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Last bite of the cookie

Technology

Last bite of the cookie? 

Published 28 June 2024 in Technology • 6 min read

Google’s latest reprieve for third-party cookies will be temporary, warns IMD’s Öykü Işık.

Giving up that naughty cookie habit turns out to be even harder than expected. We’re not talking about the chocolate-chip variety, however; rather, it’s the cookies to which marketing and advertising executives are finding it so hard to say goodbye. Google had promised to get rid of third-party cookies by the end of this year. In April, however, it announced it was pushing back the timetable for their demise.

For businesses that have put third-party cookies at the core of their marketing strategies, this will seem like good news. But executives should be in no doubt about the overall direction of travel. Sooner rather than later, third-party cookies will disappear. Businesses who have developed no alternative marketing strategies by this point will catch a cold.

While third-party cookies require only minimal coding, they have had a huge commercial impact, allowing companies to direct advertising spend with far greater precision

A convenience food for companies

Third-party cookies are text files that companies can place automatically on internet users’ computers as they search, typically through adverts. Through the cookies, the companies can then track the user’s browsing history and behavior – unless the relevant cookie is removed from the user’s system. Distinct from first-party cookies, which companies often use to provide a more frictionless experience on web sites that users have actively chosen to visit, third-party cookies can provide advertisers with access to consumers who may never have actively sought them out, or even heard of them before.

While third-party cookies require only minimal coding, they have had a huge commercial impact, allowing companies to direct advertising spend with far greater precision. The concept has also given rise to the programmatic advertising industry, currently growing at 35% a year, through which businesses bid for access to the customers most likely to want their products and services.

Nevertheless, the days of third-party cookies are numbered. Browsers such as Mozilla have long since outlawed them. Apple made it impossible for advertisers to use third-party cookies on its Safari browser as long ago as 2020. In order to test new approaches to data gathering, Google turned around 1% of third-party cookies off at the end of last year and has promised to eliminate the other 99% by the end of 2024 (although, as mentioned above, they rowed back on this in April).

Flight emissions
“A single digital ad campaign that receives 1m impressions is estimated to generate the same volume of emissions as a round-trip flight from Boston to London.”

Why the cookie has to crumble

There are several reasons why the death of third-party cookies has become overdue.

Research consistently indicates increasing concern about data privacy, with younger consumers particularly worried. Policymakers have intervened in response, seeking to crack down on sales tactics that effectively plunder consumers’ web histories without their prior knowledge, in order to exploit their purchasing impulses. The EU’s General Data Protection Regulation (GDPR), which dates from 2016, served notice on third-party cookies in Europe. A number of US states have launched similar regulation. Even China has its own version.

Early implementation of these regulations, moreover, has only hardened attitudes. European users are now offered a consent pop-up every time they visit a website – a significant source of irritation. And some advertisers’ use of “dark” or deceptive patterns, such as forcing users to take a survey before they can opt out of personal data collection, has added to the anger, galvanizing support for privacy campaigns.

Another driver of the shift away from third-party cookies is growing awareness of the environmental impact of the technology sector. Concern around the increasing carbon footprint of data centers and the online advertising industry is a significant factor.

Indeed, a single digital ad campaign that receives one million impressions is estimated to generate the same volume of emissions as a round-trip flight from Boston to London. According to Scope3, programmatic advertising alone generates 215,000 metric tons of carbon emissions every month across five major economies. That’s the equivalent of burning about 24 million gallons of gasoline.

Regulators are prepared to work with the advertising industry to ease the transition, but they won’t bow to pressure to change course. Indeed, in many jurisdictions, regulators are already getting tougher with Big Tech. In the US, for example, the Department of Justice’s law suit against Google, which alleges monopolistic practices in Google’s adtech businesses, is scheduled to reach court in September.

Most users feel more comfortable about sharing information in this context, particularly if it is used to improve their experience

Get ahead of the changes

Given the inevitability of the shift, CEOs should now be asking their marketing teams some pretty searching questions about how they’re planning to accommodate it. The answers may come as a shock to them.

Research published in March 2023 by Adobe underlines just how important third-party cookies have become to many companies. In a survey, it found 70% of marketing leaders still relied heavily on the cookie-led route to customer acquisition, with 41% spending at least half their marketing budgets on such activity.

Given the compelling case for a change in strategy, it would be unsurprising if that percentage had fallen since then. However, at the time, more than half of marketing executives said they actually intended to increase spending.

This is, in part, owing to the difficulties in finding a viable alternative to third-party cookies. But gaining first-mover advantage in a world where online advertising is dying a slow death could be worth sweating for. One obvious strategy is to try to make more of assets that generate first-party data, collected with users’ consent when they visit a website.

Most users feel more comfortable about sharing information in this context, particularly if it is used to improve their experience. First-party cookies ensure users don’t have to resubmit password information, for example, or provide their payment details each time they make a purchase.

For example, many businesses are now using artificial intelligence (AI)-powered chatbots to talk to both existing customers and new sales leads, harvesting useful data from these conversations as they go

Finding new routes to the consumer

However, obtaining such data requires businesses to attract people to their website or app in the first place. That entails investment in content and campaigns, as well as SEO. Many organizations are also thinking about how they can collect more “zero-party data.” This is information that customers and consumers hand over voluntarily – when they complete a survey on the business’s website, for example. Working out what persuades people to volunteer information in this way is valuable in planning how to incentivize them to do so.

Advances in technology also provide new options for data collection. For example, many businesses are now using artificial intelligence (AI)-powered chatbots to talk to both existing customers and new sales leads, harvesting useful data from these conversations as they go.

There is also growing interest in data “clean rooms.” These are environments in which two or more parties can share aggregated and anonymized user data that doesn’t violate consumers’ privacy but helps in understanding particular demographics.

These opportunities are not mutually exclusive, and the more routes to market businesses explore, the greater their chances of moving on from third-party cookies commercially unscathed. For the 71% of marketing leaders who told Adobe last year that they fear collateral damage to their businesses from the demise of cookies, this is vital information. As the cookies-driven strategies crumble, companies need to find firmer footing as quickly as possible.

Authors

Oyku Isik IMD

Öykü Işık

Professor of Digital Strategy and Cybersecurity at IMD

Öykü Işık is Professor of Digital Strategy and Cybersecurity at IMD, where she leads the Cybersecurity Risk and Strategy program. She is an expert on digital resilience and the ways in which disruptive technologies challenge our society and organizations. Named on the Thinkers50 Radar 2022 list of up-and-coming global thought leaders, she helps businesses to tackle cybersecurity, data privacy, and digital ethics challenges, and enables CEOs and other executives to understand these issues.

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