How will Google’s third-party cookie phase-out impact promotions?
Jul 18, 2022
5 minutes to read
Last year, Google made an announcement that is set to have a huge impact on digital advertising and marketing. The US tech giant revealed that it will no longer support third-party cookies on Google Chrome as of 2022.
For normal web users, this news probably came as a welcome surprise. Third-party cookies have received a lot of negative press over the years, having been blamed for numerous data privacy concerns.
So, why is Google making this decision? And how will it affect digital promotions? Let’s get the fundamentals out of the way first.
How do third-party cookies work?
To grasp how big Google’s announcement is, you need to understand how third-party cookies work:
Third-party cookies track user behavior, including the websites you visit, what you search for, and what you click on.
Third-party cookies belong to third-party websites, i.e. not the website you’re currently browsing.
Third-party cookies are stored on your browser and are accessible on any website that loads the third-party server’s code. This allows them to track your online behavior across many different sites.
This ability to track user behavior across many different websites is what makes third-party cookies so important for digital advertising. They allow businesses to serve highly-targeted ads to all sorts of customer segments.
In comparison, first-party cookies record user activity, preferences and behavior on a business’s own website only.
How will the new changes affect advertisers?
Third-party cookies support both advertisers and marketers. They provide ad revenue to the websites hosting ads. And they help marketers get their ads in front of the right audiences.
But how severely will advertising revenue be hit when Google Chrome stops supporting third-party cookies? In 2019, Google released a study exploring this exact question.
It showed that, out of the top 500 global publishers, the majority would lose over 50% of their ad revenue.
What’s more, Google Chrome accounts for 64% of the global web browser market share, and an even larger share of ad clicks.
What about Firefox and Safari?
When it comes to limiting third-party cookies, Google is actually late to the party. Firstly, the EU’s GDPR legislation has classed third-party cookies as personal data since 2016. This is why, if you’re in the EU, you get a cookie permissions banner on every website you visit.
Apple and Mozilla, two of Google’s main competitors in the internet browser market, have made it easy for users to block third-party cookies for years. But neither of these companies has anywhere near as much vested interest in third-party cookies as Google.
Advertising is by far Google’s biggest revenue stream, dwarfing the amount of money brought in by its other products and services.
Data source: Statista
What will replace the third-party cookie?
Given Google’s reliance on digital advertising revenue, it’s no surprise that the brand has been working on its own replacement for third-party cookies.
Like many new software products, Google’s third-party cookie alternative is based on artificial intelligence. It uses a system/process called Federated Learning of Cohorts (FLoC).
FLoC monitors users’ browsing history, behavior and other data to deduce their interests. It then groups them alongside other users who display the same interests.
Advertisers will be able to use these groups to target specific audiences via Google’s ad platforms, including AdWords, AdSense and YouTube. Google says its trials show that FLoC is 95% as effective as third-party cookies in terms of cost per conversion.
The FLoC system was created as part of a wider Google product selection and general policy vision called ‘Google Privacy Sandbox’. Its main objective is improving user privacy.
Because FLoC AI data will be gathered and stored by Google itself, it certainly represents a much safer solution than third-party cookies. But there are already concerns about prejudice and bias in the AI profiling system. Without careful oversight, it’s easy for AI systems to discriminate against certain groups. This is especially true with systems like FLoC, which groups people by their behaviors.
On top of that, Google is already facing a big antitrust lawsuit from the US Department of Justice, and an antitrust investigation by the UK’s Consumer and Markets Authority.
These are a direct response to widespread fears about the company’s hold on the digital advertising industry. Many fear that the new Privacy Sandbox project will be the final nail in the coffin, allowing Google to corner a huge swath of the digital advertising market within its own ecosystem.
The FLoC system places individuals into groups alongside others who share the same interests.
How will Google’s new system affect promotions?
Bias and antitrust concerns aside, Google’s new AI ad targeting system will undoubtedly affect the way businesses serve ads. But promotions won’t be affected by the death of the third-party cookie as much as you might assume.
There are two main reasons for this:
1. First-party cookies
Although third-party cookies will effectively be finished, Chrome will still support first-party cookies. This means businesses will still be able to collect data from users on their own websites. This is important because, when it comes to serving personalized promotions, first-party cookies often do most of the legwork.
2. Promotions can still be targeted without data
Typically, it’s good practice to use customer data to personalize marketing and advertising campaigns. But promotional campaigns can still be set up to appeal to specific customer groups without using customer data. It all comes down to context.
For example, a business can create a promotion for a specific product in a specific location. The product and location can both be changed to target different customer groups or to achieve specific business goals. There’s no need to use customer data in this process at all.
A catalyst for loyalty programs
The data you gather from your own customers will become even more important once third-party cookies disappear.
Customer loyalty programs are also a fantastic way to leverage your first-party customer data. But this data doesn’t have to come from cookies. There’s all sorts of data and other insights you can gather from user accounts. This includes product preferences, purchase behaviors, browsing habits, and more.
Not only do loyalty programs offer businesses a simple, easy way to gather this data from their customers. They also offer a way to immediately turn insights from this data into relevant promotions that will drive growth.
Expect to see many businesses paying a lot more attention to their loyalty programs when Google pulls the plug on third-party cookies once and for all.
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