Google has recently taken a major step toward a future without third-party cookies. Let’s take a closer look at the news and examine why building strong customer relationships using first-party data and tools such as STRG.BeHave is more important than ever in a world where privacy comes first.
The online advertising industry knows that third-party cookies are on the way out due to privacy concerns and increased government regulation (particularly in the EU). Google, the last holdout, announced its intention to phase them outmore than a year ago, but has moved relatively slowly, allowing the industry to prepare alternatives. Unfortunately, the market has not yet agreed on an alternative to third-party cookies, so Google’s latest announcement appears to be intended to accelerate efforts to reach consensus. The focus is on FLoCs (Federated Learning of Cohorts): instead of ads based solely on individual web browsing, ads would target anonymized, aggregated and automated „cohorts“ of like-minded consumers.
„Advances in aggregation, anonymization, on-device processing and other privacy-preserving technologies offer a clear path to replacing individual identifiers. In fact, our latest tests of FLoC show one way to effectively remove third-party cookies from the advertising equation and instead hide individuals within large groups of people with shared interests. Chrome intends to make FLoC-based cohorts available for public testing through origin trials with the next release [in March 2021], and we expect to begin testing FLoC-based cohorts with advertisers in Google Ads in the second quarter.“
(Source: Google blog post, David Temkin, Director of Product Management, Ads Privacy and Trust)
In response to Google’s announcement Paul Graham of Y Combinator tweeted: „What this news tells me is that Google has found a way to serve ads just as effectively without using [individualized] data“.
Birds of a feather flock together - the FLoC edition
The acronym is apt. Just as birds migrate more efficiently in formations and sheep are safer from hungry foxes, an audience can be streamlined and protected more effectively by grouping individual consumers into „flocks“ with similar inclinations and behaviors. The anonymity of the individual is preserved, and they are identified only as part of a group.
„Many people are losing trust in the internet because their data is shared globally and no one can say with certainty which data is used where and for what purpose,“ said Jürgen Schmidt, CEO of STRG, adding:
„Until now, cookies had to be used to make third-party data available for micro-targeting advertising. In my view, that is entirely the wrong approach.“
According to Schmidt, the use of third-party cookie data has little impact on the effectiveness of digital advertising. „When we compare click-through rates and other advertising KPIs before and after running ads via data management platforms or demand-side platforms (DMP/DSP), it becomes clear that nothing has improved“.
„I think we sometimes place a little too much trust in what cookies actually provide us with,“ said Jordan Cardonick, VP of Analytics at Merkle, told adexchanger.com. „FLoC sits somewhere between what cookies really are and the purpose they serve in marketing“. He believes Google is in a unique position to figure out how to navigate a cookieless future, „given the sheer amount of data they have access to, and their capabilities.“ The Chrome browser also has the largest market share, and the company plans to build in FLoC technology, which promises to protect user privacy in browsing history.
What impact could FLoCs have?
Myles Younger, Senior Director at MightyHive, is certain that FLoCs can compete with cookie-based approaches at the user level or 1:1:
„The idea that 1:1 was the holy grail of digital advertising has always been a false path. It’s great to see Google dismantling this myth. Cohorts are an obvious and workable middle ground.“
Schmidt of STRG believes that if Google succeeds in bringing all industry stakeholders on board with FLoCs, this will lead to a qualitative improvement in digital media. „Banner advertising and other intrusive forms of advertising that do not provide users with added value are disruptive and are therefore ignored. This is reflected in click-through rates.“ As third-party cookie-based solutions are phased out, alternative forms of advertising such as creator/influencer content marketing will gain in importance. As @Web Smith puts it:
„Google and Apple are pulling the ground out from under marketers who have long relied heavily on the mechanics of paid marketing. As paid marketing is disrupted by the new data-sharing laws, influencer marketing and content remain as the strategies of choice.“
@AdamRy_n agreed, adding: „Dependence on platform analytics will decline. Internal analytics will now matter a great deal. Companies that know their LTV and desired CAC and can track all of this internally will move to the front. This will give them the ability to buy content with confidence.“
Schmidt agrees: „You need better ways to monetize your content, and that works best when you understand the actual interests of your own readers and evaluate their behavior in real time – and you do not need third-party cookies for that.
Schmidt emphasizes that Google’s initiative „indirectly confirms STRG’s intensive, multi-year initiative to develop products with the same objectives, such as STRG.BeHave,.“ STRG.BeHave, which has been in development since 2014, evaluates user behavior with semantically analyzed content and identifies user interests in real time, using owned media and 1st-party data.
“Behavioral economics and our modelling in evolutionary algorithms help filter out irrational behavior and avoid drawing false conclusions from the data, as otherwise happens when using third-party data,” Schmidt says. “Google’s new AI solution is based on unsupervised learning and groups users on the basis of their collective behavior. That is also how STRG.BeHave works, and we are exploring the resulting overlaps and synergies.”
Google promises to “continue to support first-party relationships on our advertising platforms for partners that have direct connections to their own customers”. But not everyone is convinced that Google has the right intentions. Sheri Bachstein, Global Head of IBM Watson Advertising and The Weather Company, broadly agrees with Google’s decision to create solutions that do not rely solely on cookies and third-party identifiers”. However, she fears that Google is shutting out external competition, adding: “Unfortunately, it feels as if the walls of this walled garden are getting higher and higher.”
Schmidt does not see this as the end of data-driven marketing. In his view, the fundamental message is that the use of demographic data is being rejected and behavioral- and preference-based models are being accepted instead. “It is well known that targeting advertising by age, gender, etc. makes little sense, as these sociodemographic groups vary greatly in their behavior. Of course, marketers still have to engage with this, but it is so firmly embedded in people’s minds that it will still take some time. Google still needs to work through these considerations with all stakeholders and publish its findings.”