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$350 bn digital ad industry in focus as internet reshapes for privacy

As Apple and Google enact privacy changes, businesses are grappling with the fallout, Madison Avenue is fighting back and Facebook has cried foul

Topics
digital privacy | Digital technology | Internet

Brian X. Chen | NYT  |  San Francisco 

Internet, data, tech, privacy
Driven by online privacy fears, Apple and Google have started revamping the rules around online data collection

introduced a pop-up window for iPhones in April that asks people for their permission to be tracked by different apps.

recently outlined plans to disable a tracking technology in its Chrome web browser.

And Facebook said last month that hundreds of its engineers were working on a new method of showing ads without relying on people’s personal data.

The developments may seem like technical tinkering, but they were connected to something bigger: an intensifying battle over the future of the The struggle has entangled tech titans, upended Madison Avenue and disrupted small businesses. And it heralds a profound shift in how people’s personal information may be used online, with sweeping implications for the ways that businesses make money digitally.

At the center of the tussle is what has been the internet’s lifeblood: advertising.

More than 20 years ago, the drove an upheaval in the advertising industry. It eviscerated newspapers and magazines that had relied on selling classified and print ads, and threatened to dethrone television advertising as the prime way for marketers to reach large audiences.

Instead, brands splashed their ads across websites, with their promotions often tailored to people’s specific interests. Those digital ads powered the growth of Facebook, and Twitter, which offered their search and social networking services to people without charge. But in exchange, people were tracked from site to site by technologies such as “cookies,” and their personal data was used to target them with relevant marketing.

Now that system, which ballooned into a $350 billion digital ad industry, is being dismantled. Driven by online privacy fears, and have started revamping the rules around online data collection. Apple, citing the mantra of privacy, has rolled out tools that block marketers from tracking people. Google, which depends on digital ads, is trying to have it both ways by reinventing the system so it can continue aiming ads at people without exploiting access to their personal data.

If personal information is no longer the currency that people give for online content and services, something else must take its place. Media publishers, app makers and e-commerce shops are now exploring different paths to surviving a privacy-conscious internet, in some cases overturning their business models. Many are choosing to make people pay for what they get online by levying subscription fees and other charges instead of using their personal data.

Jeff Green, the chief executive of the Trade Desk, an ad-technology company in Ventura, Calif., that works with major ad agencies, said the behind-the-scenes fight was fundamental to the nature of the web.

“The is answering a question that it’s been wrestling with for decades, which is: How is the internet going to pay for itself?” he said.

The fallout may hurt brands that relied on targeted ads to get people to buy their goods. It may also initially hurt tech giants like Facebook — but not for long. Instead, businesses that can no longer track people but still need to advertise are likely to spend more with the largest tech platforms, which still have the most data on consumers.

David Cohen, chief executive of the Interactive Advertising Bureau, a trade group, said the changes would continue to “drive money and attention to Google, Facebook, Twitter.”

The shifts are complicated by Google’s and Apple’s opposing views on how much ad tracking should be dialed back. wants its customers, who pay a premium for its iPhones, to have the right to block tracking entirely. But Google executives have suggested that Apple has turned privacy into a privilege for those who can afford its products.

For many people, that means the internet may start looking different depending on the products they use. On Apple gadgets, ads may be only somewhat relevant to a person’s interests, compared with highly targeted promotions inside Google’s web. Website creators may eventually choose sides, so some sites that work well in Google’s browser might not even load in Apple’s browser, said Brendan Eich, a founder of Brave, the private web browser.

“It will be a tale of two internets,” he said.

Businesses that do not keep up with the changes risk getting run over. Increasingly, media publishers and even apps that show the weather are charging subscription fees, in the same way that Netflix levies a monthly fee for video streaming. Some e-commerce sites are considering raising product prices to keep their revenues up.

Consider Seven Sisters Scones, a mail-order pastry shop in Johns Creek, Ga., which relies on Facebook ads to promote its items. Nate Martin, who leads the bakery’s digital marketing, said that after Apple blocked some ad tracking, its digital marketing campaigns on Facebook became less effective. Because Facebook could no longer get as much data on which customers like baked goods, it was harder for the store to find interested buyers online.

“Everything came to a screeching halt,” Mr. Martin said. In June, the bakery’s revenue dropped to $16,000 from $40,000 in May.

Sales have since remained flat, he said. To offset the declines, Seven Sisters Scones has discussed increasing prices on sampler boxes to $36 from $29.

Apple declined to comment, but its executives have said advertisers will adapt. Google said it was working on an approach that would protect people’s data but also let advertisers continue targeting users with ads.

Since the 1990s, much of the web has been rooted in digital advertising. In that decade, a piece of code planted in web browsers — the “cookie” — began tracking people’s browsing activities from site to site. Marketers used the information to aim ads at individuals, so someone interested in makeup or bicycles saw ads about those topics and products.

After the iPhone and Android app stores were introduced in 2008, advertisers also collected data about what people did inside apps by planting invisible trackers. That information was linked with cookie data and shared with data brokers for even more specific ad targeting.

The result was a vast advertising ecosystem that underpinned free websites and online services. Sites and apps like BuzzFeed and TikTok flourished using this model. Even e-commerce sites rely partly on advertising to expand their businesses.

But distrust of these practices began building. In 2018, Facebook became embroiled in the Cambridge Analytica scandal, where people’s Facebook data was improperly harvested without their consent. That same year, European regulators enacted the General Data Protection Regulation, laws to safeguard people’s information. In 2019, Google and Facebook agreed to pay record fines to the Federal Trade Commission to settle allegations of privacy violations.

In Silicon Valley, Apple reconsidered its advertising approach. In 2017, Craig Federighi, Apple’s head of software engineering, announced that the Safari web browser would block cookies from following people from site to site.

“It kind of feels like you’re being tracked, and that’s because you are,” Mr. Federighi said. “No longer.”

Last year, Apple announced the pop-up window in iPhone apps that asks people if they want to be followed for marketing purposes. If the user says no, the app must stop monitoring and sharing data with third parties.

That prompted an outcry from Facebook, which was one of the apps affected. In December, the social network took out full-page newspaper ads declaring that it was “standing up to Apple” on behalf of small businesses that would get hurt once their ads could no longer find specific audiences.

“The situation is going to be challenging for them to navigate,” Mark Zuckerberg, Facebook’s chief executive, said.

Facebook is now developing ways to target people with ads using insights gathered on their devices, without allowing personal data to be shared with third parties. If people who click on ads for deodorant also buy sneakers, Facebook can share that pattern with advertisers so they can show sneaker ads to that group. That would be less intrusive than sharing personal information like email addresses with advertisers.

“We support giving people more control over how their data is used, but Apple’s far-reaching changes occurred without input from the industry and those who are most impacted,” a Facebook spokesman said.

Since Apple released the pop-up window, more than 80 percent of iPhone users have opted out of tracking worldwide, according to ad tech firms. Last month, Peter Farago, an executive at Flurry, a mobile analytics firm owned by Verizon Media, published a post on LinkedIn calling the “time of death” for ad tracking on iPhones.

At Google, Sundar Pichai, the chief executive, and his lieutenants began discussing in 2019 how to provide more privacy without killing the company’s $135 billion online ad business. In studies, Google researchers found that the cookie eroded people’s trust. Google said its Chrome and ad teams concluded that the Chrome web browser should stop supporting cookies.

But Google also said it would not disable cookies until it had a different way for marketers to keep serving people targeted ads. In March, the company tried a method that uses its data troves to place people into groups based on their interests, so marketers can aim ads at those cohorts rather than at individuals. The approach is known as Federated Learning of Cohorts, or FLOC.

Plans remain in flux. Google will not block trackers in Chrome until 2023.

Even so, advertisers said they were alarmed.

In an article this year, Sheri Bachstein, the head of IBM Watson Advertising, warned that the privacy shifts meant that relying solely on advertising for revenue was at risk. Businesses must adapt, she said, including by charging subscription fees and using artificial intelligence to help serve ads.

“The big tech companies have put a clock on us,” she said in an interview.


Kate Conger contributed reporting.

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First Published: Fri, September 17 2021. 13:05 IST
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