Apple and Google Are Killing the (Ad) Cookie. Here’s Why

(Bloomberg) -- Farewell, advertising cookie. After years of debate, Apple Inc. and Google are making separate moves to effectively kill the software marketers use to track your online activity and tailor ads specifically for you. The moves are upending the way companies have reached audiences and made money from ads since the earliest days of the internet. Apple’s plan has pleased privacy advocates but left mobile app developers, ad-tech firms and rivals (chiefly Facebook Inc.) worried and fuming. And Alphabet Inc.’s Google is nearing a similarly contentious update to its Chrome browser, which will radically alter how ads are targeted on websites. With these changes, both companies are wielding the kind of power normally only governments have.

1. What are Apple and Google actually doing?

Starting on Monday, Apple will require apps running on its devices to get consumer permission before tracking their activity on other apps and websites. The company has already outlawed the use of unauthorized third-party cookies on its Safari web browser. Now, that prohibition is coming to apps. Google, meanwhile, is inventing a cookie alternative, rather than crushing it. Google’s feature will let marketers continue to target desired buckets of consumers, just no longer using an individual’s web history. In theory, this will make it more difficult to mesh ad-tracking with information collected from data brokers and other providers, which has let marketers target consumers based on age, race and gender. Both companies are justifying their moves as improving privacy. Google,though, has pitched its effort as a balancing act between privacy and the survival of web publishing, which relies on ads.

2. How will Apple’s change work?

Ever use an app and see a screen pop up asking to use your phone’s microphone or camera? Apple’s change will work like that. Apps that want to track for advertising on iPhones and iPads will have to prompt users to opt in. Apple calls this App Tracking Transparency, or ATT. And it bans app makers from gunning for potential installers or lapsed users with data from other apps, such as purchase history and app-usage patterns. For many months, Apple has signaled this was coming, but still many app businesses are terrified of the financial damage. Presumably, many people won’t opt into being tracked, which will render ad campaigns less effective and potentially harder to measure. One game developer called Apple’s new rule an “atomic bomb.” Apple says consumers should decide how their data are used. The company also thinks “the industry will adapt” to its ATT standard, Craig Federighi, Apple’s software chief, told European regulators.

3. How will Google’s change work?

At some point (Google hasn’t said exactly when), the company’s Chrome browser will nix third-party cookies that target ads based on individual behavior. Google calls its proposed replacement Federal Learning of Cohorts (FLoC), a mouthful for new computer science jujitsu that will lump web surfers together around particular interests. Visit Bloomberg.com, for instance, and you may be categorized as a financial news consumer along with thousands of other people. Go to People.com, you may be put in a cohort of celebrity gossip fans. Advertisers can market to the groups you are in, but your identity (and web habits) will be hidden “in the crowd,” according to Google, which calls this a “privacy-first” system. In trials, Google says, marketers converted their commercial messages to sales at 95% of the rate they did with the old cookie system.

4. What’s the reaction to Apple’s ATT?

Privacy groups are applauding. The Electronic Frontier Foundation, a civil liberties group, called Apple’s ATT system “one more step in the right direction.” Even some ad-dependent companies sang praises. Jeremi Gorman, business chief for Snap Inc., told investors last week that the social app-maker supported Apple moves and planned to adopt Apple’s accompanying mobile ad framework. Others are less happy. The loudest griper is Facebook, whose core business relies on ad targeting and access to Apple device owners. Facebook even ran TV ads decrying Apple’s moves as harmful to small businesses since they rely on reaching niche consumer groups. Facebook and others accuse Apple of hindering digital ad rivals while developing its own marketing business in the background. Terence Kawaja, CEO of co-founder digital media investment bank Luma Partners, took to Twitter, posting a black image of Apple’s famous logo. “Forget their privacy hand-waving,” the image read. “They want to be big in ad tech.”

5. What’s the reaction to Google’s FLoC?

It’s harder to hear applause for FLoC. “Google, please don’t do this,” the EFF pleaded. “The technology will avoid the privacy risks of third-party cookies, but it will create new ones in the process.” Smaller rival web browsers, such as Firefox and Opera, have rejected FLoC as an inadequate fix for privacy. Microsoft Corp. gave a wishy-washy response to FLoC for its Edge browser. Unsurprisingly, ad-tech companies that compete with Google are not enthused. They think FLoC further increases the power of Google, the largest online ad-seller, which has lucrative first-party data from logged-in Gmail accounts and properties like YouTube. Google’s ad-tech rivals mostly lack this direct relationship with consumers. Several competitors have teamed with web publishers to create cookie alternatives. European regulators are also questioning how Google is phasing out third-party cookies as part of its long-running antitrust probe of the company.

6. Who’s likely to lose?

Mobile advertising inside apps is a sizable business, and Apple’s move has the potential to gut the sector. Companies that rely on these ads for sales or growth have warned investors of coming damage, particularly as Apple’s iOS mobile operating system typically brings in more money for developers than Android. Then there are the wealth of ad agencies, ad-tech firms and data brokers that thrive on web cookies. Bank of America research estimated Apple’s change could shave as much as 3% off Facebook’s revenue. Google’s upcoming move offers less certainty. Executives at Criteo SA, an ad re-targeting firm, told investors they were working with Google to prepare for FLoC, but weren’t yet sure of the financial impact.

The Reference Shelf

• How Apple’s change could make the big get bigger.
• Digiday has good explainers on both Google’s cookie alternative, its “privacy sandbox,” and Apple’s ATT.
• A look at how Google’s cookie slaughter is playing to advertisers and publishers.
• Why the ad industry’s reckoning is actually coming next year.

©2021 Bloomberg L.P.