Just Desserts: The End of Third-Party Cookies
In January 2020, Google announced its plan to phase out support for third-party cookies. Though ample time was afforded to prepare for these changes, as the policy would not take effect for another three years, the digital advertising industry was immediately rocked by the news. For brands and marketers alike, this was akin to a countdown to doomsday.
The magnitude of Google’s decision is unparalleled. The global browser market, including desktop and mobile, consists of only a few players. Google, by far, makes up the bulk, commanding a whopping ~66% of the global market share. It’s unquestionably a behemoth in the space, and when it makes a policy decision, it largely dictates the industry’s next steps. This is why its planned cookie deprecation policy was so debilitating. By shuttering access to third-party data, Google struck a deathblow to third-party cookies.
Overwhelmingly, that decision impacts brands the most. In 2021, more than eighty percent of surveyed brands and advertisers reported active use of third-party cookies. Perhaps even more notable, half of those surveyed claimed third-party cookies made up a majority of their company data, with an additional third claiming the use of third-party data was at least “somewhat important” to their strategies. In aggregate, that’s 84% of the surveyed participants citing strong to medium reliance on third-party cookies for their marketing campaigns. Brands don’t just find third-party cookies useful; they’re core to their go-to-market strategies.
With the severity of this change and three years of notice, you’d think market players would have adapted accordingly. Unfortunately, that isn’t the case. While Google offered some temporary reprieve, announcing a delayed start date of H2 2024, reports still indicate that the industry is far from ready. According to the Interactive Advertising Bureau (IAB)’s recent State of Data report, an estimated “$10 billion in annual sales are at risk if the industry does not get its house in order.” Per that same report, the IAB found the overall industry to be “overconfident and unprepared.” It noted that two-thirds of respondents were in no way adjusting their measurement strategies, with 59% not increasing their investments in first-party data at all. While the cause of the industry’s general apathy is not completely known, the IAB speculates a large part of it derives from an overarching pressure to drive short-term results and a reluctance to try something new. In other words, as long as third-party cookies remain useful, the industry will continue to rely on them, and at the point they’re not, everyone will scramble for an alternative.
With that in mind, all signs seem to indicate that 2024 will be a very difficult year for brands to navigate digital channels. For select startups though, that should present an incredible opportunity. Ill-prepared for the policy change, many brands and advertisers will be forced late to market in search of alternative data solutions. That surge in demand should be a boon for leading startups in the space. While many startups are crafting solutions from a variety of different angles, there are two leading approaches that seem to be getting the most traction:
Contextual Advertising, or ad placement by keyword and topic-based targeting driven through webpage content; and
First-Party Data Collection, or data brands collect on their own consumers through interaction with their content (ie. social media, emails, webpages, etc).
Startups building solutions around these areas are likely the best positioned to capture the exodus from third-party cookies. For contextual advertising, there are already a few dominant players. Most recently, Seedtag, an AI-contextual advertising startup, raised $252M for expansion into the US and Europe. One of its competitors, Outbrain, IPOed just last year at a $1.25B valuation. Even tech giants like Oracle have gotten into the space, offering contextual intelligence alongside their standard advertising tools. For first-party data collection, however, the market is not quite as established.
Due to the variety of methods for collecting first-party data, no one solution dominates. While there are certainly startups in strong positions within particular channels, like Yieldmo for mobile or Treasure Data for webpages, no player has broad control over the entire space. It’s likely that this will continue to be the case in the future. As each channel is nuanced, it is incredibly difficult to create a one-size-fits-all tool. In a mature market, that should lead to some fragmentation, with siloed areas that startups can compete within. While it’s unlikely that one company could ever own the entire first-party data market, it’s inevitable that some will control these distinct silos.
Channels like mobile, social media, ecommerce, in-store and the like will eventually have leading first-party tools, built by the savviest startups. That’s why we’ve recently invested in Digiphy, a solution that connects in-store customers directly with brands via QR on their packaging. Digiphy, and other startups like it, are solving the third-party cookie problem directly by dominating their prospective channels. They’re driving key insights directly from the source, the customer themselves. First-party data tools like these are a natural next step for brands, as they are forced to transition away from third-party cookies. It’s why we are incredibly excited about the future of Digiphy and the first-party data market overall.
Though 2024 is bound to be chaotic for the digital advertising industry, it should be a banner year for well-positioned startups. Google’s deprecation policy may be the end of third-party cookies, but it will also mark a new beginning. With third-party cookies gone, a new wave of technologies to capture and understand customer data will come online. Leading that transition will be startups building around contextual advertising and first-party data collection. For them, 2024 can’t come soon enough.