Smith Brain Trust / October 13, 2021

How Google’s Third-Party Cookie Change Will Impact Online Advertising

How Google’s Third-Party Cookie Change Will Impact Online Advertising

Pushback from advertisers against Google’s plans to phase out third-party cookies in its Chrome browser has forced the company to postpone to 2023. It’s a move set to shake up the recipe for online advertising and Maryland Smith’s P.K. Kannan says it will be felt by advertisers, consumers and Google alike.

“From an advertising perspective, in losing third-party cookies, targeting becomes less-specific, advertisers won’t have the preciseness they’ve become accustomed to,” says Kannan, associate dean for strategic initiatives and the Dean’s Chair in Marketing Science at the University of Maryland’s Robert H. Smith School of Business. “That means more wastage – and companies aren’t going to pay high prices for showing these display ads.”

That means advertising rates, Kannan says, are likely to fall. A company that is now paying $5 for 1,000 impressions from targeted display ads, could see the price drop to $3 because of the reduced targeting quality.

To mitigate the problem, Google is looking to its Federated Learning of Cohorts, or FLoC, which collects aggregate user data to create user cohorts based on common characteristics shared between the anonymous profiles.

“This will be Google’s privacy sandbox, where it will be tracking groups of people instead of collecting individual-level data, which Google says can be as effective as cookie-based targeting and is roughly 90% of the way there,” says Kannan. “This is Google trying to put its own rules on it and trying to be a guardian for privacy while increasing its advertising power at the expense of the other online ad players.”

Consumers might not notice a major difference in the ads they see online, Kannan says, but there may be more retargeting based on visits to particular websites. Advertisers, he says, will likely rely more on first-party cookies, which means consumers should expect to see more ads about products they’ve already viewed online.

“The ads without the help of third-party cookies could be less intrusive and consumers may build a perception that they are not being watched as much as previously,” says Kannan. “But I don’t think that it will make as much of a difference to consumers.”

Google is just the latest company to begin its foray into greater consumer privacy, joining Apple and Microsoft, among others.

As third-party cookies begin to vanish, other companies, like software firm Trade Desk, are working to create other ways of targeting consumers online, working with publisher sites to use emails from opted-in users to create unique anonymous consumer IDs that enable tracking for companies while meeting privacy protection standards.

Google has since delayed its plan to phase out third-party cookies to 2023. What’s clear, says Kannan, is that if it happens at all the company is certainly taking its time to get it right.

“I think right now Google is in a wait-and-see phase, where it may opt to do something else when the time comes,” he says. “But in the meantime, the advertising industry has some time to come up with the next new method.”

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