Adtech 2.0 — the loss of the third party cookie is about to change the advertising industry
Say goodbye to 2020 and also to the third-party cookies that allow ads to follow you.
Google is about to change how the advertising industry works by removing the third-party cookie inside Chrome.
But before that, let’s see how we got here…
Advertising technology, the tools that power the complex networks delivering ads on sites and apps, is back after years of underperformance.
- AdTech stocks, Trade Desk and Magnite, have surged over 3x in 2020.
- Pubmatic ($PUBM) went public with a 57% surge on the first day of trading.
The once troubled adtech industry
Over the past few years, adtech stocks struggled with several issues…
- Ad Blockers and regulations that scared investors off on limiting the potential to collect consumer data for targeted ads.
- Fear of Facebook and Google taking a greater share of advertising spend.
- Complexity of adtech that left investors with little understanding of the industry in the early days.
Sizmek, one of the world’s largest adtech players, went bankrupt in 2019 and left investors with a sour taste for adtech investments. The company had made a series of bad acquisitions and poorly built tech.
Despite these problems, adtech stocks that survived the initial adtech fallout had surged to all-time highs in 2020. COVID had inadvertently benefited adtech — by shifting physical ad spend towards digital mediums.
Adtech has also benefited from the growth in connected TV advertising (smart tv/streaming services) which is expected to grow 38% to a $7b industry in 2020.
Some of the problems with adtech still remain — further regulations to protect consumer privacy and the threat of Facebook, Google and Amazon taking more ad dollars.
For 26 years, adtech companies relied on using third party cookies to send targeted ads. In the past year, government pressure on enforcing user data privacy have led to changes in how tech giants collect data:
- In early 2020, Google announced its plans to get rid of third party cookies on Chrome by 2022.
- In June, Apple made it more difficult for advertisers to target users by sending them a notification to opt out of being tracked in the new iOS 14.
These changes are likely to reduce overall adtech revenue but it’s still too early to understand the full impact.
For investors… Don’t let cookies spoil your appetite
Here’s how some adtechs will be impacted
- Trade Desk ($TTD) may see the smallest impact as it doesn’t rely on cookies for the majority of the ads it serves.
- Magnite ($MGNI) made a big push into connected TV, which doesn’t rely on cookies to serve ads, through its merger with Telaria in April — seeing less impact from the loss of cookies.
- Criteo ($CRTO), who relies heavily on Chrome’s cookies to retarget ads, could see the biggest impact.
Investors should also be cautious of adtech stocks’ high valuations. Richard Kramer, senior analyst of Arete, warns that some investors may be buying into hype and momentum around the industry.