1. Comment
  2. Comment
March 16, 2021

Google’s Privacy Sandbox is a step closer to a post-cookie world, but at what cost for competition?

By GlobalData Thematic Research

Google’s Privacy Sandbox project moves the advertising industry a step closer to a post-cookie world in which users’ data privacy is respected. Google is phasing out third-party cookies and “will not build alternative identifiers to track individuals as they browse across the web.”

However, Google’s dominant position in digital advertising means that it will lead the transformation but could also undermine competition in the market.

The advertising industry is reinventing itself

Reform of the digital advertising industry set in motion by the General Data Protection Regulation (GDPR) is at a critical juncture. Cookies enable hyper-targeted ads, which are of great value to advertisers, but they also pose risks to individual users’ privacy.

Google received one of the biggest penalties under GDPR since the regulation came into force in 2018. The French watchdog fined the tech giant $60m for lack of consent when processing personal data for advertising purposes.

In the post-cookie world, advertisers increasingly seek a return to first-party data, based on direct interaction with the consumer, and reduce their dependence on third-party data. Both Apple and Mozilla (developers of the Firefox browser) have declared war on third-party cookie use, while Google has announced that it will phase them out on its Chrome browser by 2022.

Enter Sandbox

Promising an end to invasive personal profiling, Google’s new method of targeted advertising, dubbed “Privacy Sandbox” (which is being trialled by Chrome), will use a range of different tools to track users across the web and target them with personalised ads. The product uses Federated Learning of Cohorts (FLoC), which clusters large groups of people with similar interests. According to Google, this approach “effectively hides individuals ‘in the crowd’ and uses on-device processing to keep a person’s web history private on the browser”.

The Financial Times notes that, despite the changes, the experience of online advertising for users will not change. Users will still receive messages tied closely to their web-browsing habits that follow them from site to site.

What is more, while the Privacy Sandbox may be more secure than web tracking, it can significantly impact publishers and the digital advertising market. The stakes are so high that Google’s project has attracted scrutiny from the UK’s Competition and Markets Authority (CMA) over a possible infringement of competition law. The fear is that it “could cause advertising to become even more concentrated on Google’s ecosystem at the expense of its competitors”.

Ad-funded business re-design on the cards

A 2020 study of the digital advertising market by the CMA found that 80% of the UK’s £14bn online ad spend went to Google and Facebook. It concluded that this dominance created barriers to entry, unequal access to data, and potential conflicts of interest. Against this background, Google’s project will redesign the ad-funded business model for the whole industry. The search giant could gain an informational advantage from creating user cohorts, thus abusing its dominant position.

According to James Rosewell, director of Marketers For An Open Web, “The Privacy Sandbox would effectively create a Google-owned walled garden that would close down the competitive, vibrant open web.” Critics point out that the changes will weaken the position of publishers competing against Google to monetize ads. At the same time, Google’s Chrome browser will enable it to channel more business to its other services.

While some of the concerns might be exaggerated, Google’s leading role in reshaping digital advertising can’t be ignored. As a dominant search platform, as well as a key player in the adtech supply chain and owner of vast amounts of user data, Google has a lot at stake as we enter the post-cookie world.