The internet industry shuddered last year when Apple introduced
privacy measures for the
iPhone that threatened to upend online tracking and
cripple digital advertising. Google pledged similar privacy actions.
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But in less than a year, another type of internet tracking has
started taking over. And it is having the unintended effect of reinforcing the
power of some of tech’s biggest titans.
The shift suggests that gathering people’s online data for targeted
advertising is not going away. That has implications for how companies make
money online and how the internet operates. It also underlines the advantages
built up by some of the largest digital platforms.
“They’ve entrenched their own power,” Eric Seufert, a media
strategist and the author of Mobile Dev Memo, a blog about mobile advertising,
said of Apple and Google.
For years, digital businesses relied on what is known as
“third-party” tracking. Companies such as Facebook and Google deployed technology
to trail people everywhere they went online. If someone scrolled through
Instagram and then browsed an online shoe store, marketers could use that
information to target footwear ads to that person and reap a sale.
But that kind of invasive tracking is being scaled back or
blocked by Apple and Google to protect people’s privacy. Last April, Apple
introduced a feature so iPhones users could choose not to be followed by
different apps. Google also announced a plan to disable the tracking tech in
its Chrome web browser by 2023 and said it was working to limit data sharing on
Android phones.
Now tracking has shifted to what is known as “first-party”
tracking. With this method, people are not being trailed from app to app or
site to site. But companies are still gathering information on what people are
doing on their specific site or app, with users’ consent. This kind of
tracking, which companies have practiced for years, is growing.
In other words, Google is accumulating data on its own users’
search queries, location data and contact information. Pinterest is doing the
same with its users on its site and app, while TikTok is gathering information
on the people who are on its app. The New York Times also does first-party
tracking.
The rise of this tracking has implications for digital
advertising, which has depended on user data to know where to aim promotions.
It tilts the playing field toward large digital ecosystems such as Google,
Snap, TikTok, Amazon and Pinterest, which have millions of their own users and
have amassed information on them. Smaller brands have to turn to those
platforms if they want to advertise to find new customers.
Many small businesses already appear to be spending less on
digital ads that rely on third-party data, such as Facebook and Instagram ads,
and are reallocating marketing budgets to platforms with lots of first-party
information, such as Google and Amazon.
“Anybody who is in their right mind and wants to reach a large
audience still has to go to them,” Douglas C. Schmidt, a computer science
professor at Vanderbilt University who researches digital privacy, said of the
big tech sites.
Consider Stoggles, a company in Pasadena, California, that sells
fashionable protective eyewear online. The firm, which spends about $250,000 a
month on online advertising, has long earmarked roughly 80% of its marketing
budget to buying Facebook and Instagram ads to identify new customers, said Max
Greenberg, one of the founders of Stoggles.
But after Apple made its privacy changes, Stoggles trimmed its
spending on Facebook and Instagram ads to 60% of its budget, Greenberg said.
The company instead bought more Google search ads, Amazon ads to reach shoppers
and ads on TikTok to appeal to young people.
“The days of supercheap and very targeted online marketing are
over,” Greenberg said. “We need to experiment with other platforms.”
Some tech companies said they did not consider the monitoring,
collecting and storing of data on their own users to be tracking. Gathering
such first-party information, they said, is the digital equivalent of a
supermarket’s keeping tabs on customers in its store and using that data to
persuade businesses to advertise or offer coupons.
Google and Apple said the shift was not a way to strengthen
their own standings. Apple said it had to follow the same rules as everyone
else. Google said it had pledged to regulators that it would not adopt privacy
measures that gave itself an edge. It also said it was working on software to
help advertisers and website publishers that did not have access to first-party
data.
Theoretically, Facebook and Instagram would also benefit because
they have plenty of first-party data. But their parent company, Meta, has had
trouble navigating the transition. In February, the company said it expected to
lose $10 billion in sales this year because of Apple’s privacy measures.
To adapt, Meta has hired hundreds of engineers to work on new
ad-targeting systems that do not rely on following people across the internet.
It has also asked small businesses to share information about their customers
with it to improve the performance of its ads.
In a statement, Meta said that the effort was not a way to evade
Apple’s privacy rules and that advertisers must get permission from their users
to share data with it. It added that it had created the program before Apple’s
changes and that Google and Snap did similar things. Mark Zuckerberg, Meta’s
CEO, has said his company expects to benefit from the tracking changes in the
long run.
While Meta adjusts, some small businesses have begun seeking
other avenues for ads. Shawn Baker, the owner of Baker SoftWash, an exterior
cleaning company in Mooresville, North Carolina, said it previously took about
$6 of Facebook ads to identify a new customer. Now it costs $27 because the ads
do not find the right people, he said.
Baker has started spending $200 a month to advertise through
Google’s marketing program for local businesses, which surfaces his website
when people who live in the area search for cleaners. To compensate for those higher
marketing costs, he has raised his prices 7%.
“You’re spending more money now than what you had to spend
before to do the same things,” he said.
Other tech giants with first-party information are capitalizing
on the change. Amazon, for example, has reams of data on its customers,
including what they buy, where they reside, and what movies or TV shows they
stream.
In February, Amazon disclosed the size of its advertising
business — $31.2 billion in revenue in 2021 — for the first time. That makes
advertising its third-largest source of sales after e-commerce and cloud
computing. Amazon declined to comment.
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