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A privacy-centric new world

By Eric Picard

I’ve been writing about advertising technology and digital advertising since 1999. Every five to seven years we go through a new wave of transformation. The current wave is the Privacy wave, and it’s transforming the way that the infrastructure of the ad technology space functions. Previously we were reliant on digital identifiers, generally enabled by cookies on the web, and AdIDs in the mobile app space, but today these mechanisms have been deprecated or are in the process of being deprecated. This has decimated a huge swath of the industry that relied on these IDs to make all sorts of decisions, including linking together multiple tracking methodologies – to power 3rd party data. That industry has shrunk significantly, since users are becoming impossible to track that way.

This transformation is largely driven by increasing consumer demands for privacy and stringent regulatory requirements. Today, the focus has shifted towards privacy-centric methodologies, with first-party data taking center stage. In this comprehensive overview, we’ll explore the current state of programmatic advertising, delve into the innovative strategies employed to maintain effectiveness while upholding privacy, and highlight the strategic implications for advertisers.

Understanding Programmatic Advertising Today

At its core, programmatic advertising is the automated buying and selling of online ad space, allowing brands to target specific audiences at scale. This process involves real-time bidding (RTB), where ad inventory is bought and sold on a per-impression basis in a few hundred milliseconds. Programmatic platforms use sophisticated algorithms to analyze vast amounts of data, enabling advertisers to reach their desired audiences with precision.

Without cookies and AdIDs, the whole industry is in the process of retooling.

The Role of First-Party Data

First-party data refers to information collected directly from consumers either through brand-owned channels such as websites, apps, and loyalty programs on the advertiser side, or through the publisher’s relationship with the consumer. This data is gathered with explicit user consent, making it both reliable and compliant with privacy regulations like the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA).

The importance of first-party data cannot be overstated. It provides a comprehensive view of consumer behavior, preferences, and demographics, enabling advertisers to create personalized and relevant ad experiences. By leveraging first-party data, brands and publishers can build direct relationships with their customers. This data can be used in many valuable ways, but importantly can be used to deliver the correct advertising to consumers, and to measure effectiveness of advertising.

Privacy-Centric Targeting Methodologies

In response to the growing emphasis on privacy, advertisers have adopted several innovative targeting methodologies that prioritize user rights while maintaining effectiveness:

Contextual Targeting: In a world where user data is increasingly protected, contextual targeting offers a privacy-friendly alternative. This method involves placing ads based on the content of the web page rather than individual user data. For example, an ad for hiking gear might appear on an article about nature trails. By focusing on the context rather than the person, advertisers can maintain relevance without compromising privacy. Contextual has been around forever, but new approaches to contextual are being used in much more sophisticated ways. What’s old is new again.

Cohort-Based Targeting: Google’s Privacy Sandbox initiative popularized the concept of privacy-first approaches to targeting users, their first broadly discussed version was called Federated Learning of Cohorts (FLoC), which groups users into cohorts based on similar browsing patterns. Google has reiterated and revised their approach several times, and hasn’t really gotten traction. But that’s mostly because they’re Google, and the industry isn’t sure they trust the approach they have come up with. While Google’s approach isn’t gaining traction, the overall approach of building privacy-safe cohorts of users for anonymous targeting is sound, and may well get cracked at the industry level sooner or later. This approach allows advertisers to target clusters of users with shared interests, removing the need for individual tracking.

Identity Solutions: With the decline of third-party cookies, identity solutions have emerged as a viable alternative. These solutions use hashed identifiers like email addresses or phone numbers to create a persistent identity across different platforms. The success of these solutions depends on user consent and robust data protection measures, offering a way to recognize users while respecting their privacy. While these approaches work technically, getting to scaled anonymous identity is a real challenge that still is being overcome.

Data Clean Rooms: These secure environments allow brands and publishers to collaborate and combine their first-party data without exposing user identities. Data clean rooms enable advertisers to gain insights and enhance targeting precision while adhering to privacy regulations. By facilitating data collaboration in a controlled setting, clean rooms offer a solution to the challenges posed by privacy laws. Note that while this approach overcomes the legal issues, it’s still not quite clear that consumers will be accepting of the approach as it becomes normalized and written about in the press.

Beyond Basic Targeting: Curated Audiences and Inventory

Publishers lost a lot of ground in the first wave of programmatic advertising, which pushed all the power to the media buyer. This created a long period of data asymmetry where publishers didn’t know why an advertiser was buying any given impression – and the knowledge of their own audience was ignored by the buyer. Things have changed with the loss of 3rd party data, cookies and IDs.

The industry has responded by rallying around the sell-side of the market for the first time in many years. The outcome is what is being called Curated Audiences and Curated Inventory. Effectively the sell-side of the market has access to an immense amount of information on their side of the fence, about the consumers visiting their sites, and about the behavior of those consumers. This all is Publisher First Party Data, and is able to be blended with other data sources by the Publisher to create large pools of inventory that are curated to the needs of the buyer. Vendors and the publishers themselves have found ways to build high scale and highly effective targeting and optimization technologies based on these approaches, and package the inventory into programmatic deals (PMPs):

Curated Audiences: Publishers can create pre-defined audience segments based on aggregated data insights and consumer behaviors. These segments are crafted using a combination of consented user data (the consumer said the publisher can use it) and non-personal data, ensuring compliance with privacy regulations. By curating audiences, advertisers can buy advertising at scale that allows them to reach relevant consumers without relying on intrusive data collection methods.

Curated Inventory: Publishers can package their ad inventory using their own data and intelligence, often with the support of sophisticated external data providers. This approach allows advertisers to target ads to appropriate audiences without using personal data. For instance, sophisticated geo-targeting can be employed to deliver regionally relevant ads, enhancing user engagement without compromising privacy. Some vendors use decades old approaches in new ways, using census and other forms of data that allow demographic, psychographic, and other types of targeting by overlaying the location of the user when they receive the ad against known information about that location. For instance, assuming someone on a golf course at 3PM is likely a golfer.

These curated solutions provide advertisers with powerful tools to reach their desired audiences while navigating the complexities of privacy regulations.

Strategic Implications for Advertisers

The shift towards privacy-centric methodologies is not just a technical adjustment; it’s a strategic imperative. Advertisers must align their programmatic strategies with these approaches to maintain consumer trust and comply with legal requirements. This involves investing in data infrastructure, nurturing direct customer relationships, and staying informed about regulatory changes.

Moreover, as privacy becomes a selling point, brands that demonstrate a commitment to safeguarding user data can differentiate themselves in a crowded marketplace. Transparent data practices and clear communication about how consumer data is used can build loyalty and encourage engagement.

Overcoming Challenges in the Programmatic Space

While the transition to privacy-centric advertising offers numerous benefits, it also presents challenges. Advertisers must adapt to new technologies and methodologies, requiring investment in training and infrastructure. Additionally, the loss of third-party cookies necessitates a reevaluation of measurement and attribution models, as traditional methods may no longer apply.

To overcome these challenges, collaboration within the industry is crucial. Brands, agencies, publishers and technology providers must work together to develop standards and best practices that prioritize privacy while delivering effective results. By fostering an ecosystem of transparency and cooperation, the industry can navigate the complexities of programmatic advertising in 2024 and beyond. The IAB Tech Lab is a great example of an industry organization working to drive this kind of collaborative adoption and roll out.

The Future of Programmatic Advertising

As we look to the future, programmatic advertising will continue to evolve in response to technological advancements and changing consumer expectations. The integration of artificial intelligence (AI) and machine learning will enhance targeting capabilities, allowing for even greater personalization while respecting privacy. Additionally, the rise of connected devices and the Internet of Things (IoT) will present new opportunities for advertisers to engage with consumers in innovative ways.

Ultimately, the key to success in programmatic advertising lies in embracing privacy as a core value. By doing so, advertisers not only comply with regulations but also foster trust and loyalty among their audiences. In 2024 and beyond, the challenge will be to innovate continuously while keeping consumer privacy at the forefront of every decision. As the landscape continues to evolve, staying informed and adaptable will be essential for advertisers seeking to thrive in this dynamic environment.

The current state of programmatic advertising is characterized by a delicate balance between effective targeting and stringent privacy requirements. First-party data has emerged as the linchpin of modern advertising strategies, offering a path to personalization that respects user privacy. By adopting innovative targeting methodologies and maintaining a strong commitment to privacy, advertisers can successfully navigate the programmatic landscape, building lasting relationships with their audiences in the process.