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FLoC :: Third-Party Cookies will soon be a thing of the past

Recently, Google took a big step toward a future free of third-party cookies. Let’s take a deeper dive into the news and look into how developing strong customer relationships using first-party data and tools like STRG.BeHave is more important than ever in a privacy-first world. 

The online ad industry knows that third-party cookies are on their way out due to privacy concerns and increased government regulation (especially in the EU). Google, the last holdout, announced its phase-out intentions more than a year ago, but it has been moving relatively slowly, allowing  the industry to prepare alternatives. 

Unfortunately, the industry has not yet agreed upon an alternative to third-party cookies, so Google’s latest announcement seems intended to light a fire under the effort to arrive at a consensus. Enter FLoCs (Federated Learning of Cohorts): Instead of serving ads based on only 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 take third-party cookies out of the advertising equation and instead hide individuals within large crowds of people with common interests. Chrome intends to make FLoC-based cohorts available for public testing through origin trials with its next release [in March 2021], and we expect to begin testing FLoC-based cohorts with advertisers in Google Ads in Q2” .

(Source: Google blog post, David Temkin, Director of Product Management, Ads Privacy and Trust)

Responding to Google’s announcement, Y Combinator’s Paul Graham tweeted, “What this news tells me is that Google has found a way to target ads just as effectively without using [individualized] data”. 

Birds of a feather FLoC together 

The acronym is fitting. Just as birds migrate more efficiently in formation and herded sheep safer from hungry foxes, so too can a target audience be more efficiently streamlined and protected by grouping individual consumers in “flocks” of similar affinities and behaviour. An individual’s anonymity is preserved and is identified only as part of a cohort.

“Many people are losing trust in the web because their data are globally shared and no one can say for certain which data are being used where, and for what purpose”, says STRG’s CEO, Jürgen Schmidt. “Until now, cookies needed to be implemented to make use of 3rd-party providers’ data to micro-target advertisements. I feel this is the completely wrong approach”.

Using third-party cookie data has little impact on the effectiveness of digital advertising, according to Schmidt. “When we compare click rates and other advertising KPIs from before and after ads have been served via Demand Management Platforms or Demand Side Platforms (DMP/DSP), it’s clear that nothing has improved”. 

“I think we sometimes put a bit too much credence in what exactly cookies provided us”, Merkle’s VP for Analytics, Jordan Cardonick, told “FLoC is somewhat in between what cookies truly are and what purpose they provide within marketing”. He believes that Google is uniquely positioned to figure out how to navigate a cookieless-future, “given the sheer amount of data they have access to and their capabilities.” Their Chrome browser also has the largest market share, and they plan to build in FLoC technology that promises to protect users’ browsing-history privacy.

What impacts might FLoCs have?

MightyHive’s senior director, Myles Younger, is certain that FLoCs can compete with user-level or 1:1 cookie-based approaches: “The idea that 1:1 was the holy grail of digital advertising was always a fallacy. It’s great to see Google blowing up that myth. Cohorts are an obvious and practicable ‘middle ground’”. 

STRG’s Schmidt believes that if Google succeeds in getting all the industry stakeholders to buy into FLoCs, it will result in a qualitative improvement to digital media. “Banner ads and other such intrusive forms of advertising bring no added value to users are disturbing, and therefore are disregarded. It’s plain to see in the click rates”.

As third-party cookie-based solutions are phased out, alternative forms of advertising such as Creator/Influencer content marketing will grow in importance.

As @Web Smith put it, “Google and Apple are pulling the rug from beneath marketers who’ve long leaned heavily on the mechanics of paid marketing. With paid marketing being disrupted by emerging data-sharing laws, that leaves influencer marketing and content as the go-to strategies”. @AdamRy_n agreed, adding, “The reliance on platform analytics will start to dwindle. It’ll now rely heavily on in-house analytics. The companies who know their LTV, desired CAC, and can track all of it in-house will start to rise to the top. It’ll give them the ability to confidently buy content”.

Schmidt agrees: “You need better ways to monetize your content and what works best is using it to identify your own readers’ actual interests and evaluate their behaviour in real time — and you don’t need any third-party cookies to do that”. 

Schmidt boasts that Google’s initiative “indirectly affirms STRG’s intensive multi-year initiative to develop products meeting the same goals, such as STRG.BeHave”. Under development since 2014, STRG.BeHave evaluates user behavior with semantically analyzed content and determines user interests in real time, all using owned media and 1st-party data. “Behavioral economics and our mapping in evolutionary algorithms helps to weed out irrational behavior and not draw false conclusions from the data, as one usually does using third-party data”, claims Schmidt. “Google’s new AI solution is based on unsupervised learning, clustering users based on their collective behaviour. It’s also the way STRG.BeHave works, and we are exploring the resulting crossovers and synergies”.

Google promises to “continue to support first-party relationships on our ad platforms for partners, in which they have direct connections with their own customers”. But not everyone is convinced that Google has all the right intentions. Global head of IBM Watson Advertising and The Weather Company, Sheri Bachstein, basically agrees “with Google’s decision to create solutions that are not solely reliant on cookies and third-party identifiers”. However, she fears Google may be locking out outside competition, adding ”unfortunately, this feels as if the walls of this walled garden just grew higher”.

Schmidt doesn’t see it as the end of data-driven marketing. Ultimately, he feels, the basic message is a rejection of using demographic data and rather an acceptance of behavior and preference-based models. “It’s well known that targeting ads according to age, gender, etc. makes little sense because such socio-demographic groups are so behaviourally diverse. Of course, marketers still need to come to terms with this. but it has become anchored so firmly in people’s minds that it will take some time. Google still needs to work with all the stakeholders through these considerations and publish their findings.” 

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