Apple’s recent iOS 14.5 update, combined with the almost universal rejection of third-party cookies, paints a gloomy picture for behavioral targeting. So what’s next for this vast industry?
The digital advertising industry is an industry under threat. Third-party cookies, which play a critical part in behavioral targeting, are already being blocked by browsers such as Safari and Firefox by default. With Chrome due to follow suit in 2023, the resulting combination will lock up over 85% of the browser market.
However, the likely fatal blow to this multi-billion dollar sector has already come in the form of Apple’s iOS 14.5 update, which restricted access to data across all its mobile devices – currently just over a quarter of the global market. With so much stacked against it, behavioral targeting as we know it is coming to an end.
So where do advertisers go next? What will replace the third-party cookie? Is behavioral targeting dead? And what are the alternatives? Read on to find out all you need to know about behavioral targeting – its pros, its cons, and why contextual targeting has such a strong future.
What is behavioral targeting?
Behavioral targeting is a term used to describe a form of digital advertising that targets a specific individual according to their online behavior. It works by using a piece of tracking code to record their browsing activity.
Advertising has come a long way in the past century. From the humble print ad to unforgettable radio jingles to TV campaigns that delighted generations. But nobody was quite prepared for just how much the internet would change the industry forever.
The advent of the world wide web brought with it a whole new level of targeting. Advertisers no longer had to take a punt on a publisher’s media kit; instead they could target a specific individual. This gave them the power to serve ads with pinpoint accuracy based on a user’s behavior. And so behavioral targeting was born.
Gone were the days of wasting enormous sums of money on prime-time TV slots that offered exposure to a largely irrelevant audience. By targeting advertising so specifically, marketers could make every penny count and this was a benefit they simply couldn’t refuse.
How does behavioral targeting work?
Behavioral targeting all comes down to one thing: data … lots of it. By using small pieces of code called cookies that are downloaded to your computer and used to track you as you surf, ad companies can record your behavior and create a profile for you based on more than just personal information such as age, gender and marital status.
For example, Facebook gathers a staggering 4 petabytes of data every day, which is equal to over 3,900 fully loaded 256GB iPhones – an astonishing amount of information.
This data is understandably like gold for advertisers and is the reason why they are two of the biggest players in digital advertising.
First-party cookies vs. third-party cookies … and what is an IDFA?
Before continuing, it’s important to understand the difference between the various types of tracking code that are used to monitor your behavior: first-party cookies, third-party cookies, and mobile advertising identifiers.
First-party cookies
First-party cookies are implemented by the website you visit and the data they provide is only accessed by the owner of that domain. Their purpose is to help the domain owner ensure the best possible user experience for its visitors. For example, first-party cookies might keep you logged in, remember the items in your basket or recall site preferences to ensure the most relevant content is served.
Third-party cookies
While third-party cookies do need to be activated by a domain owner, the data is collected by a third party. This third party is usually an ad service, like Google Ads, which uses the cookies to track user behavior so that it can serve more relevant online advertising. For example, if you were browsing the top ten European city breaks on a travel website one day, the next day you might start seeing ads for cheap flights to Paris while shopping online for shoes.
IDFAs and Advertising IDs
An Identifier for Advertisers (IDFA) is a unique ID that is assigned to all Apple iOS devices and is designed to track activity across apps in much the same way a third-party cookie tracks activity within browsers. The Android equivalent is the Advertising ID. These mobile advertising identifiers were the lifeblood of Facebook’s enormous mobile advertising business, which made up 97.9% of its overall revenue in 2020.
The problem with behavioral targeting
While this form of personalized advertising sounds like a foolproof option – and has indeed proved to be an extraordinarily powerful element in the marketing mix – it’s not without its flaws.
One issue is that adtech companies can only work within the parameters of the data they have, so problems tend to arise when a user strays into a grey area.
For example, let’s say you were browsing green blazers online to get some inspiration, then went shopping and bought one in-store. Because your purchase was made offline there would be no record, so you’d still be served personalized ads for green blazers weeks later, despite having the perfect one hanging in your closet.
Alternatively, let’s say you were dealing with a family bereavement and were researching funeral arrangements. The last thing you’d want is to be constantly reminded of your loss with ads for funeral directors retargeting you on every subsequent page you viewed.
This could result in a lose-lose situation: On one hand, you could have an audience that is frustrated or even hurt; on the other hand, an advertiser that at best loses money by paying for an irrelevant ad or at worst damages its own brand – or its publisher’s brand – through insensitive placement.
However, by far the most serious problem faced by behavioral targeting is distrust. As consumers gained knowledge of the industry, they became increasingly aware of how little they knew about what their data was being used for.
Widely reported data breaches, fake news and a general lack of transparency have led to suspicion and an overall discomfort with what feels more and more like an invasion of privacy.
The backlash against behavioral targeting
Following humble beginnings in the 90s, big players such as Google and Facebook quickly became ever-more silently powerful. This rapid growth was fuelled by unlimited access to all the data they could gather, combined with complete trust from their users.
For a number of years, most people were happy, with a 2016 study finding that 71% preferred personalized ads. However, in 2018 the first crack in the wall began to appear. An interview was published in The Guardian with Christopher Wylie – a former employee of British consulting firm, Cambridge Analytica – alleging that data from millions of Facebook profiles was illegally used for political campaigning. After this, things began to change.
Scathing reports on data misuse subsequently dominated global media and thrust the integrity of the tech giants into the spotlight. Government enquiries ensued and users became more and more aware of not only the sheer volume of personal data these companies had, but how it could be used.
Public opinion was turning, a fact made unequivocally clear by a 2019 study from RSA, which found that just 17% of those surveyed viewed behaviorally targeted advertising as ethical.
With Google’s advertising business generating $147bn in 2020 and Facebook generating $84.2bn ad revenue in the same year, this growing resistance to the harvesting and usage of data was potentially a very big problem for a digital advertising industry that has an awful lot to lose.
The beginning of the end for the third-party cookie
All too aware of the problem at hand, Google launched AdChoices in an attempt to put more control into the hands of the user, while Facebook introduced its ‘Why am I seeing this?’ feature. Both were designed to mitigate the situation by providing greater transparency, but it seemed to be too little too late.
The EU’s General Data Protection Regulation (GDPR) was the first nail in the coffin for the third-party cookie. Designed to control the collection and use of personal data, GDPR’s implementation in 2018 allowed users the right to opt out of third-party cookies. The responsibility was placed squarely in the lap of the domain owners and with the very real threat of hefty fines for those who didn’t comply, the digital advertising industry began to change.
Subsequently, Firefox began blocking third-party cookies by default in 2019, followed closely by Safari in 2020. Google plans to do the same for its Chrome browser in 2023, bringing with it the certain death of this enormously valuable tracking tool.
With mobile advertising utilizing a different system of tracking, it looked as though Facebook Ads would be able to keep behavioral targeting alive. Then, in April 2021, Apple rolled out its iOS 14.5 update, which allowed all users of its mobile devices to opt out of in-app tracking. Google did the the same for Android devices in late 2021.
One study showed that users of Apple devices in the US chose to opt out of app tracking a staggering 96% of the time following the launch of the iOS 14.5 update. If these figures are anything to go by, it seems there really is no turning back for behaviorally targeted personalized ads … or is there?
What are the alternatives to third-party cookies?
As you might expect, with global digital advertising spend totaling an eye-watering $378.16bn in 2020, an industry of such size is not likely to take this lying down. So, what next?
There are some new systems currently in development, namely Google’s Topics API and Unified ID 2.0. Other methods such as first-party data partnerships and contextual advertising are also effective alternatives.
Topics
Google’s Topics API is a browser-based advertising system that monitors a user’s behavior, then allocates them categories or ‘topics’ based on the websites they’ve visited. It picks three of these topics at random to share with a participating website, which the website or ad tech partner then uses to serve targeted advertising.
The key points here are that no data is stored on external servers (on-device only), topics are deleted after three weeks, and very few websites ever receive the same three topics for a specific user, making it harder to identify them through practices like digital fingerprinting.
Google believes the result is a form of advertising that finds an acceptable balance between behavioral targeting and user privacy, calling it ‘interest-based advertising’.
Unified ID 2.0
This is an identity-based tracking system created by the big players in the adtech industry that assigns a unique identifier to a user’s email address. This identifier is then used to track behavior across all websites that have been logged into using that email address. The big difference between this and the third-party cookie is that Unified ID 2.0 is anonymous. It is impossible to link the identifier to the email address it is created from, ensuring total privacy.
First-party data tracking
With many publishers and brands benefitting from a large pool of first-party data, such as reading habits or buying behavior, it is possible for them to use this data to sell targeted ad space within their own domain. Better still, if a publisher and a brand found similarities in their first-party data, such as an email address, they could form a partnership and work together to offer even more accurate targeting.
The role of contextual advertising
While the above solutions do offer more anonymity, users are still being tracked and such widespread sensitivity to any form of data capture could make these alternatives quite short-lived.
With trust broken to such an extent, can it ever be rebuilt?
With this in mind, there is renewed interest in contextual targeting. This more traditional form of advertising was used before third-party cookies existed and targets ads according to the content of the page they are being displayed upon.
A big advantage to contextual targeting vs. behavioral targeting is that ads are more consistently relevant. After all, if you’re reading a page on a particular topic, it’s likely you have a legitimate interest in that subject and those ads will only ever appear in context.
However, perhaps the most important point to consider in today’s market is that it uses minimal personal data.
Learn all you need to know about contextual targeting and find out how SmartFrame is using advanced technology to truly harness its power by reading our article: Contextual targeting: How we’re changing the game for online image advertising.
What lies ahead?
When talking about the repercussions of third-party cookies and mobile advertising identifiers disappearing, it’s easy to only think in the context of the biggest players.
However, with such enormous pools of first-party data at their disposal, they’ll always have something to fall back on.
It’s the smaller businesses that are likely to be hardest hit when access to all that valuable third-party data is cut off – a point Facebook was eager to make in an ad campaign responding to the iOS 14.5 update.
In the absence of a solid universal alternative to behavioral targeting, contextual advertising should be an essential part of any marketing strategy. It’s ideal for both smaller businesses who do not have a big pool of first-party data or the infrastructure in place to collect it, and larger businesses who want to maximize user experience.
With so many different options being trialed it’s hard to predict how the digital advertising industry will look in the future. However, it’s safe to say that the public’s opinion on the use of private data is unlikely to change, so with a renewed backlash likely, perhaps it’s time to revert to tried-and-tested methods?
This article was updated on February 4, 2022.
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