Understanding the 'Cookie Apocalypse' and its impact on online advertising

Cookies have become part and parcel of our daily lives as we search the web, with notifications interrupting our search to ask whether we are happy to accept all, some, or none of our activity being tracked. Yet, with escalating concerns about online privacy, web users’ experience and use of cookies might soon change. As web browsers continue to adapt to more sophisticated methods of managing users’ data, the so-called 'cookie apocalypse' has now become a top concern for most consumer business leaders.

Firstly, What Are Cookies?

Cookies are small pieces of data that websites store on a user's device, typically in the form of text files. These files contain information about the user's browsing activity on a certain website. There are two main axes of segmentation within cookies, depending on how they are applied to a user (first versus third party), and what they are used for (for example, for strictly necessary, functional performance, or targeting purposes).

Whereas first party cookies are mainly utilised to enrich the user experience on a particular website, third-party cookies have primarily served the purpose of 'targeting', becoming an indispensable tool for marketers and advertisers.

More specifically, third-party cookies gather user data across multiple website domains, which could then be utilised by third parties, such as advertisers, to refine their targeting and marketing strategies. For instance, a user viewing a product on an online marketplace and subsequently encountering an advert for the same product on another website might be attributed to a third-party cookie.‍

And What Do We Mean by “Cookie Apocalypse”?‍

The term "cookie apocalypse" is an expression used to describe the potential disruption in the way web browsers handle and interact with cookies, particularly the third-party kind used for targeting customers with personalised experiences and advertisements.

In response to the evolving digital landscape, and the stronger emphasis on digital privacy brought about by regulations such as the General Data Protection Regulation (GDPR) in Europe and the California Privacy Rights Act (CPRA) in the U.S., most web browsers have already embraced alternative models to block third-party cookies by default. What was initially a regulatory push to guarantee greater online privacy has now translated into a collective new attitude, from both customers and businesses, towards this goal. With the web market leader, Google Chrome, expected to phase out the use of cookies on its browser by the end of this year, businesses have to come to terms with this change and adapt.‍

How Will the “Cookie Apocalypse” Affect Businesses?‍

Since the early 2000s, third-party cookies have been an essential tool for businesses to better understand customers' online behaviour and craft effective advertising strategies. As a result, the decline of third-party cookies is a substantial worry for businesses heavily dependent on digital advertising to reach customers. It will also affect the business models of most advertisers, as they must now rethink their channel strategies to remain competitive. A recent report by L.E.K. Consulting revealed that the need to manage data privacy risks associated with third-party cookies is a growing concern, especially for marketing and customer experience leaders.

More specifically, businesses who are directly impacted by the ‘cookie apocalypse’ can be categorised into three main groups: advertisers, marketers, and web browsers and mobile operating systems (OS).

The “cookie apocalypse” may have the effect of impacting the revenues of advertisers, with small to medium businesses in this sector expected to be the most affected. This is because these organisations may rely on third-party cookies to track user behaviour across different websites; information that is then used to craft targeted advertisements and increase users’ engagement. Small businesses are less likely to adapt promptly to this change as they might lack the financial resources to invest in new solutions that can improve advertising effectiveness from first-party data alone.

Second on the list are marketers. They may experience a marginal impact on the effectiveness of their strategies due to the use of third-party cookies for campaign performance measurement. However, they can mitigate this by adopting updated strategies and tools such as privacy enhancing technologies (PETs) which minimise personal data use. Conversely, the 'cookie apocalypse' could present a competitive advantage for those marketers who more promptly navigate these changes, potentially allowing them to gain market share from competitors as their relative customer acquisition capabilities improve.

On the other side of the spectrum we have web browsers and mobile OS, who are already developing new solutions to enable businesses to deliver effective advertising campaigns without having to rely on third-party cookies. These businesses are in a better position to benefit from the phase out of third-party cookies. If they so wish, there is an opportunity to compel advertisers toward first-party data and browser-provided tools, such as Google’s Privacy Sandbox, which is likely to create revenue opportunities.‍

How Should Business Respond?‍

Although these businesses are affected differently by the phasing out of third-party cookies, they will all experience changes in the visibility of customers’ online behaviour. Ultimately, they will need to transition to more privacy-focused alternatives. Some of these solutions will involve adopting a first-party data model, which collects data directly from interactions with online customers, as well as a consent-based marketing strategy that utilises explicit user content for data usage and personalisation.

As a result of these developments, many consumer business leaders are now prioritising the testing of new methods to connect and personalise customer experiences online. For some businesses, the phase out of third-party cookies can constitute a great opportunity to review their data and marketing strategy, and reset their approach so that they capitalise on new technologies now available that can help them further segment and personalise their marketing strategies.

Currently, the market is divided between businesses that have already completed the cycle of worrying, preparing, and planning for these changes, and those that are still just realising the impact this change will have on their direct to consumer marketing strategies. As the digital landscape evolves, businesses that strategically navigate the 'cookie apocalypse' will emerge not just more resilient but positioned for growth in a dynamically changing market.