The Cookie Apocalypse And The Future Of Marketing Attribution

Part I: What are third party cookies and what are its future implications?

8 min read April 14, 2022
Domain Insights Commerce

Over the last few years, consumer data privacy has become an increasingly important issue. More than ever before, the products people buy are internet-connected (like the smart thermostats, Amazon Alexa, and the Whoops or other fitness trackers seemingly on everyone’s wrists). These are just a couple of examples of the many devices sold that give third parties access to your data — where you go, what Instagram accounts you follow, what spending habits you have, and more. This data is collected, sold, shared, and, sometimes, hacked, and deciding what risks you’re comfortable taking as a consumer should be your own decision. Hence why Europe implemented a comprehensive privacy law, the General Data Protection Regulation, that requires companies to ask consumers permission to share their data. While there is not a single law in the U.S that covers all privacy, a mix of several laws over the last few years embody a similar level of governance over consumer data protection. These major privacy laws are one of the many reasons Big Tech has started to enact change to comply with new consumer privacy standards.

There has been a lot of chatter about the impact privacy updates from Apple and Google will have among advertisers and marketers. The death of third-party cookies and mobile tracking has been an ongoing discussion for many over the last year, but it’s not until recently that marketing teams and e-commerce operators have noticed the impact. For some context on this matter, Google announced that Chrome would no longer support third-party cookies by the end of 2022, and ~12 months ago also announced its decision to end behavioral targeting (i.e. not develop or allow alternative identifiers to replace cookies on its ad products by third parties). In layman’s terms, use this example: when you are looking to furnish your new home, the retargeted ads you see on TikTok and Instagram after searching the phrase “L-shaped couch” in Google will be less personalized, and it will be harder for marketers to track your journey to purchase.

And that is just from Google. Apple finally rolled out the iOS 14.5 update, which comes with a new feature called App Tracking Transparency (ATT) that prevents third-party applications from tracking users across the web. So what exactly does this mean? Historically, Apple granted third-party applications easy access to consumer data by defaulting to allow tracking when downloading an application on your iPhone or iPad. But now, with ATT, consumers get the option to opt-in or opt-out of being tracked across their web usage. Here’s a look at the privacy evolution:

This structural change has propelled the chatter amongst advertisers and marketers since it is harder to drive value productively and cost-effectively from campaigns. When apps cannot track user behavior, it becomes increasingly difficult for advertisers to know what ads to show. So while Apple has claimed this as a huge victory for consumers, it is viewed as the opposite by marketers. The ability to target audiences and measure the impact ads have on driving engagement and/or conversions is severely impacted. As a result, major ad platforms like Facebook are being handed a myriad of challenges.

But taking a step back, it’s important to understand the way we arrived at this crossroad. Traditionally, marketing involved the use of billboards, flyers, and brochures, print ads all over newspapers, broadcasting, cold-calling, and direct mail. For a more visual representation, think Don Draper in Mad Men brainstorming Coca Cola’s next TV commercial that was used in the series finale, and in real life back in 1971.

Up until the development of the internet in the 1990s, traditional marketing was pretty much the only type of marketing. Now, in the era of social media and websites, digital marketing has grown in importance and become a meaningful portion of advertising spend for brands, retailers, and enterprises across the globe. In fact, digital media spend captured ~65% of ad dollar allocation in 2021 relative to traditional marketing channels, and will likely continue to grow over time.

Among the many digital marketing channels that exist, Facebook has been widely regarded by many brands, retailers, and agencies as the most performant channel of them all. Its power as an ad platform not only comes from the sheer reach it has across huge audiences (Facebook, Instagram, WhatsApp) but also from its ability to give business owners crucial information about potential customers including their purchases, preferences, credit ratings, incomes, jobs, and much more. Facebook allows business owners to inspect audiences, see demographical analytics, and take advantage of third-party data to help hyper target audiences with posts/ads based on data-driven insights that lead to better conversion. The advertising platform Facebook has built is genius; it’s a game of chess, not checkers. And because Facebook has historically generated such a strong return on ad spend (ROAS) for organizations of all types, and especially for direct-to-consumer (DTC) merchants, the amount of ad dollars marketing teams threw, and continue to throw, towards it is astronomically high.

Yet, in the last two years, Facebook as a marketing channel has begun to degrade. So much money was being poured into digital marketing, for obvious reasons, that it made the cost to acquire a customer very high and the ROAS multiple very low. After speaking to a handful of DTC merchants recently, I heard that the top-of-funnel cost per action (CPA) (essentially the cost to get someone to purchase your product) had increased from $40 to $220! A portion of that is driven by the increased competition for digital ad space from the growing number of DTC merchants in the e-commerce world, but another leading cause of these wild CPA prices are the third-party data changes I previously alluded to.

To be successful, ad platforms like Facebook need to understand what a user is doing off-site to properly serve the right ads to consumers that lead to conversion. With iOS 14.5’s ATT rollout, limited access to off-site information for Facebook and other social platforms means that targeting, optimization, and tracking get worse, and will likely degrade further as more consumers opt-out of tracking. Marketers are not seeing the same level of scale they previously saw on Facebook because the niche audience Facebook used to find on their behalf is no longer trackable. Facebook has already prepped advertisers for this by eliminating insights into performance beyond seven days from a click, and they are going to lose even more insight with time. As a result, companies are reallocating advertising spend away from Facebook and towards other marketing channels. One agency I spoke to told me that 90% of its clients have ALREADY reduced Facebook spend in search of stronger marketing efficiency elsewhere. So the end of pixel tracking and soon the end of third-party cookies means digital media spend will become increasingly anonymous…kinda.

Much of this reallocation of ad spend is a testament to the increasing amount of data-driven insights e-commerce operators, entrepreneurs, and growth marketers are making regarding business strategy success. In e-commerce at least, many DTC brands have been spending less time on improving operational efficiency because the e-commerce spike from COVID compensated for areas of misalignment and inefficiency. As the pace of COVID-fueled growth has slowed, a switch has flipped in the minds of merchants who want to continue to grow profitably. They are beginning to diversify ad spend across multiple channels (TikTok, YouTube, SMS, e-mail marketing, influencer marketing, in-game, etc.) to optimize for better ROAS. One of the fastest growing channels is TikTok.

Brands can advertise on TikTok in four main ways: 1) creating quality original content 2) paying TikTok for ad placement 3) collaborating with influencers who promote on behalf of a brand, and 4) whitelisting an influencer’s account to run their own ads. Influencer marketing (#3 and #4) have taken off dramatically as alternatives to top-of-funnel marketing on Facebook. You can now pay people like Charli D’Amelio or Jackson Mahomes (jk, Mahomes won’t work) to help drive better brand recognition given their immense followings — and brands work with both macro and micro-influencers to reach different segments of audiences and drive varying ROAS.

This is all to say that operators are getting better at multi-channel diversification and optimization. With the newest privacy controls making Facebook advertising far less successful, marketers are waking to different forms of marketing for 1) top-of-funnel and prospecting 2) retargeting, and 3) retention and customer acquisition. Facebook still wins for prospecting, Google for retargeting, and Attentive & Klaviyo for retention — but knowing how to properly manage how much to spend and when to spend on each channel is no walk in the park.

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