to taking advantage of the opportunities a rapidly evolving digital marketing sector offers to ambitious new enterprises willing and able to move past the industry’s long dependence on intrusive third-party cookies.
ELEG raised more than £1m on joining the LSE main market in 2021 as a special acquisition company focused on purchasing emerging businesses to take advantage of the shifting tides in the digital marketing sector.
The industry is at a crossroads. Evolving technologies offer greater opportunities for marketers to build closer personal connections with target audiences than ever before. Data tracking allows advertisers to gather granular information about the preferences of target audiences. AI is powering increasingly intelligent conversational marketing. And the metaverse, a cluster of virtual reality worlds in which individuals interact with one another as digital avatars, opens opportunities for advertising to move into a parallel 3D universe.
The ‘cookie apocalypse’
But some tried and trusted techniques are becoming obsolete, notably the ‘third-party cookies’ that have driven digital marketing since the turn of the millennium.
Cookies, tiny parcels of data placed on browsers as users move around the web, have long allowed marketing teams to track customer journeys from site to site, gathering data that can be used to deliver targeted ads, and to measure their effectiveness in converting clicks to sales. But Google’s confirmation – following in the footsteps of Apple and Mozilla – that its Chrome browser, used by some two-thirds of internet users, will no longer support third-party cookies, threatens a ‘cookie apocalypse’ for those agencies unable to adapt.
The move reflects increasing concerns about online security. In recent years privacy mandates – such as the EU’s General Data Protection Regulation (GDPR) – have required websites to obtain user consent before cookies can be served. But the new rules still do not allow users to see the advertisers on behalf of which third-party cookies are set, or who is viewing and processing their data. Plagued by slow loading and often irrelevant ads that follow them around the web – even for items they have already purchased – many have taken matters into their own hands and installed ad blockers.
Google began phasing out third-party cookies in January, lighting a fire under the many companies and marketing agencies that have not yet adapted: one survey indicated that some three quarters of programmatic ad buys as of the third quarter of 2023 still relied on roaming cookies. Earlier this year Google itself was fined €250m by French regulators for training its Bard AI on copyright-protected news articles without giving publishers sufficient information about remuneration or an opportunity to opt out, indicating the scale of the penalties companies face for failure to respect privacy.
New opportunities for marketers – and customers
The sunsetting of third-party cookies opens the way for enterprising ventures prepared to support marketers as they transition from third-party data, gathered by third-party cookies, to first-party data . Unlike dark third-party data, first-party data is transparent, and freely offered by users. They give marketers the opportunity to develop transparent relationships with customers prepared to make their data available in return for services they value. Advertisers receive higher quality information about their audience, and customers get the assurance that their data is being used with respect. User willingness to make personal information available in return for a valued service has long been demonstrated by the runaway success of the big social media platforms.
Intelligent and sympathetic use of first-party cookies gives companies access to a host of tools for developing 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. Equipped with rich customer data, companies can offer their customers genuinely useful personalised services, moving beyond intrusive third-party cookie techniques. As ELEG puts it, the foundation of such ‘People First’ data ‘is trust, based on a simple quid pro quo. In exchange for consumer data, the advertiser must reciprocate with meaningful connection, transparency and human understanding. If they fail to deliver, their audience will disengage and opt-out.’
A McKinsey report found that companies can generate as much as 40pc more revenue from personalisation. Perfora, an oral care brand tailoring product recommendations based on user behaviour, reported that 60pc of its consumers became repeat customers after a personalised shopping experience, and that it had achieved a remarkable eightfold spike in conversions by effectively harnessing first-party data and delivering relevant experiences across the customer journey. Lifestyle brand India Circus said its introduction of personalised reminders for previously viewed products powered an 874pc surge in unique conversions.
ELEG acquires 3radical
Last July ELEG readied itself to enter the space through the planned reverse takeover of 3radical Limited, developers of Voco, a software platform that allows marketers to engage their customers through intelligent use of first-party cookie data. ELEG said that in 3radical it had ‘found a company with an experienced management team and a well-established software platform already in use by major clients around the world’.
The Voco platform, in which 3radical has so far invested £8m, uses game science to furnish marketers with ‘earned data’ illuminating their audience’s preferences and aspirations. The software allows users to encourage audience engagement through more than 50 challenges, including surveys, personalised content, branded games, check-in at physical locations, and product advocacy. Symbolic or ‘zero cost’ rewards for task completion include badges, statuses, achievements, access to gated content, and additional plays within branded games. Voco can also issue real-world rewards, such as electronically fulfilled vouchers, prize draw entries and redeemable reward points. The platform is already deployed by some major brands in the UK, US and the Asia-Pacific region, encompassing the financial services, online gaming and e-commerce sectors. ELEG expects Voco to prove a critical tool ‘for marketing and for providing a compelling customer experience, optimising communications, designing products and services, and, ultimately, driving revenues.’
ELEG concluded the purchase last month for £1.28m in an all-share transaction, while raising £2.2m through a placing, the proceeds ‘providing the Enlarged Group with a strengthened balance sheet and additional working capital to enable it to invest in the growth of 3radical’. The raise allows the company to move on from the costs incurred by due diligence undertaken into potential acquisitions and the purchase of 3radical, which resulted in a net loss for the six months ended 30 September 2023 of £590,504 (2022: net loss of £371,680).
Outlook
ELEG is led by CEO John Regan, a marketing data entrepreneur whose first marketing analysis business, founded in the 1990s, was sold to Havas where it became part of the EHS Brann Group, creators of the Tesco Clubcard, one of the UK’s earliest large scale data driven marketing operations. Mr Regan’s subsequent enterprises have included marketing and credit risk data analytics ventures bought out by communications business Communisis PLC, and Mymyne, an advertising technology business. Chair John Hutchinson helped set up and managed Epi-V, a private equity fund investing in technologies for the oil and gas industry, responsible for £110m worth of investment, and, as a director Pitmans LLP, oversaw a merger that created BDB Pitmans LLP where he is managing partner, with a turnover of more than £50m. COO Richard Horwood, following careers in law and investment banking M&A, set up and ran the Mirror Group PLC’s TV business, and then bought, refinanced and ran ad tech company Vio, later adding AdSEND in America, turning them into a market leader in print advertising online delivery solutions.
ELEG has ambitions for rapid growth, stating that the 3radical purchase ‘paves the way for collaborations with other potential acquisitions, especially using AI techniques.’ With its first acquisition complete, the company now has an opportunity to turn its narrative into reality. Speaking to TMS earlier this month, Mr Regan forecast a ‘land grab’ for enterprises pioneering the ‘new oil’ of the first-party data collection space. ‘If you talk to chief marketing officers, the last survey that I saw, something like 60pc of them said that they want to focus on first-party data this year,’ he said. ‘I would argue the other 40pc just haven’t quite woken up and smelled the coffee yet.’
With the prospect that third-party cookies will be finally swallowed by the end of the year, ELEG is worth watching over the next few months as a rare example of a small cap focused on a rapidly changing digital marketing sector. At the time of writing the company traded at 1p with a market cap of £4.14m.
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The time to make acquisitions is now for Electric Guitar says John Regan in this latest interview
Listen here to the previous interview with CEO John Regan in which the comment “…data has been called the new oil. This is the new oil. We will strike a lot of oil…” was made.
