As we begin 2020, I wanted to share some major industry trends that are going to impact everybody in ad-tech significantly going forwards. Having a good understanding of these developments will help all of us be better prepared for what is going to come. I know it’s a lengthy read, but I have compiled the most important points and shared the most relevant reading material.
1. Death of the third party cookie & related opportunities
Background: Third party cookies are the basis of all data driven (behavioral) advertising including retargeting. Third party cookies have been in trouble for a couple of years now due to privacy (mostly) & security concerns. Safari & Mozilla/Firefox have already disabled third party cookies completely. Chrome is the last big browser holding on, but is under tremendous pressure to do something about it. They are in a delicate position since disabling third party cookies could make Google’s position stronger in the market (since they have better identification methodologies than others) and they could come further under the scrutiny of the Federal Trade Commission (FTC) for anti-competitive practices. But, they are also under tremendous pressure from the same FTC from a consumer privacy protection standpoint. But they seem to have taken a stance now — Starting 4th Feb 2020, Google Will Limit Cross-Site Tracking In Chrome By Default.
Impact: This change is expected to have widespread impact on retargeting & data driven advertising in general, although it’s hard to quantify. We should also see more impact when Google subsequently rolls out the “easy toggle” button for users to completely switch off third party cookies (already live on Chrome Canary — early release of Chrome). You can check that the CPMs have dropped dramatically for Safari & Firefox inventory over the past couple of years due to ITP. Google too reported that there will be 52% drop in revenue if third party cookies go away. There is a good amount of speculation (rightly so) about the revival of contextual targeting. Also, in the absence of behavioral data, impression capping becomes a very very important variable for optimization from the buy side.
Action: Publishers & ad-tech companies need to switch on their SameSite settings at the earliest for all the cookies they use. Publishers need to audit all of their core user experiences to find out what cookies are going to break and proactively determine what they’re responsible for and what their partners are responsible for.
Tercept’s Opinion: With the movement to first price auctions on google ad exchange, publishers lost control on improving their revenue through real-time pricing. This could change dramatically in the new world where impression capping & contextual targeting are the primary methods of optimization on the buy side. Further, coupled with Google’s recent announcement that they will share more auction level data with publishers starting early 2020 (read the release notes here) — we believe these developments could re-open the doors for programmatic price optimization which can drive significant incremental revenues for publishers.
2. DMP’s falling out of favor with Brands & Publishers alike
– Marketers have struggled to achieve ROI with DMPs
– DMP’s focus on third-party data no longer resonates in a world where privacy is top of mind, and the cookie is crumbling
– Marketers at major brands are in the process of sunsetting their DMPs, and agencies confirm that their clients are moving away from DMPs en masse.
– Data platforms need to shift their focus from ‘interest based segmentation’ to ‘performance & optimization’
– Data platforms need to move their pricing model from ‘volume based monthly flat fee’ to ‘share of incremental revenue (or ROI)’
3. Publishers are losing trust in SSPs; Brands don’t like DSPs, they’re partnering with SSPs for direct buys & log-level data
Big agency holding groups are cutting out their DSPs and going straight to SSPs and publishers to find out how programmatic ads are really sold. SSPs have started looking more like something else entirely: exchanges that are driven by buy-side requirements. They have been leaning in to demand-side needs at the risk of abandoning their core publisher clients in the process.
Tercept’s Opinion: the irony of the present ad-tech ecosystem is that agencies want to bypass DSPs and go straight to SSPs; but publishers don’t trust the SSPs they are working with and believe they should be working directly with DSPs. Clearly shows that agencies & publishers are better off working more closely with each-other. Agencies/brands are looking for a) Better Performance & b) Better Targeting from publishers. Publishers need to figure out how to enable this for their customers.
4. Publishers are prioritizing their direct business over open auctions
– Washington Post creates a premium network in an effort to bring brands & publishers to work more closely together. Washington Post does not want to lose its premium inventory to open auctions.
– New York Times is pulling their app inventory out of open auctions. New York Times also believes that they have a big opportunity around first-party data that could lead to more targeted ads — “on their terms”. App inventory is a small chunk, but this step points to a specific direction. I strongly believe we will see more of this happening as we get into 2020.
– As much as 60% of advertising budgets are spent on various services and fees from the many third-parties involved in media buying. That’s a lot of money that publishers aren’t getting and for which the brands are potentially overpaying. Advertisers are saving huge sums by bringing programmatic advertising in-house, and publishers are driving higher revenues through direct deals with brands.
Tercept’s Opinion: Going ahead, publishers and brands/agencies will work together more closely outside the open auction ecosystem: Once publishers are able to deliver deeper targeting using their first party data, brands will see far more value working directly with publishers rather than through DSPs, Ad Exchanges, DMPs, SSPs & other intermediaries. This becomes all the more inevitable when third party party cookies get the boot. This also means that publishers will need to acquire/develop skills & technologies that will sit on top of their first party data & optimize towards achieving the performance & targeting goals of the campaigns that they run for brands.
Big thumbs up if you made it to the end! Thanks for reading and hope we left you a bit more informed and confident about what you need to plan as you go into the new year. If you could not get into the details, the one question that you should ponder on is: “What’s your strategy for growing your direct ad revenues as we enter a new cookie-free era in 2020?”