Crunch time for Cookies

18th May 2021

Johnnie Smith talks about the recent change in ‘cookies,’ and what that could mean for future business.

For the last decade ‘Cookies’ have been the lifeblood of online advertising and e-commerce. From next year, it’s all about to change. Google, who account for 65% of the global browser market, have announced that they are going to stop supporting Third party cookies from 2022. This, seemingly low-key announcement could have potentially significant ramifications for the online advertising industry and the publishers and retailers that work with it. So what exactly are they and what could it mean for business?

Cookies are used on websites to identify and track a user. There is an important distinction between First Party cookies (1PC) and Third Party Cookies (3PC). 1PC are created by a domain owner to track the user on the website, helping tailor the experience to the user by remembering log-in details, search histories, product interests and e-commerce baskets. 1PC only track the user on that domain and are generally considered to be positive for both the vendor and the user. 3PC are created by a Third Party company and also track the user on their internet journey, recording page views, dwell times, search histories and product interest. However, these cookies create a unique identifier for the user allowing them to track someone across the internet from page to page. 3PC allow these companies to create a profile of the user’s habits and interests which are then sold to advertisers in order to put the right adverts in-front of the right consumers. Ever wondered why that pair of shoes you browsed two weeks ago continue to follow you around the internet? These cookies have become such a vital component of the internet advertising and retailing eco-system that their discontinuation could disrupt many businesses that have grown dependent on them to monetise their content or grow their business.

The issue is one of Privacy and Google want to get ahead of the curve. Consumers and Governments have become increasingly aware that Third-Party actors are using and monetising consumer’s data which hasn’t been directly consented. Google don’t want to lose share to new browsers who facilitate more private web browsing like Mozilla, FireFox and start-up’s like Gener8 but they also need to maintain online Ad spend, their key revenue line. Google are likely going to look to control users’ browsing data in a private way, aggregating it into cohorts to sell anonymously to advertisers. So what may change and how may this impact companies and sectors that we invest in?

This is a big question, which cannot be comprehensively answered in these pages. However, we see a few different areas that that are worthy of a few words.

Online Retail – these changes could re-establish the primacy of Brand and good CRM in retailing. Firstly, if the retailer is going to be the only one with eyes on what it’s consumers are browsing then they should be even more advantaged to secure the sale and maybe take market share. First party data via a login and a consented relationship should increase a retailer’s competitive advantage over peers. Secondly, it theoretically becomes harder for new online entrants to cheaply target new customers via 3PC. This again may well improve the competitive moat of established quality retailers who have front-of-mind brand recognition with consumers. Google search may also increase in importance in trying to secure customer’s browsing attention. We feel market leaders with good e-commerce models and strong brand recognition such as Next, Dunelm and Pets-at-Home can stand to be beneficiaries.

Marketing – on the surface the phasing out of 3PC will result in advertisers who previously relied on tracking data to understand consumer behaviour seeking alternative ways to understand consumers and measure the impact of their campaigns. In the ‘old world’ cookies provided data both on what customers were doing but also how effective an advertising banner was as one could understand the click through rates. With no such tracking or measurement, marketing teams will need to find alternative ways understand their audience and measure efficacy. YouGov appears particularly well placed through its consented survey based business model, providing daily measurement of brand health and insights into current consumer’s behaviours and intentions.

Publishers – it may be the case that ad driven content models become harder to commercialise as these businesses typically rely very heavily on 3PC to sell advertising space. Without understanding the consumers that view these pages, it becomes harder to target an audience, ultimately lowering the value of the advertising banners as advertisers will be less sure as to whom they are making an impression on. ‘Walled garden’ publishers (websites that require logins) may well improve their commercial position as through their own understanding of their readers, this may be a positive for more established publications as they leverage their editorial reputation with weaker ‘click-bait’ style operators increasingly marginalised.

This is a fast moving area and there will be new technologies that move it on again. That said, it strikes us that over the last decade as E-Commerce has really taken off, that Third Party Cookies have made it easier and arguably cheaper for new entrants to reach their target audience and reduce some of the competitive advantages established brands had built up over the years. In a similar vein, as consumers and regulators become more conscious about themes such as privacy and security the free data lunch that many actors used to run their business looks increasingly like it is coming to an end. Personal data increasingly needs to be consented or bought and this will challenge those business models that rely on a more ‘in-the-shadows’ approach.


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