Cookieless times: Ad tech firms to feel the pinch?

The impending phasing out of third-party cookies, which have long been the lifeblood of targeted advertising, is not merely a small tweak to the digital advertising ecosystem but a fundamental transformation that threatens to disrupt the very foundation upon which the digital advertising world has been built.

Chrome plans to disable third-party cookies for 1 per cent of users from Q1 2024 to facilitate testing, and then ramp up to 100 per cent of users from the third quarter, Rowan Merewood, Developer Relations for Privacy Sandbox, wrote in a recent blog. The ramp-up is subject to addressing any remaining competition concerns of the UK’s Competition and Markets Authority (CMA).

According to the Interactive Advertising Bureau (IAB), third-party cookies have historically played a pivotal role in tracking user behaviour across the web. In 2019, they were utilised in 96% of all websites globally. However, the game is about to change.

In a post-GDPR, post-DPDP Bill era and in a post-privacy-conscious world, major tech giants such as Google, Apple and Mozilla have taken unprecedented steps towards curtailing the use of third-party cookies, leaving ad tech companies scrambling to adapt. Google, alone, commands a majority of the share of the browser market, and aftershocks were felt throughout the industry when they announced phasing out of third-party cookies.

These sweeping changes have left ad tech companies grappling with both the short-term and long-term consequences.

A recent report by Elara Capital states that unless publishers and programme-related ad companies build a strong, first-party data system to combat privacy risk and do not piggyback on cookie-based data, the repercussions of third-party cookie phase-out can result in negative outcomes for them.

It can have a negative impact on the conversions, which, in turn, may lead to a negative impact on revenue growth for the digital ad ecosystem. eCommerce firms, such as Flipkart, Amazon India, Myntra, Nykaa and Zomato, would continue to reap the benefits of better ad spend, leading to higher profitability, whereas profitability of adtech companies, such as Affle India may take a hit, due to risk of higher data cost, the report further mentioned. (Affle India refused to comment for this story.)

What’s working for eCommerce players?

How is the scenario different for eCommerce firms, considering they have also been relying on third-party cookies for the longest time?

Karan Taurani, Senior Vice President - Research Analyst (Media, Consumer Discretionary & Internet), Elara Capital explains that the surge in search traffic for products & services, is placing the eCommerce firms at an advantageous position. “Search is not happening as much on Google as a platform now, as it is on eCommerce platforms. This means potentially advertisers can get better ROI and better targeted advertising,” he said.

Secondly, Taurani continues, is that the eCommerce firms can rely on their customer database instead of relying on third-party. “In the case of other apps or websites, if you see, a lot of conversions happen via third-party. eCommerce firms have the authority to use own consumer database.”

No more cheap and abundant data

As third-party cookies fade into obscurity, ad tech companies will most likely face a formidable dilemma: how to source data effectively without breaking the bank. The days of cheap and abundant data may be numbered, and they must be prepared for a new era of data acquisition costs.

Experts agree that in a cookie-less world, data acquisition costs are sure to rise. Since the news of the cookie phase-out broke, time and again the topic of how important it is to build on first party data, has been brought up. “Most of the ad tech companies need to acquire data, need to do partnerships for data or need to build data in-house,” Taurani pointed out. He shared that currently ad tech firms are piggybacking on cookies as a data source.

Data costs are expected to move up close to 40-50% for the ad tech companies, since they have to spend a lot more on enriching database or tying up with retail giants for any kind of data.  

It seems ad tech companies have realised the same.  

Neha Kulwal, Managing Director, APAC & India, Mitgo, shared that their company is indeed putting great emphasis on collecting and utilising first-party data.  However, she also mentioned that the cost of collecting, managing and maintaining this first-party data will increase.

“Cross-device targeting and attribution can be challenging. We need to rely on first-party cookies and as a company, we are already working on it. While moving away from cookies may reduce data privacy and compliance costs, it can also increase data acquisition costs. Advertisers may need to invest in new data sources, technologies, and partnerships to maintain effective targeting capabilities,” Kulwal added.

Kushal Sanghvi, Head - India and SEA, CitrusAd comes with a similar opinion and says that the data and new customer acquisition cost are going to go up. “Especially for new age or D2C brands, the cost of acquiring new customers will definitely be more expensive. The reason being that there is enough identification of that data working,” he says. 

Explaining further, Sanghvi mentioned that the increase in cost would also mainly be driven by the amount of filters added while targeting. “Depending on all the different levels of sophistication of data points available from what the ad tech company can offer, the charge will be incremental,” he said.

While the increase in data costs can be a blow for the ad tech firms, it would be a bigger blow if the brands lose their trust once the cookies phase out and pull their money back. A very natural reaction, considering several brands are building in-house first-party data stacks.

Well, the good news is that there has been rather an uptick in brands spending money in this space, shared Sanghvi. “Brands are happy to spend up to 20 per cent higher as well because they will be able to get better quality data,” he said.

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