What Does the Death of Third Party Cookies Mean for Online Advertising?

January 27, 2021
June 2, 2022
What Does the Death of Third Party Cookies Mean for Online Advertising?

The prediction of the death of third party cookies has long been floated in the programmatic industry due to the explosion in mobile website browsing and the inherent difficulties with tracking users across devices, leaving cookies inefficient at building a full picture of a user.

Couple this with an awakening in users around the value of their own private data and demand for privacy, and the new, privacy-focused, cookie-less world that’s emerging right in front of our eyes shouldn’t come as a surprise. 

In 2020, Google announced its plan to phase out third party cookies within two years in order to make the web more secure and private for users. Chrome will join other browsers such as Safari and Firefox in blocking third party cookies.

The main reason why this made such a commotion in the industry lies in the following: Chrome is the most popular website browser used by over 60% of users worldwide. Does that mean online advertising is doomed? Well, not quite. But let’s start from the beginning.

What Are Cookies and Why Do They Matter? 

A cookie is a small bit of data stored as a text file in a browser that allows websites to keep track of users and help them to customize the experience. Website cookies are used for core website functionalities like shopping carts, remembering login details and your preferred language and location etc. 

What Types of Cookies Are There?

There are essentially two types of cookies - first party and third party. While both cookies contain the same pieces of information and can perform the same functions, the difference between them has to do with how they are created and used. There are different benefits of creating first vs third party cookies.

Let’s dive in.

What are first-party cookies?

First party cookies are used to help websites keep track of your visits and activity, which is not really a bad thing as you can see from the above-mentioned examples. Unlike third party cookies, first party cookies will not be phased out.

Many online retailers can use first party cookies to keep track of your login details, what you have put in your shopping cart or the language you were last browsing in. For instance, airline companies use first party cookies to show you your last flight searches and dates. These cookies help with improving the user experience and make your internet browsing more seamless.

What are third party cookies?

Third party cookies are used for ad retargeting and behavioral advertising. By adding tags to a page, advertisers can track a user across the web as they visit different websites. This allows advertisers to build a profile of you based on your search habits so they can serve more relevant content.

Advertisers have very sophisticated targeting for their campaigns to make sure they are reaching the right potential buyers and use cookies to do this. Third party cookies have long been shrouded in controversy and are seen by many as an invasion of people’s privacy.

How Third Party Cookies Work

Third-party cookies are those created by domains other than the one the user is visiting at the time, and are mainly used for tracking and online-advertising purposes. 

A third party cookie is accessible on any website that loads the third party server’s code. The most common third-party entities are advertisers, marketers, and social media platforms.

How third party cookies are created on a website

In order for a third-party cookie to be created, a request needs to be sent from the web page to the third party’s server. The file being requested is completely invisible to the user but acts as a tracking cookie in situations when there is no click event and redirects cannot be used. Different third parties may request different files from their web servers and send them back to the browser.

Why Are Third Party Cookies Problematic?

Third party cookies enable brands and vendors to create user profiles based on their online behavior and activities. Unfortunately, third party cookies are often set by companies the user hasn’t even heard of or interacted with. Other than public perception and the years of misuse and abuse from advertisers, third party cookies are becoming increasingly inefficient and ineffective for advertisers to target users and track performance.

Users are now spread across multiple connected devices and use them interchangeably. Third party cookies are unable to transfer across devices or even between apps meaning it is very hard to track the full buyer journey of a customer. This causes issues with correctly attributing conversions and budget to the right channels, ultimately causing wastage. With third party cookies, it also means users do not get a seamless experience with incorrect or out of date cookie data being fed to advertisers. 

Advertisers guided exclusively by third party cookies get an incorrect view of performance with users being counted multiple times and purchasers on one device being hounded by retargeting campaigns on another. In a privacy-oriented world, the online advertising industry must seek out a new alternative to third party cookies.

What made Google decide to phase out third party cookies?

The pro-privacy revolution we’re witnessing has deep effects on the online publishing and advertising industry. When it comes to online privacy and data security, Google has often been the leader of changes – especially in the era post GDPR and CCPA. If you go back a bit and see the privacy changes Google introduced throughout the time, you’ll see that phasing out third party cookies was the next logical step. 

For instance, in 2019, Google announced they will be creating a Google Chrome browser extension that offers more transparency to web users on how advertisers use their data to profile them better and serve specific ads. This empowered users to differentiate between first party cookies and second party cookies, as well as to switch off or delete cookies used for online ad targeting without having to sacrifice their first party cookies which can make browsing the internet much easier. 

In addition, the tech giant announced a new feature on Google Ads where users will now be able to see who has paid for an ad placement served to them along with any data segments used to personalize the ad such as location, time zone etc. 

The company decided to do so under the growing skepticism of tech giants and their use and storage of user data, particularly following Facebook’s scandal with Cambridge Analytica where it was found they had shared the personal information of millions of its users with a political consulting firm connected to the campaigns of Donald Trump and Brexit. 

At the time, Google and Silicon Valley were dealing with increasing public and political pressure around privacy and their use of website user data with many of the tech giant’s CEOs being called in front of Congress in the US to answer for their mistakes. Google got caught between two negatives here, which may be the reason why they pushed this privacy update (i.e. Google Chrome extension) forward. They wanted to take a stand, be transparent, and clearly communicate their commitment to privacy.

How does phasing out third party cookies affect Google?

Many see phasing out third party cookies as a power play from Google which will kneecap many of their competitors by taking away their ability to target users with website cookies. 

It could strengthen its advertising dominance and deal a blow to other digital marketing companies who will have less access to tracking data to target users. Website cookies allow for increased competition in the advertising space, allowing digital firms to collect their own data and sell premium ads based on it.

Though Google will also be losing out on website cookie data, it will still have its troves of user data on individuals that it collects through its many widely used products which it can use to target users. Google truly profits the most from the death of third party cookies. In the post-cookie era, a good chunk of advertisers will turn to first party data available in Google’s tools.

Third Party Cookie Alternatives

Third party cookies are not the only way to serve ads, which is good news for both publishers and advertisers. Let’s take a look at each of the most widely used cookie alternatives.

1. Device fingerprinting

Device fingerprinting is a technique marketers use to follow potential customers around the internet. You may have come in contact with this before if you have ever signed into Gmail or your Apple account from a new device. It is a technique for identifying a computing device right down to the individual and effectively deanonymize us and monitor our actions online. 

Device fingerprinting will look at the device you use and a number of other related data points like your location, time zone settings, plugins, apps and operating system version. All this allows marketers to follow you around the web in a very similar way as when using third party cookies.

2. Pixel Syncing and Universal IDs

Third party cookies worked well when there was a limited number of companies using the information for transactions but as the programmatic industry has exploded, there are now thousands of different companies that create and use cookies to buy and sell advertising. Since each player creates its own cookie ID, if these companies want to share data, they need to be matched to the other providers. This sync is the only way to follow users across the web and ensure they are targeted with the correct ads but it isn’t foolproof and very often there can be mistakes in this syncing of different user IDs. Not only that, but the process means a large number of third party requests take place on webpages, slowing down the user’s experience.  

3. DigiTrust

Initiatives like the IAB’s Digitrust look to improve this bloated web cookie syncing by creating a universal user token which stores the conventional cookie data within it and allowing members to share this data without the need for syncing. Hundreds of billions of unnecessary daily third party pixel sync requests will eventually be removed from web pages — improving the web experience for consumers — while publishers and their partners continue to be able to work together to deliver consumers rich, personalized content and advertising.

4. ID5 Universal ID Solution via Prebid

In 2019, ID5, an independent identity solution for digital advertising released its Universal ID which is available in Prebid.js to publishers and ad tech platforms globally. Publishers can retrieve the ID5 ID, store it on a first party cookie and pass it to their demand partners via a simple on-page configuration. Bid adapters in Prebid can listen to the ID5 ID and send it to their RTB demand partners on 100% of impressions. For the first time, SSPs, DSPs and DMPs can trade with each other using a common currency in the form of a scaled, neutral, shared user identifier.

Will the Death of Third Party Cookies Lead to the Death of AdTech?

Various privacy updates and phasing out third party cookies will significantly hurt the ability to programmatically retarget users. If Google’s privacy tools and Apple’s ITP work as well as many fear, it will mean a complete change to the programmatic industry as we know it with audience targeting and DMPs possibly even becoming redundant. The industry will have to find a way to cope with this major change which many have long forecasted. Many in the industry are touting the use of universal IDs as a new alternative. 

However you look at it, these new updates spell volatility in the digital advertising industry with online publishers taking a big hit due to the decreased ability for advertisers to accurately target users on their websites. Decreased targeting means decreased CPMs and revenue will fall with it. Some believe that with third party cookies gone, publishers will adapt and launch their own ad solutions. With rich databases and information on their audiences, online publishers and media organizations are likely to find their way to survive in the cookie-free world.

Replacements for third party cookies are already being tested. As for advertisers, the new business landscape is likely to push them closer to collaborating with publishers and relying on customer data for targeted campaigns. The ad reach is likely to go down while the prices will go up. Because of the way things will change, tracking attribution will become a problem. One thing’s for sure: both advertisers and publishers will need to adapt. The ecosystem is yet to go through severe changes, but a new solution will certainly emerge.

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