by Later this year Google (GOOG, GOOGL), through its Chrome browser, will end the use of third-party cookies, a technology that can track people across websites to target them with personalized advertising. The transition will not come without pain.
While Google’s initiative is meant to protect users’ privacy, it could leave many of the sites they rely on and love hanging in the balance. This move represents a profound remaking of the world of advertising and the user experience on the internet.
“The open web will suffer,” said Anthony Katsur, chief executive of the IAB Tech Lab, an ad-tech industry group. “The long tail of the web, the mid-sized and smaller publishers, will be very impacted.”
Many people know that the internet they get is based on what different providers think they want to see. For marketers and businesses, that ability to infer what a user might want generates value. As targeting becomes more precise, advertising can become more relevant to the audience.
Without a third-party cookie, however, businesses have less idea who their audience is. That can degrade their ability to monetize advertising, making it harder to publish content for free without forcing users to hand over their email or phone numbers.
Chrome, which commands 60% of global internet traffic, is the last major browser to allow third-party cookies. For many years Apple’s (AAPL) Safari and Mozilla Firefox blocked third-party cookies by default. But its market share is dwarfed by Google’s. And while additional advertising dollars have flowed to Chrome after Safari and Mozilla enabled greater privacy protections, there won’t be another browser for the ad market to fall back on when Chrome says goodbye to the cookie.
As a result, websites that rely on advertising on the open internet may struggle to exist. And less interested users may end up with even more ads as sites try to make up for the loss in value by serving more ads.
Karsten Weide, the chief analyst at W Media Research, said that some publishers could suffer revenue losses of 20% to 40% as the deprecation of third-party cookies reduces the effectiveness of ads. “In general, all kinds of websites will be closed or reduced in what they can provide,” he said. “Ironically, while this is designed to protect users, at the end of the day this will make users worse.”
By further normalizing granular data collection, experts say, eliminating third-party cookies could end consumer privacy in some ways. As more businesses direct people to log in instead of cookie-enabled data collection, user profiles will become more detailed and centralized, essentially trading one monitoring paradigm for another.
As part of the change, which Google hopes will happen in the second half of 2024, new privacy-preserving technologies will be introduced to give websites other ways to deliver relevant ads. Google told Yahoo Finance that the company is confident in its new tools it will enable developers to recover much of the loss that might otherwise occur without third-party cookies. One of the new targeting methods groups people into a larger cohort based on their web browsing activity. The technology does not identify users individually, but instead places them in a crowd with others who are likely to have similar interests.
In response to criticism that the tools will not work as well as third-party cookies, Google said that the privacy initiative was never intended to replace all the features the market has built on third-party cookies. Google also said the privacy initiative is a collaboration with other players in the advertising industry, regulators and consumer advocates. “No other browser has attempted to provide such solutions to the industry, let alone offer public consultation with stakeholders before making changes,” the company said.
But the changes will come.
Many of the biggest players on the web will be better equipped to deal with the reform. Tech giants like Meta (META), Apple, and Amazon (AMZN) have set up their own walled gardens, giving them deep insight into the desires and behavior of their users. And some large media companies and publishers with significant followings can rely on subscriptions and an app ecosystem. They have created a direct relationship with their users through emails and logins, allowing them to generate revenue directly from their audience and keep tabs on richer streams of data without the use of cookies.
For many others, striking a different balance for user privacy could lead to an exit. That’s especially true for websites that are already under pressure from falling traffic, economic volatility, and the emerging threat of AI-led transformation. The perception that advertising dollars are better spent with the trillion-dollar tech companies is likely to grow as the death of the cookie leaves a void and a scramble for what’s next.
“Advertisers tend to balk when there are uncertainties,” said Evelyn Mitchell-Wolf, senior analyst at eMarketer. “Ad spend won’t fall, it’s just a matter of where it goes.”
Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on Twitter @hshaban.
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