When Google feels the need to go public about the state of the current ad revenue ecosystem, you know something’s up.
And “what’s up” is actually “what’s down.” According to a new study by Google, digital publishers are losing more than half of their potential ad revenue, on average, when readers set their web browser preferences to block cookies – those data files used to track the online activity of Internet users.
The impact of cookie-blocking is even bigger on news publishers, which are foregoing ad revenues of around 62%, according to the Google study.
The way Google conducted its investigation was to run a 4-month test among ~500 global publishers (May to August 2019). Google disabled cookies on a randomly selected part of each publisher’s traffic, which enabled it to compare results with and without the cookie-blocking functionality employed.
It’s only natural that Google would be keen to understand the revenue impact of cookie-blocking. Despite its best efforts to diversify its business, Alphabet, Google’s parent company, continues to rely heavily on ad revenues – to the tune of more than 85% of its entire business volume.
While that percent is down a little from the 90%+ figures of 5 or 10 years ago, in spite of diversifying into cloud computing and hardware such as mobile phones, the dizzyingly high percentage of Google revenues coming from ad sales hasn’t budged at all in more recent times.
And yet … even with all the cookie-blocking activity that’s now going on, it’s likely that this isn’t the biggest threat to Google’s business model. That distinction would go to governmental regulatory agencies and lawmakers – the people who are cracking down on the sharing of consumer data that underpins the rationale of media sales.
The regulatory pressures are biggest in Europe, but consumer privacy concerns are driving similar efforts in North America as well.
Figuring that a multipronged effort makes sense in order to counteract these trends, this week Google aired a proposal to give online users more control over how their data is being used in digital advertising, and seeking comments and feedback from interest parties.
On a parallel track, it has also initiated a project dubbed “Privacy Sandbox” to give publishers, advertisers, technology firms and web developers a vehicle to share proposals that will, in the words of Google, “protect consumer privacy while supporting the digital ad marketplace.”
Well, readers – what do you think? Do these initiatives have the potential to change the ecosystem to something more positive and actually achieve their objectives? Or is this just another “fool’s errand” where attractive-sounding platitudes sufficiently (or insufficiently) mask a dimmer reality?
One thought on “Cookie-blocking is having a big impact on ad revenues … now what?”
It’s important to understand that a person can’t actually block ads merely by changing her or her browser settings to block cookies. They’ll still see ads, but they won’t be tailored just for them.
Why? Because the cookies that Google AdSense and similar services send to your computer with each Web page impression, mouse click or other activity contain personalized profiles which the AdSense uses for micro-targeting ad content. If those cookies are blocked, no profile is retained. No profile, no micro-targeting.
With micro-targeting, less is truly more for advertisers. Micro-targeting substantially boosts Google’s ad revenue per impression because advertisers are willing to pay a big premium for quality versus quantity. “Quality” means viewership which closely matches the profiles advertisers are targeting, thus improving the performance of advertising campaigns while minimizing — or even reducing — total advertising spend.
When more people block cookies, ad revenue per impression will inevitably decline as quality degrades, but it’s actually possible that total ad revenue might rise as the number of impressions increases — and in that case advertisers feel the pain while Google laughs all the way to the bank.
Viewers, on the other hand, couldn’t probably care less because an ad is still an ad, even if it isn’t tailored and therefore slightly less interesting than before. As the Russians say about their Finnish neighbors, “You can fry a Finn in butter, but he’s still a Finn.”
Bottom-line: Google’s initiatives with respect to privacy and cookie blocking are nothing more than putting lipstick on a pig. You’ll notice that none of these initiatives have anything to do with ad blocking technology, which Google as well as publishers and advertisers regard as an existential threat and therefore something to stave off at all costs.