Since January 2020, when Google announced their intention to stop supporting third-party cookies by 2022 in their Chrome browser, there have been numerous articles, public statements, and market reactions. As a significant participant within the AdTech ecosystem, NextRoll made a conscious decision to stay largely quiet during this period, so we could focus our efforts on the web standards and collaborative work necessary to plot a productive path forward for the ecosystem of individuals, publishers, and advertisers.

Now as this path starts to become clearer, we believe the time is right to share our perspective on navigating through the change in the open web landscape. Many articles use unnecessarily emotive language, such as “death of third-party cookies,” triggering loss aversion and unhelpful reactions, such as anxiety or helplessness. The maxim “the only constant is change” has never been truer, but most humans continue to struggle with navigating change. However, if you are one of the 52 million marketers in the world, or if you have a professional interest in the marketing industry, then this is an important topic to digest and understand. We need to acknowledge the open web landscape is a complex, rather than complicated, system, and as such it’s impossible to predict the future with a high degree of certainty.  

This Part 1 post is an overview of the open web landscape for readers who are not familiar with the topic of third-party cookies and are looking to deepen their understanding. The Part 2 post covers the NextRoll response to this changing landscape, if readers want to jump ahead.

Understanding the Open Web Landscape

Before discussing the pending changes to the open web (rather than “death of third-party cookies”), we first need to establish a map of the open web landscape and understand the different types of participants and their motivations. There are seven major categories of participants, with some companies appearing in multiple categories.

• Internet users. Today, almost 60% of people around the world use the internet. For these 4.66 billion active web users, it’s inconceivable for them to imagine their daily lives without the internet to read, to communicate, to be entertained, to research, to create, and to buy goods and services. The internet is a deeply entrenched part of our personal and professional lives, and the global pandemic has accelerated this digital transformation, despite users being concerned and conflicted about the tradeoff between privacy and usefulness.  More than 8 in 10 Americans are concerned about the amount of personal information social media sites and advertisers know about them. But about 6 in 10 Americans don’t think it’s possible to go about their daily lives without companies collecting their personal data.  There is evidence that, when presented with a choice, internet users will tradeoff some amount of privacy for value. For example, there are 58 million Hulu subscribers who prefer the $5.99/month plan with ads rather than the $11.99/month plan without ads.

• Browsers. An internet browser is software that allows internet users to access the web. Today, Google Chrome is the dominant browser, accounting for 64% of global internet usage. The second-most used browser is Apple’s Safari with 19% of global internet usage, and the remaining 17% is split between Firefox, Microsoft Edge (and its legacy precursor Internet Explorer or IE), mobile browsers such as Samsung and Opera, and other niche players. Google Chrome has maintained its market share lead, despite it continuing to support third-party cookies and cross-site tracking, while Apple’s Safari has blocked third-party cookies by default. This disparity between what internet users say and what they do shows the tradeoff between privacy and usefulness is far from clear.

• Open Web Publishers. Open web publishers are content creators not owned by a major technology whose primary business model is to deliver engaging content or news for free to internet users and then support this free content with advertising as their primary revenue stream. Examples could include cnn.com, allrecipes.com, or weather.com. Internet users spend 66% of their time on the open web and only 34% in walled gardens (defined below). The adjective “open” refers to the relationship between the internet user and the publisher.  It does not require the internet user to share their personal information, such as name and email address, to consume the content. A few large publishers such as nytimes.com require some level of gating to collect and track first-party data. The power law dynamics of the publishing industry means, while a few large publishers can demand the “gating,” the long tail of smaller publishers are not in a position to do the same. For this long tail of smaller publishers, advertising is vital to their survival.

• Walled Gardens. Walled gardens are technology companies that provide a free service to internet users and in return collect personal information, such as name and email, as a condition of participation.  The technology company then fully controls how advertising works on these platforms, which is why they have come to be known as walled gardens. The two largest examples are Google (including YouTube) and Facebook (including Instagram), with their combined walled gardens generating almost two thirds of all digital ad spend. Other material walled gardens are Apple, Amazon, and LinkedIn.

• Businesses. There are business-to-consumer (B2C) businesses trying to reach, inform, and persuade internet users as consumers about their consumer products and services, and there are business-to-business (B2B) businesses trying to reach, inform, and engage internet users as business professionals about their business products and services. Collectively these businesses continue to spend more and more of their advertising online and are now spending almost $400 billion in digital advertising annually to reach the 4.66 billion active internet users. In the context of the open web, these businesses are often called advertisers. These businesses care about precision in digital advertising, because they want to focus their advertising spend on the internet users who are most relevant to their business.

• AdTech providers. There are many companies that provide parts of the advertising technology supply chain, which allows businesses to reach and engage internet users when they visit open web publishers. There are three broad categories within AdTech. The first category is Demand Side Platforms (DSPs), which provide a platform to businesses that want to advertise to internet users. DSPs include functionality such as the ability to bid on advertising inventory and serve an ad if the auction is won. Examples of major DSP players are Criteo, Google’s DV360 (formerly Doubleclick Bid Manager), NextRoll, and The Trade Desk. The second category is Supply Side Platforms (SSPs), which provide a platform to open web publishers that want to offer their advertising inventory to businesses. SSPs include functionality such as the ability to make advertising inventory available for auction and managing inventory yield. Examples of major SSP players are Google Ad Manager, Magnite, PubMatic, and Triplelift. The third category is Ad Exchanges, which allows DSPs and businesses to bid in realtime on advertising inventory from SSPs and Publishers. Ad Exchanges have flourished with the large scale adoption of programmatic ad buying, real-time bidding (RTB) and header bidding driving efficiency for both DSPs and SSPs and made the end-to-end value chain more dynamically efficient and effective. Examples of major Ad Exchanges players are AppNexus, Google AdX, Index Exchange, and OpenX. Some companies play in two or three of the DSP, SSP, and AdExchanges categories.

• Government. The last but by no means least of the participants in the open web landscape is government: supranational, national (or federal), and state. Government has many competing concerns to balance – citizen concerns around privacy, the sustainability of a free press and media to a functioning democracy, the vibrancy of the economy in contributing to standards of living, and the power of large technology companies to dominate large parts of society and suppress healthy levels of competition. In the last few years, we’ve seen new legislation such as GDPR from the European Union and CCPA from the State of California as governments attempt to impose new regulations to change the behavior of the participants in the open web landscape.  In October 2020, the U.S. Department of Justice — along with eleven state Attorneys General — filed a civil antitrust lawsuit to stop Google from unlawfully maintaining monopolies in the search and search advertising markets. We’ve seen the U.S. House of Representatives conduct a 16-month investigation into the four tech behemoths -– Amazon, Apple, Facebook, Google – that are accused of both defining the rules of the markets and competing in the same markets. This shows their concern that the Walled Gardens are becoming too big and too powerful compared to the Open Web. Government has two main tools to influence the behavior of other participants. The first is regulation and financial fines, but the impact of this is questionable given Facebook’s stock went up when it received a record breaking $5 billion fine from the FTC. The second tool is breaking up a monopoly through the Sherman Act. Since the last monopoly the U.S. government broke up was AT&T in the 1980s, it’s also questionable whether the U.S. government has the collective will and ability to do this to one of the current big four tech giants.

Understanding Google

Now that we’ve identified the seven different types of participants in the open web landscape, let’s focus on Google since it is a Browser, a Walled Garden, and an AdTech provider. From Alphabet’s latest quarterly earnings report, we see Google’s advertising revenues from Search and Other is approximately $32 billion, from YouTube is approximately $6 billion, and from Open Web publishers is approximately $7 billion. Google’s financial interests are complex. Its search business is dependent on a vibrant and diverse open web, where internet users are constantly searching for new products and services, and not hidden behind Walled Gardens. But it is also a Walled Garden, and the associated revenues from being one is the $7 billion from YouTube plus some part of the $32 billion from Search and Other. The scenario it probably fears the most is other Walled Gardens, such as Facebook and Apple, growing bigger than their Walled Garden or the Open Web and thereby forcing Google to pay significant traffic acquisition costs to reach internet users within these Walled Gardens. This is already happening today with Google paying as much as $11 billion a year to be the default search engine in Apple’s Walled Garden. To avoid this scenario, we believe Google will continue to execute a dual strategy of growing its own Walled Garden and contributing to maintaining a healthy Open Web ecosystem. Its actions over the past 16 months have been consistent with this strategy.

Understanding Third-Party Cookies

Now let’s understand how third-party cookies tie together the seven different types of participants in the open web landscape. To do this, let’s define how a third-party cookie works. When an internet user visits a domain such as cnn.com, a third party such as ad.doubleclick.net could install a third-party cookie in that internet user’s browser. As that internet user then browses other sites, such as espn.com and jdpower.com, the third-party domain can follow the internet user across these sites and compile a profile of that internet user through that third-party cookie.  Third-party cookies aren’t permanent, so you can’t tie together an internet user’s web activity indefinitely, but you can learn a great deal about that internet user by observing the totality of their web behavior over say a 30-day period. So for internet users, third-party cookies are a privacy concern.  For Browsers, third-party cookies are a technology concern. For Open Web and AdTech providers, third-party cookies are a key mechanism to deliver advertising revenue. For businesses, third-party cookies are a key mechanism for how precise their advertising can be targeted to the right internet users for their business. For Walled Gardens, third-party cookies are not a concern, since they use first-party cookies. For Governments, third-party cookies are too technical to be an arena they can operate in with confidence and authority.

Understanding through Analogy – Welcome to Webland

Another way to understand the open web landscape is through an analogy.  Imagine a far and distant planet called “Webland” that supports human life and there are almost 6 billion citizens. Life on Webland is very different from life on Earth.  

On Webland there are only two cars available to citizens. The first car is called Chrome and the second car is called Safari. The Chrome car has a feature called TPC (short for The Perfect Consumer experience), which means every place you visit is automatically recorded by the Chrome car and then that information is then available to be shared with every new place you visit, so they can serve you better knowing what you like. The Safari car has a feature called ITP (short for Individual Total Privacy), which means every place you visit knows nothing about you.  

In Webland, there are four massive cities called Amazonia, Appleville, Facetown, and Googlemore, and one-third – or 2 billion citizens – choose to live inside these cities, but they represent two-thirds of the economic activity of Webland. These are large and powerful city states, where the rules of living are determined solely by the mayor of each of these cities and there are no term limits. Citizens of Webland are free to decide whether to live in these cities and two-thirds – or 4 billion citizens – choose to live outside in small towns and villages. The businesses that operate in these small towns and villages are happy when citizens arrive in Chrome cars, because they have a better chance of serving them well if they haven’t visited before. TPC isn’t actually perfect, because sometimes citizens lend their cars or have two cars, or TPC doesn’t recognize that it’s a taxi where the car owner is not the traveling citizen. They are less happy when a citizen arrives in a Safari car (but happier than no citizens visiting), but this happens less often, since the Chrome cars are more popular. In these small towns and villages, there is a thriving community of Cartech companies that help businesses gather the data from the Chrome cars and make it useful and usable to businesses.  

Most citizens don’t realize the mayor of Googlemore builds and operates the Chrome cars; or if they know, they don’t seem to care. The mayor of Googlemore also provides a service called Finder that helps citizens find the product or service they are looking for in the small towns and villages. The mayor of Appleville builds and operates the Safari car. He also owns and operates a chain of businesses called iStores inside Appleville, where he keeps 20% of the revenue generated, and the experience inside that chain doesn’t feel like total privacy. The mayor of Facetown doesn’t own or operate any cars or businesses but focuses on providing engaging venues and experiences for citizens and businesses to meet and mingle and charges a participation fee. The mayor of Amazonia also owns the biggest store in Amazonia but recently has been putting his energy into providing technology and services to smaller stores, so they can be like his big store, and also contemplating exploring beyond Webland to other planets. There is a global government called Beijington, but it is wary of clashing with the mayors of Amazonia, Appleville, Facetown, and Googlemore and focuses instead on other concerns of their global citizens, such as the threat of alien invasion and civic harmony.  

Like all analogies, it’s a tradeoff between understanding and accuracy. I will leave it to the reader to decide if the tradeoff is worth it to deepen their understanding of the open web landscape.

What Is Changing About the Open Web and Why

So to summarize what is changing in the open landscape and why:

• Google is discontinuing support of third-party cookies within Chrome. Despite being the largest browser, Google is feeling the force of public sentiment, government concern, and competitive pressures from Apple, Facebook, and Microsoft. Google is confident its Privacy Sandbox initiative, with deep industry collaboration, gives it a viable path to discontinue third-party cookies. 

• Google is motivated to support the vitality of the Open Web, as well as its own Walled Garden. Google is not just a Browser, but also a Walled Garden as well as an AdTech provider to the Open Web. It has different motivations than Apple, Facebook, and Microsoft. While Google will not be using or creating cookieless identifiers of its own, it will allow the other AdTech providers to create and use cookieless identifiers.

In our Part 2 blog post, we outline the NextRoll position on the nature of this change to the open web and how we recommend navigating through it.