Google’s Cookie Conundrum: Privacy and Ads

Over the past decade, the success of digital marketing has hinged largely on the ability to track consumers as they navigate the web. At the heart of this capability are third-party cookies—small data pieces placed on a user’s browser from domains other than the ones they are visiting. This cross-site tracking is essential for delivering personalized ads with higher conversion probabilities. Without the ability to deliver highly targeted ads, the cost per conversion rises, potentially rendering advertising on that platform unprofitable for marketers.

Four years ago, Google, in a blog post, announced plans to phase out third-party cookies from its Chrome browser. In 2023 alone, Google’s ad revenue reached $237 billion, which raises a significant question: why would a company whose business model heavily relies on user tracking choose to eliminate third-party cookies? A similar situation occurred in April 2021, when Apple introduced its Apple Tracking Transparency policy, allowing users to opt-in to tracking by advertisers. Apple, not being a major ad platform, could afford to prioritize consumer privacy. Meta suffered a potential $10 billion loss in its ads business due to Apple’s privacy changes. Given Google’s dominant position in the ad platform market, it might seem that banning third-party cookies would directly impact its business. However, this move could instead consolidate the ads market in favor of Google and other large ad intermediaries.

Banning third-party cookies does not necessarily ensure that users are not tracked across websites. Google and other major platforms like Meta and Bing employ technologies such as server-side tagging (e.g., Google Tag Manager and Facebook Pixel). When users visit websites using services like Google Analytics or Google Ads, first-party cookies from these platforms are placed on the users’ browsers. Server-side tagging allows Google and other major platforms to collect data and potentially track users across sites. Clearly, merely banning third-party cookies is not enough to protect consumer privacy, as alternative technologies may still enable cross-site tracking. However, server-side tagging is preferred from a privacy perspective over third-party cookies because it offers more control over data collection and processing, allowing for stricter compliance with privacy regulations despite both enabling cross-site tracking.

Smaller intermediaries lack the technology and established relationships with websites to deploy first-party cookies. They rely on third-party cookies to provide targeted ads and argue that removing them unfairly benefits Google. This concern has been noted by regulators. Google’s Chrome browser is critical to the ad intermediary competitors, which depend on third-party cookies to compete effectively with Google. Consequently, Google has developed potential solutions for targeting under its Privacy Sandbox initiative that do not rely on third-party cookies. However, competitors remain skeptical of these solutions, citing significantly lower targeting performance in experimental phases. Unsurprisingly, Google has struggled to convince competitors and regulators about the viability of these alternative solutions.

In July 2024, Google announced it would not phase out third-party cookies but would instead give users the choice to accept or reject them. The specifics of how this choice will be presented and implemented remain unclear. Apple’s 2021 privacy policy changes showed that when the default option is to opt-out, less than 25% of users choose to opt-in to tracking. Ad intermediaries reliant on third-party cookies could suffer from restricted data access. While Google is not phasing out third-party cookies, giving users the choice to accept or reject them will have serious effects on the business of ad intermediaries.

Ad intermediaries must ensure they do not fall behind in targeting capabilities compared to larger counterparts, or they risk losing market share rapidly.

What can ads intermediaries do in response to Google allowing users to choose whether to accept third-party cookies?

Ads intermediaries must ensure they do not fall behind in targeting capabilities compared to larger counterparts, or they risk losing market share rapidly. They can adopt a three-pronged approach:

• Develop services and relationships with websites to deploy first-party cookies.
  
• Enhance data analytics and machine learning capabilities to better predict consumer behavior with less data. 
• Form partnerships with platforms where purchases occur to effectively measure ad campaign success.

By adopting these strategies, ad intermediaries can navigate the evolving digital marketing landscape and remain competitive despite significant changes in cookie policies.

More Information

Building a more private web: A path towards making third party cookies obsolete
Advertising revenue of Google from 2001 to 2023
To Be Tracked or Not? Apple Is Now Giving Us the Choice.
Facebook Feels $10 Billion Sting From Apple’s Privacy Push
Protecting your privacy online
Google’s Privacy Sandbox: What are the latest concerns?
Google Is Keeping Cookies in Chrome After All
Monthly opt-in rate of mobile users worldwide allowing app tracking after iOS 14.5 update as of April 2022