The free flow of consumer data that has fed the digital advertising ecosystem has slowed, and will soon be a trickle. As the iOS 14.5 update began downloading into iPhones in late April, Apple, by switching its tracking default from opt-out to opt-in made advertisers dreaded worst-case scenario a reality. Now iPhone users, who are generally considered to be the more affluent consumer cohort, must actively grant permission for any app to track their activity across other companies’ apps and websites. Absent this authorization, the operating system blocks the individual’s Apple’s ID for Advertisers (IDFA) from being used in digital ad targeting, personalization, or evaluating the effectiveness of marketing campaigns.
Facebook’s secret advertising sauce is created by mashing up the cross-site consumer data it gleans by tracking its global user base, which numbers in the billions, as they traverse the internet.
While this shift doesn’t represent the end of targeted advertising, in Apple devices it plunges a stake in the heart of cross-site trackers, the consumer-despised markers that follow you from site to site showing you ads for the kettlebells you previously decided not to buy. Still, if an iOS user searched for those kettlebells in the Amazon App or site, even after the privacy updates, Amazon records that first-party activity on their platforms and uses it for retargeting within their advertising domains. The adjacent beneficiaries also tracking that activity are the owners of the rails, in this example, Apple. However Apple is not in the data-surveillance-for-advertising business, but Google is.
Google’s Privacy Sandbox
Google is joining Apple but it is playing in its own, more controversial privacy sandbox. The Verge reports” State antitrust watchdogs are targeting Google’s plans to phase out third-party tracking cookies… The group of 15 attorneys general, led by Texas, updated its complaint about Google yesterday to include a more detailed case against the search giant. In particular, the new complaint takes aim at recent privacy updates to Chrome, which could better protect users’ personal data while also entrenching Google’s market position.” The suit contends, “Google is trying to hide its true intentions behind a pretext of privacy…Google does not actually put a stop to user profiling or targeted advertising, it puts Google’s Chrome browser at the center of tracking and targeting.”
Google plans to replace the cookie with a new algorithm that analyzes an individual consumer’s preferences and habits, placing them in cohorts or FLoCs in Google-speak (Federated Learning of Cohorts), with individuals that share common characteristics. Privacy advocates, including The Electronic Frontier Foundation, joined in the condemnation claiming,” FLoC is meant to be a new way to make your browser do the profiling that third-party trackers used to do themselves: in this case, boiling down your recent browsing activity into a behavioral label, and then sharing it with websites and advertisers.”
Google CEO Sundar Pichai in an interview with Ben Thompson of Stratchery explained that the company’s intentions have been misunderstood. He inferred that as a first-party data aggregator, Google doesn’t need to create the cohorts for its own use, but that this information is essential for advertisers to effectively allocate their advertising dollars. Pichai said, “I’ve talked to a bike company based in Pennsylvania, and they have a marketing budget of an additional half a million dollars for next year, and if they don’t spend it wisely, it has profound implications. Advertising is the engine of a small business as well as a large business and hence it kind of drives a lot in the economy.”
Facebook Gives a Thumb’s Down
Advertising is a significant revenue generator for Google and as an owner of the rails with the Chrome Browser and Android devices, Google has created a side door for ad-tech. I see FLoCs as a consequential step toward anonymized tracking, but one that still offers advertisers a robust data driven measurement and targeting tool. These changes are a much bigger problem for Facebook which owns neither a browser nor a mobile device. You might think Facebook would be inoculated from the effects of these changes, protected by its gigantic cache of first-party data from their suite of apps, Facebook, Instagram, Facebook Messenger, What’s App, and Giphy, but Facebook makes its money from advertising. Facebook’s secret advertising sauce is created by mashing up the cross-site consumer data it gleans by tracking its global user base, which numbers in the billions, as they traverse the internet. The majority of granular consumer data Facebook collects is from other platforms, and it powers the Facebook ad-tech personalization engine that advertisers love. It informs brands of where your customer spends, what they bought, and which inputs triggered the conversion.
This Investopedia chart demonstrates Facebook’s reliance on advertising revenue.
Retailers depend on Facebook and in turn, Facebook depends on the dollars those advertisers spend. According to Facebook’s 2020 10K, 98 percent of Facebook’s revenue is generated through advertising. As the details of the privacy measures took shape, Facebook quickly switched to defense. In mid-December, it placed a series of full-page ads in major national publications, and later made a plea to its users to opt-in to Facebook tracking. If its users don’t embrace tracking, Facebook and other advertisers will be working around an iOS blind spot.
What Should Retailers and Marketers Do?
I foresee a shift of advertisers to the Google platforms, but for iOS customers the solution is opaque. I spoke with global marketing advisor and consultant Tim Parkin about the expanding advertising blind spots, asking for his suggestions on a proactive approach as these privacy measures are implemented. Parkin reflected, “Before they developed a dependence on, or an addiction to this relevant, recent, and accurate data, companies spent a lot of money on advertising and found it to be effective. The changes we are discussing will force companies to mature and evolve because some have become lazy as they leaned too heavily on data, much of which they still don’t understand how to measure or use effectively. The real focus that clients are looking for now is what happens next?”
Parkin has some ideas, ” Companies need to double down on first-party data. Many advertisers have not embraced it. They need to shore up their policies around how they will use their existent first-party data because it can alleviate some of these issues.” He proposed that brands create proprietary channels utilizing email or SMS text messaging that can reach their customers while monitoring and measuring a campaign’s results. He continued, “They also need a data strategy or model. They need to determine how they are collecting it while identifying sources of essential supplementary data, then they need to connect all the pieces.” He emphasized that importantly, “Brands need to have a holistic and strategic approach to marketing and advertising. They can’t rely on an individual channel or platform because advertising doesn’t happen within any single channel. To think that people regularly see something on Facebook and make a purchase is naive. There are so many touch-points in the customer journey. You need to be omnipresent.”
Parkin noted that companies have embraced, and are and creating affiliates on TikTok, but nine months ago TikTok’s existence as a platform in the United States was in question. He suggested that advertisers need to remember that things can change overnight, and no advertiser should be dependent on one channel or one type of data. They need to create a holistic marketing strategy that can adapt to shifts without collapsing if one tool is suddenly removed from the tool chest.
This Is a Transformational Moment for Marketers
We are at a fork in the road. The European Union, California, Illinois, and fourteen other states have enacted various iterations of internet privacy legislation. While Google offers a privacy-lite approach, Apple does not. If a developer bends or breaks Apple’s privacy protocols, the App will disappear from the App Store.
In response, retailers must develop a connection with their audience, returning to marketing fundamentals by opening direct and transparent consumer feedback channels. The invisibility cloak that allowed brands to snoop without the customer’s knowledge has lost its powers, so it is time for brands regain their powers as a merchants and marketers, and get to know their customer rather than just their customer data.