What does the the Privacy Sandbox delay mean for ad tech?

InMobi's Todd Rose (senior vice president of global business development and addressability) explores the real reasons behind Google's repeated delays and how the tech giant's decisions impact the broader ad tech ecosystem.

Google’s constantly shifting timeline for the Privacy Sandbox – embodied in its recent announcement that it would delay deprecation of the third-party cookie for yet a third time - reflects the profound impact of the evolving privacy landscape not only of the broader industry ecosystem, but on the tech giant itself. 

Here’s a glimpse into what might really be going inside the vaunted, multichromatic walls of Google’s boardroom, and what those discussions mean for everyone else.

The real reason for delay of third-party cookie deprecation

The industry's readiness to embrace the Privacy Sandbox and the ramifications of phasing out third-party cookies have been the focal point of discussions in ad tech. The primary reason cited by Google for the delay is the need to address various concerns raised by the industry concerning shortcomings in Privacy Sandbox capabilities. 

The IAB Tech Lab assembled a laundry list of complaints, spanning from brand safety concerns to lack of regard for the commercial requirements of industry participants to lack of granularity in reporting and insights. While all of this is indeed relevant, it may mask an even more fundamental driver of Google’s decision: the tech giant itself isn’t yet ready.

But not for technological reasons. Nor for lack of industry acceptance. Rather, for financial reasons. Why? The argument goes something like this.

First, Google has publicly committed to play by its own rules and eat its own dog food, meaning its own ad targeting practices will respect the opt-out choices of users, even if they’re logged-in users for whom Google holds a treasure trove of behavioral and intent data. 

While that is indeed admirable, it’s also a matter of necessity. The ad tech industry is already displeased at Google’s plans to be the arbiter both of targeting and attribution with Privacy Sandbox, which promises to erode many industry participants’ key points of differentiation. Were Google to reserve its proprietary user identifier for its own use at the exclusion of the rest of the industry on top of everything else, thereby relegating everyone else to a lesser version of user fidelity, it would face an inevitable avalanche of anti-competitive claims and certain action by the DOJ.

Second, initial testing of Privacy Sandbox by third parties indicated that implementation of Privacy Sandbox would lead to a 30% decline in advertising revenue for cookie-less Chrome users. While an enhanced version of Privacy Sandbox might mitigate this revenue loss, there’s no doubt that Google’s own display and video ad monetization will take a meaningful hit, which will be a bitter pill for both Google and its shareholders to swallow.

These delays of Privacy Sandbox launch take place against the backdrop of Google’s conscious and deliberate efforts to reduce its dependency on its third-party ad network. Indeed, from Q2 2020 through Q1 2024, Google's network business – the division that is more exposed to the impact of cookie deprecation than Search or YouTube – has declined from 16% to 12% of its total ad revenue. Over roughly that same period, YouTube has stayed stable at about 13% of total ad revenue, growing commensurately with Google's overall ad revenue and eclipsing Network revenue in early 2023.

While this may all be coincidental, the delays in cookie deprecation seem conveniently timed to allow the trajectory of YouTube revenue to cross an inflection point to help compensate for the impact of cookie deprecation on Google’s bottom-line earnings. Add the existential threat that artificial intelligence (AI) chat alternatives present to Google’s future search revenue, and the financial incentives for a delay become more apparent.

The stars might simply be aligning, but Google's leaders are too smart and strategic not to recognize the serendipitous confluence that a delay and further modified Privacy Sandbox can deliver. Google can simultaneously create goodwill with the industry by responding to its concerns while allowing time for these shifting dynamics of its revenue mix to play out.

What does this all mean for the rest of the ecosystem?

Google’s power over the ad tech ecosystem is profoundly evident in the simple fact that it can single-handedly postpone the onset of the very problem that everyone in the industry is clamoring to solve until Google is prepared to launch its own solution to that very same problem. Compounding this dynamic, Google's decision effectively delays the adoption of virtually every other third-party solution conceived to address the problem.

Adoption of alternative IDs by the buy-side, for instance, has been notoriously slow. Consequently, many publishers have also been slow to integrate with alternative ID vendors. Seller-defined audiences, which promise to enable advertisers to target granular audience profiles without reliance on identifiers, have yet to gain meaningful traction. If third-party cookies and device-level identifiers still exist at reasonable scale, why would advertisers jettison their use in favor of cohort-based solutions that don’t allow for the same level of one-to-one addressability and, more importantly, user-level attribution?

That isn’t to say there haven’t been some bright spots in the journey toward post-identifier addressability not dependent on the two major ecosystem players.

The New York Post's successful collaboration with Permutive on seller-defined audiences underscores the potential power of alternative solutions and the necessity for publishers to control their audience and revenue streams independently.

Data clean rooms / data collaboration solutions that combine and align advertiser first-party data with authenticated publisher data has increased significantly in the last year.

The emergence of synthetic, probabilistic server-side IDs have brought back some level of user-level addressability to environments without cookies.

But overall, the path to adoption for many promising solutions to the third-party cookie conundrum has been stalled by Google’s foot-dragging on actualization of the pending threat. So what are adtech industry participants to do in the meantime?

The path forward

These alternative solutions to cookie and ID loss are not slow to catch on because they lack merit. Rather, their lagging uptake is directly due to Google’s ability to defer making the impending threat a reality. Once Google finally does make good on its promise, these alternative solutions to Privacy Sandbox will suddenly reveal their utility.

So the further delay in third-party cookie deprecation presents a bit of a double-edged sword and a quandary for the industry. On the one hand, it provides stakeholders with more time to devise their strategic response and vendors to develop and refine their ID-less product offerings. At the same time, however, marketers’ reluctance to abandon the precious third-party cookie while it remains in existence presents a hurdle to prioritization of these initiatives, and stymies opportunities to test and refine these solutions at scale in the wild.

But it should be abundantly clear by now that if industry participants wish to avoid sole dependence on and further consolidation of power with Google, then they need to adapt quickly to the changing landscape and actively start laying the foundation for and testing these alternative solutions before the other cookie drops.