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Google will soon kill the cookie, and 2023 will be the year to show whether the technology invented to replace it can save the ad industry's revenue
Ryan Joe
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The loss of the cookie and other ways to identify people online has caused ad revenue to crater.
Millions have been spent to develop tech to replace that lost value.
2023 will be a big year for that tech to prove its value.
The digital ad industry was devastated by Apple's restrictions around its IDFA mobile identifier and will soon run into another buzzsaw when Google's Chrome browser restricts third-party cookies in 2024. The loss of these capabilities drastically devalues digital ads by making it much harder to precisely target people and measure whether ads drove sales.
The inability to identify people online using third-party cookies could cause publisher CPMs — the cost advertisers pay per thousand views — to crater three to four times over, said Garrett McGrath, VP of product management at the adtech firm Magnite.
While Google is developing ways to target and measure ads without tracking people through an initiative called the Privacy Sandbox, a number of smaller firms have rushed to fill this coming vacuum and have attracted a slew of investment in recent years.
The Trade Desk, LiveRamp, and ID5 have focused a lot of their efforts on tech called identifiers to replace the cookie, while startups like InfoSum and Habu have each received millions of dollars in investment to develop ways for advertisers and publishers to share data with each other in privacy-focused environments, called "data clean rooms."
But neither of these technologies has definitively proven they can drive ad revenue the way the cookie currently does, and with the deadline closing in, 2023 will be a big prove-it year, experts said.
There are hundreds of cookie-replacement firms, but the ad industry only needs a few
The digital ad industry has been looking to cookie replacements — also known as identifiers — introduced by companies like The Trade Desk, LiveRamp, or ID5, to save their revenue.
Like cookies, these new identifiers power targeted advertising and measurement. But they are purportedly better than cookies at protecting privacy because people can opt out of being associated with them, and because the data they use can't be traced back to specific individuals.
But some experts believe there will be winnowing on the sheer number of identifiers available in the market in 2023.
"You can't trade with hundreds of currencies," said Mathieu Roche, cofounder and CEO of ID5. "I do think the industry will converge around maybe five."
While some identifiers, like Unified ID 2.0 which is championed by The Trade Desk, seem to have momentum via splashy partnerships with content owners like Disney and Amazon, the litmus test for success is whether digital ads are actually being transacted off of those identifiers — in other words, if they're actually driving ad revenue.
"[Unified] ID 2.0 is no further ahead than the other solutions like [LiveRamp's] RampID, and ID5, and the other solutions in the marketplace," said one ad agency source. Despite having years to test these identifiers, advertisers are still hesitant to rely on them, this source said.
Conor McKenna, a director at investment bank LUMA Partners, doesn't think the lack of a clear winner is the death knell for these identifiers. "People are spending more time making sure how they work within their organization, which is probably good for those businesses in the long run," he said.
But major platforms like Google and Apple have already come out against identifiers, and it's unclear if they could ever restrict their use.
"Too soon to say, but the platforms don't like it," said David Temkin, a Google executive who focuses on ads privacy. "Any alternative tracking method will be on their radar."
So-called data clean rooms need to quell issues of trust to hit the mainstream
When Google said it was killing the third-party cookie, companies like Habu and InfoSum built their businesses around tech that offered safe places where different companies can share their data for marketing purposes — so a car company could, for instance, find contractors who shop at a home improvement store and send them ads about pickup trucks.
Amazon and Google have also built out support for these types of technology. "Clean rooms we think are promising because they can respect user privacy," Temkin said. But advertisers and publishers have been slow using them en masse.
"They are accelerating more slowly than I would've expected personally," said Joe Stanhope, principal analyst at Forrester. He notes that clean rooms can be slow and expensive. In the current volatile economy, marketers are pulling back on budget for unproven technologies.
One of the other humps these technologies will need to get over next year is whether advertisers or publishers decide to trust them.
"Is it truly secure?" said Jason Webby, CRO of Newsweek. "Did any data get left behind?" Brands that use a clean room are having their customer data analyzed. "That's the personal property of that brand, and they can be reticent to let anybody near it," he said.
Matt Kilmartin, CEO of clean room provider Habu vehemently rejects that view. "These are a thousand times more privacy safe than the old way of doing things," he said, citing features like privacy controls that can determine who has access to what data.
Some experts think marketers and content owners will begin getting up to speed with clean rooms in 2023
While some marketers have been slow to adopt clean room technology so far, some experts in the space believe 2023 will be the year they begin to take off. The prevalence of retail media already jumpstarted the need for clean rooms in 2022, said Scott Howe, CEO of LiveRamp, which provides clean rooms and identifiers.
"You'll see cleanrooms be the thing that everyone is testing in the first half of next year," he said.
The growth of ad-supported streaming TV will also create demand for this tech, mostly because advertisers want to target ads there, according to June 2022 poll by the Winterberry Group.
Leading reasons why ID is used in streaming TV
eMarketer
Just over a third (37%) of streaming TV ad buyers and the same percentage of streaming TV content owners plan to increase investment in this technology, according to that same poll.
Kilmartin points to client, Pepsi, which has made heavy investments in using a clean room, and predicts that those early cases will drive business in 2023. "With the Pepsis and Disneys of the world talking about what they're doing, the fast followers will come," he said.
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