Imagine it’s Q1 2022. You’re a marketing leader at a mid-sized consumer business. You knew third-party digital tracking pixels, known as “cookies,” were going away but you didn’t think it was that important. You heard rumors about Google FLoC, but it was just noise. Then, platforms like Facebook removed targeting capabilities and audience insights you’re used to.
Suddenly, you have to explain to your CEO why you can’t run campaigns the same way and why revenue attribution isn’t as precise. The inevitable question looms, “Why didn’t we do anything about this sooner?”
Don’t be that marketer.
This article aims to prepare marketers for a future without cookies. Please bookmark this page or add it to your Swpely board for reference.
Why are third-party “cookies” going away?
The current cookie-based model references details like a user’s name, job title, age, date of birth, and other personal identifiable information (PII). In many countries, states and territories this is a legal practice that digital advertisers have enjoyed for years. However, multiple data breaches and recent mistrust in governments and corporations have made data privacy a top issue for voters and lawmakers.
In May 2018, the General Data Protection Regulation (GDPR) went into effect in the European Union. This provided a strict version of a framework for how data privacy legislation could look in the United States. Since then, Nevada’s Senate Bill 220, or “An Act relating to Internet privacy” went into effect in October 2019 and state enforcement of the California Consumer Privacy Act (CCPA) went into effect in July 2020.
In March 2021, Virginia joined California and Nevada by enacting its own Consumer Data Protection Act. The law will go into effect January 1, 2023. More states, including New York, Oklahoma, Utah, and Washington have introduced bills legislators will vote on in 2021. These regulations have forced the hands of data processors, like Apple, Google and Facebook, to adjust how they offer services like digital ad targeting by removing third-party cookies.
Ad platforms have announced (with various tones and caveats) their intent to phase out third-party tracking pixels, known as “cookies,” over the course of 2021.
This means businesses reliant on third-party data for digital advertisements will be hit hard. Although still a proposal and heavily debated, Google’s Federated Learning of Cohorts (FLoC) gives us a glimpse of what the future holds for marketers running digital campaigns.
What is Federated Learning of Cohorts (FLoC)?
Google will transition from the current cookie-based tracking model over the course of 2021. In its place, Google proposes a solution where advertisers would be able to target users by their interest and behavior in groups called “cohorts.” Based on the websites a user visits, they would be grouped with other anonymous users who express similar interests. Instead of using third-party cookies, user activity will be tracked with Google’s own first-party cookies. Google calls this the Federated Learning of Cohorts (FLoC).
According to Google, FLoC “proposes a new way for businesses to reach people with relevant content and ads by clustering large groups of people with similar interests. This approach effectively hides individuals ‘in the crowd’ and uses on-device processing to keep a person’s web history private on the browser.”
Even if Google FLoC works, web browsers will still have to adopt it. Recent statements from Firefox and Microsoft appear as if they do not plan to cooperate with Google. But the tech giant may try to throw its weight around.
Google already has a treasure trove of first-party data at its fingertips, thanks to more than 240 strategic acquisitions and a dominant share of the web browser market. W3Counter’s research shows Google Chrome is the most popular, with 65.3% market share. Safari is a distant second at 17%. Nearly two-thirds of users log into their Google account to check email, search, set calendar events, watch videos on YouTube, among other things.
This is important because Google is in a position to distance themselves from other players like Apple and Facebook with how much value they bring to marketers and advertisers in this new environment. If your business already runs ads on Google there’s a good chance that while your campaigns may need to be tweaked, they will likely remain effective.
But it won’t be as simple to roll out FLoC just because two-thirds of users are on Chrome. Beyond browsers, individual websites or hosting platforms can decide to block Google FLoC on an ad-hoc basis. For instance, WordPress proposed blocking Google FLoC. This is big because the platform hosts more than 40% of websites.
However, even WordPress received backlash from their community, with users questioning whether blocking Google FLoC was truly a security issue or simply a way to stand up against Google. Some argued this is an issue to be solved at the individual level, where users can opt-in to “join” Google FLoC.
In a GitHub write-up of the Google FLoC proposal, internet users and their behavior online will develop and update FLoC cohorts continually based on the URLs they visit and the content they interact with. In other words, the cohorts a user belongs to could change over time based on the websites they visit.
Many questions remain. Can the tech giant be trusted to maintain anonymity of users? How small and fluid will cohorts be? Will Google develop alternatives? Only time will tell, because Google won’t.
How will Google FLoC Impact Digital Marketing?
Google FLoC appears to be a viable way for targeting broad interests to capture first time visitors, but some believe it will make it harder for advertisers to run retargeting campaigns. Marketers may also find it harder to measure performance, depending on how fluidly users drift between cohorts. Here are a few examples of how these massive industry changes may impact marketing strategies:
1. Consent-Based Marketing Can Strengthen Brand Reputations
Simply recognizing a consumer’s right to data privacy is valuable. In February 2021, consumers in the UK praised retailers for offering a chance to opt-out of Mother’s Day marketing emails. Consumers took to social media to express their gratitude, and retailers built trust and strengthened their reputations.
Marketers have an obligation to consumers to adjust data collection practices so consumers opt-in to communications and ad personalizations, instead of opting out. However, those who act fast and prioritize consumer data privacy in messaging have an opportunity to stand out and earn brand trust and loyalty.
2. Google Ad Targeting Capabilities Will Change
Google offers advertisers the ability to create lookalike audiences by uploading first-party data. For instance, you can pull email addresses of your top customers from your CRM to upload onto the platform. Then, Google identifies other users who share similar behavior through machine learning.
The number of users filtered out of potential audience segments has already increased because of the switch to opt-in ad preferences and states or territories with data privacy regulations. Also, the rate to which emails are matched with the personal identifiable information accessible to advertisers will decline as Google is beholden to the ad tracking and data privacy preferences of users. Marketers will need to use larger audiences sourced from first-party data to fuel campaigns, and may also need to consolidate campaign groups to account for smaller cohorts of users who opt-in to receiving ads.
3. First-Party Data Will Become Valuable Fuel to Digital Campaigns
As the lookalike audience example above shows, first-party data can be used to fuel audience targeting on paid media channels. Essentially, targeting precision will depend on how effective a company is at collecting and managing user data.
Email will become a valuable channel to engage directly with customers. Soon marketers will have to give customers a reason to opt-in to communications, instead of adding users to an email list and giving them the option to opt-out. This means companies will need to provide high value content or promotions to a user in exchange for their email address.
Some retailers and ecommerce sites offer a coupon or discount in exchange for an email address. On its own, a singular email address offers little value. But connected with the offer, companies have a list of individuals who have expressed some level of interest in a product or service. This behavioral information can help create lookalike audiences, or it can trigger a specific email nurture campaign.
For example, recently I was in the market for a new electric guitar. When I visited fender.com to browse their inventory, I received a popup offering free shipping on orders of $50+ simply by giving them my email address. The offer was appealing. I entered my email address. Soon after I found myself face to face with my dream guitar—a polar white Fender Stratocaster with a maple fretboard. I made the purchase (after a few decades of pushing it off). Now I receive emails from Fender, but I don’t mind.
Another way companies could harvest first-party data is to create a “logged-in state” to monitor specific user behavior—insights that can be meaningful when analyzed at the user level, but also in aggregate. Companies in industries like software as a service (SaaS) are well positioned to take advantage of this approach. However, other recurring service providers like utilities, bug & pest, and landscaping have an opportunity to capture customer data by dedicating a section of their own domain for customers to login and pay a bill. If tracked properly, the creation of an account can retroactively fill in a user’s behavior and provide meaningful customer insight.
4. Rapid Iteration of Ad Creative Will Be a Competitive Advantage
Marketing is a beautiful combination of art and science. And with PII data stripped away from marketers to gain advantages through niche targeting, the science of marketing will rely on testing art.
The concept of a digital advertisement’s “total value” on platforms can be calculated using the product of advertising bids and estimated action rates, added to the value to the end user (illustrated below). According to Nielsen, creative elements account for nearly 50% of ad performance. This means creative may be the single biggest driver of action rates, an amplifier of an ad’s total value.
Ad performance will rely heavily on testing creative elements to optimize action rates. But these tests take time. The pace at which marketers can test creative depends on how quickly they can coordinate between creative and digital media teams. The companies who can learn quickly what does—and doesn’t—work for their audience will gain an advantage as knowledge compounds.
Marketers may not yet realize the importance of data privacy regulations, and the ripple effect it will have on digital marketing. One thing is abundantly clear: savvy marketers will get serious about building a scaling a first-party data strategy.
If you haven’t already, ask your marketing team or agency for their perspective on this issue and what it means for your business. Or, request a consultation with a Silverback expert to explore how Google FLoC and data privacy changes might impact your business.