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The end of the cookie world as we know it

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WorkLab 2: How adtechs can leverage local currency offerings to increase profit margins, Congress Centrum Nord

It had long been clear to many in the online marketing industry that the business model based on cookies would only have a limited half-life – but it was not foreseeable that the industry would be forced to change so quickly and sustainably. In recent years, there had already been discussions in panel talks and among colleagues about the necessary “Plan B” if the e-privacy regulation stipulated that readers would have to accept cookies separately for each system involved in the delivery chain on each website across the EU. On an average German news portal, this would include several dozen clicks, which is not reasonable for most readers.

Browsers are limiting the use of cookies

But the regulatory mills are grinding slowly – especially at the European level – and therefore it is the browser manufacturers who are now more likely to change the way the advertising industry has been doing business for years. Similar to Safari, Firefox’s use of cookies for user recognition and assignment has been severely restricted since September. This applies both to addressing users and to allocating a campaign’s conversion rates. Although the settings could be adapted to the needs of the advertising industry, very few users deviate from standard settings.

Firefox’s large market share is resulting in massive sales losses

The consequences for the industry are already devastating today. Especially in Germany, where according to statistics Firefox has always had a higher market share of 20 to 30 percent among browsers than in Great Britain or the USA, publishers suffer from the enhanced tracking prevention, which is now used as standard for third-party cookies. The extent of this depends on the publishers and their online readership. For those with technically versed young and/or affluent target groups that include many Firefox or Safari users, the air is becoming quite thin. After all, these publishers have often already suffered from a high number of adblockers. The “content versus advertising” business model is no longer viable.

Behind the scenes, there is talk of 40 to 45 percent of unattributable ad displays in campaigns when it comes to third-party cookies. The proportion is higher for gaming or technology portals, but lower for women’s and lifestyle platforms. It is already clear now, just a few weeks after the release of Firefox 69, that 75 to 80 percent of Firefox browser users use the default automatic update feature. In most cases these users will not specifically allow third-party cookies just to help a portal out. And this all has its consequences. According to publishers, average revenue declines have risen to up to 15 percent and the average price of Firefox inventory in Germany has declined by 15 to 25 percent.

Active consent to cookies is unavoidable

A ruling by the European Court of Justice, which actually targeted the unfair cookie use of a single betting portal, is also having a massive effect on the entire advertising industry. The ruling states that users must actively agree to the storage of cookies and that the common practice, whereby consent is defined as the lack of objection, is incorrect. No distinction is made here between first and third party cookies. On the one hand, this increases the probability that judges in member countries will decide in the same way and, on the other hand, suggests that action has to be taken by almost the entire advertising industry. The special path of choosing an opt-out solution, as provided for in Germany’s Telemedia Act, would thus be obsolete.

Registration and technical solutions as cookie alternatives

However, there are many alternatives. This holds true for publishers of daily newspapers in particular. If they are not already pursuing a freemium strategy with a certain number of free readable articles per month, they rely on a compulsory registration in order to at least reliably display suitable advertising for non-paying readers and be able to track them.

There are also several ways to recognize users without cookies. Fingerprinting consists of compiling unique user characteristics, such as the combination of browser version, operating system, color depth, installed plug-ins and fonts, to recognize users. Although this method is not perfect, it is already a largely error-free way to recognize and allocate users. The use of e-tags that are stored in the browser cache, but are not actually cookies in the legal sense, is also possible and cannot be prevented by deactivating Java Script or by forbidding cookies.

Login alliances as an alternative

One solution that has gained particular importance in the last year or two consists of login alliances such as Net-ID and Verimi. In this case, access is granted via recognition initiated by the customer and can be obtained simply and conveniently by agreeing to the GTC during registration. The login alliances were actually intended to serve as single sign-on solutions as a counterweight to the dominant US players Google and Facebook, but could now become the decisive element for publishers with a focus on advertising financing.

Even though Net-ID and Verimi are two separate networks, they are now competing less and less with each other because they have developed in different directions, as Sven Bornemann, CEO of the Net-ID Foundation, reports in the interview. From the point of view of the advertising industry and e-commerce, Net-ID is likely to play a major role in the future.

In order for the login alliances to become a significant market power and attractive solution for the advertising industry, however, the alliances must succeed in persuading a significant number of users to rely on the single sign-on system. So far, the majority of Net-ID users are from the United Internet environment, i.e. they own a Web.de or GMX email account, for example.

Do the web giants represent another option?!

The third alternative are and remain the large US advertising networks such as Google and Facebook, but also Amazon, which as a result could become even more important for displaying ads and already have the user’s consent to all cookies via general terms and conditions. They can continue to deliver customized advertising and take the premium prices incurred for this. They already represent a large part of the international Programmatic Advertising business. The media agencies in Europe should not like this any more than the advertising industry as a whole, as they can expect higher prices and less consideration of German and European concerns and interests in the future.

The bottom line: publishers have to position themselves

Publishers will be between a rock and a hard place in this power game. As such, they will have to rethink their largely ad-based business models and look for new sources of revenue. Those who maintain advertising as a key element of monetization should position themselves accordingly. Login alliances can be suitable partners in this regard, especially in light of the fact that purely technical solutions like fingerprinting will only be a compromise. Whatever the case may be, publishers will become even more dependent on those marketing partners who offer them efficient targeting and highly efficient advertising because readers allow them to do so.

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