This lavishly illustrated article is based on a talk I gave not long ago at the ANA Masters of Data event in Orlando and at Salesforce Connections in Chicago. It could interest cats wanting an overview of the state of digital marketing and ads, with an emphasis on worry beads. As usual, if you’re already a genius, I have nothing to tell you.
Now if you’ve noticed more speed in the digital space in recent years, you’re right. Of course the pandemic raised the velocity of digitization, but the real change had happened before 2020. In a phrase: digital won.
Advertising is a proxy for attention, so the movement of ad spend into the digital realm is an expression of our virtual migration. The –verse is already meta: we’re living in the ether. Those of us who remember the early 2000’s when digital was maybe 10-15% of ad spend at the most innovative shops, and most of that was search – well, we knew this would happen, but we’re surprised that it did.
There’s big money here, which is the best explanation for all the battles over IDs and OSs and privacy rights I can give you. On a related note, it’s also become an increasingly concentrated business. Pareto rules as 80% of the rewards go to just three companies: Alphabet (aka Google), Meta and Amazon. There’s a theory in market strategy called “The Rule of 3,” which is self-explanatory, and there’s some analogy to the Big 3 networks of the 1970’s.
To be clear: it’s not all about the third-party cookie. Cookies were the CNS of programmatic ads and tactics like retargeting, but they’ve been ebbing out for years. Mobile apps don’t use them, nor does search. Apple’s Safari browser defaulted away from them a half-decade ago; only Google’s Chrome remains loyal, and as you know the sand’s running down there as well.
We’re already living in the ‘cookieless world.’ In VERY round numbers, here’s a rough breakdown of digital ad spent in the U.S.
If you figure half of ad spend still goes to linear channels, then your perfectly proportioned big-media mover is likely allocating something less than 10% of her budget on cookied media.
Speaking of cookies – as I so often do, making me lethal at parties – we do have the pandemic partly to blame for what I like to call the Longest Death Scene in History. Google’s Chrome blog announced their departure in January, 2020, and has subsequently extended the final flicker to some vague moment late in 2023 or beyond ….
So What’s Going On?
Let’s remember a concept called expected value. As we learned in business school, expected value is a product of (what something is worth) x (how likely you are to get it). So if the jackpot is $1 million and my odds are one in a million, that lottery ticket is worth $1 to me.
That’s how digital marketing works. Take an ad. When figuring how much to pay for it, the smart media planner will more or less think: (what is a positive outcome worth) x (how likely is it to happen)? In other words, they try to estimate what part of the audience will respond to the ad and what a “response” means in dollars.
This math is easier to describe than to do. How would you treat a car ad, that might raise awareness but inspire few sales – at least, this year? You might know the value; what’s the P? But the principle abides, and it helps explain a phenomenon we can call the Late Night Cable Ad Experience.
Imagine you’re on your sofa and it’s 2 a.m. and you’re randomly scrolling through cable. Those ads are barely targeted at you at all. And what you’ll see – so I hear – are a lot of ads for medications and class-action lawsuits and for food and cleaning products. In other words, either very expensive or very common items.
Why? It’s the expected value. When messages can’t be targeted very well, they will default to those with a very high P (hit rate) or those with a very high value; that is, the mass-iest of the mass market stuff and things like lawsuits, where you could have one in a million respond and still pay for the campaign. As marketers lose the ability to target on the open web through data deprecation, every ad experience in the wild will converge on cable.
It’s my theory that most consumers only think they don’t like targeted ads. In truth, we’ve become so used to applied data for aiming and attributing messages that we’ve forgotten what it’s like to be anonymous. It’s not pretty. Nobody remembers the mid-1990s and the beginning of the internet, but it was full of irrelevant emails and ads.
Apple has an on-and-off relationship with media, but it’s decided that “privacy” is its brand and an explicit opt-in is required for any kind of cross-domain view. Its App Tracking Transparency (ATT) framework is only a year old but has had a major impact on mobile networks. The Financial Times made some noise with its second-half 2021 estimates of lost revenue, due to ATT:
- Meta – $8B lost revenue
- Snap – $600M lost
- Twitter – $400M lost
One surprise winner in FT’s analysis was … Apple, whose paid search ads business in its iTunes store was a significant gainer.
In fact, many digital-first businesses focused most of their media spend on the singular channel of Facebook/Instagram ads. Back in 2017, the New York Times magazine ran a story headlined: “How Facebook’s Oracular Algorithm Determines the Fates of Start-Ups.” It was about just how powerful Facebook ad targeting was.
A lot of these businesses used Shopify as their commerce platform. Not surprisingly – but rather dramatically – the roll-out of ATT also had an impact on Shopify. Well before the recent market meltdown, Shopify’s market cap was cut in half from its peak.
(h/t Eric Seufert)
At the RampUp event earlier this year, I saw a presentation from a large publisher estimating the impact on their ad prices due to ID loss. They used Safari’s cookie deprecation as a proxy for estimating what would happen when cookies disappeared in Chrome. The punch line was: down 50%.
As a general rule, we can say the cookie (or MAID) doubled the marketers’ ability to find a likely customer.
So Who Is Fixing This?
Some are trying, and some don’t think there’s anything to fix. A few years ago esteemed Apple privacy engineer John Wilander described the situation nicely in this thread on Twitter. (Note that his phrase “There may be problems worth solving that were previously solved with third-party cookies” reduces two decades of ad tech innovation to a triviality.)
Privacy Sandbox. You’re likely aware that the World Wide Web is tuned up by a large and largely anonymous volunteer army, technical types who hold long calls over years and process fixes large and small through committees into production. From its foundations in HTML and TCP/IP, protocols are what makes it a Web, after all.
Browsers are overseen by the World Wide Web Consortium (W3C) and its various Community Groups and Business Groups. This is where Google’s Chrome engineers and others bring their proposals for the post-cookie world, and they’re discussed more or less openly by Apple, Mozilla, Meta, and others. You’ve heard of the ‘Privacy Sandbox’ and FLOCs and FLEDGEs and so on; this is where they nest.
We started with anonymized cohorts generated by the browsers (FLOCs) … moved to a less detailed version of the same with more randomness (TOPICS) … and are now excited about publisher-defined cohorts. Basically, we’re left with publishers (and in one proposal, browser users, aka, us) labeling ourselves for targeting.
So far, we’ve learned what won’t work – but not much about what will. Tension is fundamental – and perhaps irreconcilable – between people who hold:
- Theory A: Browsers and apps can collect some form of information safely, without explicit opt-in
- Theory B: Opt-in should be required for everything
Although so much is in flux now, it’s entirely believable that Chrome and Safari, Android and IoS, Mozilla and Edge will all have different rules in the end. Debates are in terms that have not been defined. What is “privacy”? What is “consent”? What is love – baby don’t hurt me …?
On that penultimate point, not enough legislative chutzpah has been pointed at the language of the opt-in box itself. It seems to me more important than anything else. Theory B assumes we average humans are actually equipped to know (1) exactly what data is collected about us; and (2) exactly what ‘personalization’ looks like. I’m not so sure. (Look up the ‘privacy paradox’.)
Note that Apple’s language (on the right) for its own ad experience is somewhat more attractive than the frowsty boilerplate it issued for ATT (middle). One woman’s “tracking” is another ones’ show of respect.
What Happens Now?
Digital marketing is a field that’s weathered teething and teen years, gone to college in a difficult political climate, and is old enough now to think about moving out of the basement. The first commercial browser, Netscape, was launched in 1995, making our Web 27 years old. Yes – definitely time to grow up.
Maturing is messy. There’s experimentation; fits and starts. We try one direction, go to Europe, and come home with a different look and outlook. Fundamentals apply; we’ve got a bright future. And we’ve got to play by the rules; we’ve got to adapt.
Marketers are adapting, fast. In my travels virtual and real these past few years, I’ve seen nothing but admiration for the challenge and a willingness to work. Stripping out the arbitrary vectors, what do we marketers need? I like the IAB’s framework, reducing requirements down to two categories: Addressability (finding people), and Accountability (measurement).
Both will always be possible; it’s their precision that’s in transit.
Some conclusions about the future seem reasonable to me. We can take these as likely hypotheses for planning:
- User-level IDs will require opt-in to share (this includes IP address and maybe email)
- Marketers have to get better at demonstrating data use
- Publishers and people have some control over their labels (if they want to)
- Measurement becomes a complex mesh of next-gen MMM and testing (see Analytic Partners)
- First-party data builds competitive advantage
Yes, let’s talk about 1PD. First-party data isn’t new, nor is the idea of a ‘single view of the customer.’ What’s new are improvements in technology’s ability to support the V’s of big data (velocity, variety …) at reasonable rates. It makes sense to organize, harmonize and deduplicate your customer and prospect information, gathered with consent.
This is where the mighty Customer Data Platform comes to help you, and I’ve co-written a book with the multifaceted Chris O’Hara about this very topic (see B&N or Amazon: “Customer Data Platforms”).
It makes sense to try to collect more 1PD/0PD using increasingly inventive techniques.
And that’s what marketers are doing. Just ask them. I thought it was puissant that the IAB/Ipsos State of Data report this year named two ‘solutions’ to deprecation challenges: (1) gather more first-party data, and (2) analytics.
These answers seem right to me, but they’re also something of a holy rosary. We don’t have data: we’ll get more. We don’t know what to do with it: We’ll ask the machines. Of course, we all know it isn’t that easy, and I recall from my Gartner days that spending on marketing data science is generally rewarded. But the tone is defensive.
So what’s going on? We’ll stop here. The most mysterious impact on digital marketing’s future will come from forces we’ve barely mentioned: legislatures and mergers & acquisitions. A government could decide tomorrow that ad targeting is illegal and marketing is mind control.
Let’s hope for sanity. It always has a chance.