End of an era of ad targeting

Welcome to The Rebooting. If this email was forwarded to you, please consider subscribing to receive updates every Monday and Wednesday. Against better judgment, I decided this week to dip into the various changes afoot in how ads are targeted – no supply-path optimization discussion, I promise.

The key to sustainable media business models is having a tight relationship with your audience. That means understanding them. Audigent helps leading publishers like Penske Media and Fandom to unlock the power of their audiences with an industry-leading data activation, curation and identity platform supported with best-in-class tools and teams that boost business outcomes. Audigent was founded on the belief that first-party audience data is a critical asset, today and into the cookieless future. The Audigent Platform is a flexible, turnkey solution that drives direct revenue for publishers of all sizes.

What we now call the nearly $500 billion digital advertising business started with a humble banner ad on HotWired.com in 1994. From the start, digital advertising was embedded with three original sins:

• There was no identity system to the web, giving rise to the use of tracking cookies as a proxy.
• The audience data was separated from the media impression.
• The success metric was the click.

These three facets took the emerging publishing industry on a path to where it is today: beset with privacy regulations by governments and tech companies that are overturning how digital advertising will work, concentrated power in a handful of sprawling tech companies and a publishing system with misaligned incentives that have led to the rise of the adversarial web and the rise of paywalls.

The industry itself should shoulder much of the blame. User privacy has long been treated as an irritant, left to the last panel of the day at ad tech conferences, the proverbial “last thing standing between you and cocktails.” Privacy advocates were treated as weirdos, not people to be taken seriously. And over the years, the response I most often heard to questions about the use of promiscuous collection and use of data: We don’t use personally identifiable information and besides the direct mail guys are sketchier.”

This maximalist view – “Privacy is dead, get over it” – wasn’t a good bet. It allowed the mostly harmless machinations of ad tech to simply make banner ads more effective to be painted much more nefariously. Normal people never bought the idea that ads were “personalized” rather than targeted. It’s why so many people are convinced Facebook or others are listening to their conversations to target ads. There’s not a ton of trust in what’s happening in the back room.

The moves to rein in ad targeting will have a raft of winners and losers, like any change. Don’t believe those that take extremist views one way or the other. Weirdly, democracy will not collapse because the third-party cookie is going away, but by the same token, many businesses will be hurt as the ability to target ads and count them becomes harder and more expensive.

The pendulum will swing back toward context. In a recent episode of The Rebooting Show, Audigent’s Jake Abraham pointed to retargeting as a catalyst for moves to crack down on the use of data in digital advertising. That’s because retargeting ads replaced pop-ups as the symbol of “annoying” and “creepy” digital advertising. The emerging solutions, including Google Topics, will shift targeting from a less granular level and rely more on the context of the environment (the original targeting technique) to match ads with prospective customers.

Primary-engagement media will gain. As I’ve written, I believe the next phase of digital publishing will favor quality over quantity in terms of audiences. Those publishing brands that put community at their core will thrive since it easily lends itself to a direct relationship that will make those audiences far more valuable than a random collection of people who mindlessly tapped a link on their Facebook feed. There’s a reason that Squarespace found podcasts such an efficient way to acquire customers. The newsletter boom is a signal of where publishing is going.

Feed content will suffer. Former Bleacher Report CEO Howard Mittman used a neat “need vs feed” framework for the publishers with real audiences that seek them out vs those who pump out content designed to catch fleeting attention from algorithmic platforms like Google and Facebook. Indirect audiences will be harder to monetize.

Understanding your audience will be critical. First-party data is thrown around as a catchall, with many misunderstandings and even debates about whether there’s such a thing as zero-party data. Ultimately, publishers will need an in-depth understanding of their audience in order to build out sustainable business models. It’s not enough to fall back on the “see a cookie, hit a cookie” approach.

Data will continue to play a pivotal role in advertising. There are always a group of people nostalgic for the past. But there’s no going back. Anytime I hear horror stories about the darkness that will descend on digital advertising as targeting gets harder, I wonder if there’s an industry in the world that will use less data in five years than it does now. Hard to believe that will come to pass in advertising. The type of data, how it’s collected and the rules around it will change, but data will remain the cornerstone of digital advertising. There’s a reason why retailers are building these massive ad businesses: they have valuable purchase data.

DTC just got harder. The moves that Apple in particular has taken to rein in ad targeting wiped out $300 billion in market value from Facebook, which has lost 45% of its market capitalization since September. It’s no surprise that following Facebook’s disastrous earnings Shopify’s stock has lost 33 percent since the start of February. Many new brands were born on the back of cheap distribution via Facebook ads. Take that distribution away and DTC becomes a lot more difficult and in the short term will benefit incumbents. Acquiring customers is going to be much more expensive for many businesses.

Facebook rivals will benefit. Facebook’s biggest strategic mistake was not building its own phone, something it perhaps learned in its determination to be a leader in virtual reality hardware. Without its own mobile system, Facebook was always at the mercy of Apple. For now, other platforms, including Apple, stand to benefit from Facebook’s expected loss of $10 billion in ad revenue this year. Retail media will continue to grow, as evidenced by Walmart’s ad business taking off.

New models will gain traction. There isn’t one ad business. There are many ad businesses. Advertising will remain a part of most publishers’ models, even if the core of many models will shift to recurring payments. The best way to make money in publishing remains several ways. Over the long run, publishers that have real connections with a highly valued (and difficult to reach) group of people will develop new ways of making money that go beyond the ads or subs dichotomy. New identity solutions will emerge beyond just using email addresses, particularly as crypto wallets expand beyond their current 100 million users.

Ad tech will evolve. My rule of thumb has long been: Ad tech always wins. Forget agencies, ad tech are like cockroaches, always finding a path to survival. Take GDPR, which presumably threatened a big chunk of the industry. It hasn’t had much impact, other than to annoy people with endless cookie consent pop-ups – and even spawned entirely an entirely new category in consent management technologies. Disruption comes in many forms, including new rules. The ad tech industry will find a way as it always does.

5 things to check out

Substack’s most popular paid climate publication, Heated, is going on hiatus. Solo endeavors are hard. There’s no larger organization to cover up for your inefficiencies and bad days, adding more pressure. Hitting the wall becomes inevitable. “My brain feels in a constant state of overwhelm,” writes Emily Atkin, creator of Heated. I suspect we’ll see more newsletter burnout since the content treadmill isn’t for everyone. Collectives offer a middle ground that would help.

The Coinbase CEO needlessly stepped in shit when he boasted how the crypto exchange’s Super Bowl ad didn’t come from an ad agency. The Martin Agency’s CEO clapped back with claims her agency pitched Coinbase the QR code concept in the fall – and it was eventually created by Accenture Interactive, an agency. Shitting on agencies is as old as the agency business. What’s more alarming is how many of these needless scrapes Armstrong gets into, which is indicative of crypto’s immature us-against-them dynamic that will hold back its mainstream adoption.

Little Things became a cautionary tale of the Facebook publishing era. Founder Joe Speiser goes through the lessons learned from the experience of going from zero to 40 million visitors in four years only to lose 90% of organic traffic from Facebook nearly overnight in 2018. Joe’s takeaways aren’t surprising but worth repeating: “We were addicted to the FB volume of traffic and no other source could move the needle.”

Maybe the magazine will make a comeback, even if it’s often delivered digitally. Magazines are great media products because they’re highly curated, with a point of view, regularity and are finite. If you separate those qualities from the glossy packaging, you can see a bright future for “magazines,” even if most people read them on a phone or in an email.

Ros Atkins of the BBC is possibly the best at the moment in doing news explainers (in English, at least). It’s rare that videos explaining the news “go viral,” but he manages it regularly. Atkins explained his process to the Reuters Institute.

Thanks for reading and subscribing. Send me a note with any feedback you have. My email is bmorrissey@gmail.com (or you can just hit reply to this email). If you’re interested in sponsoring The Rebooting, check out the media kit and get in touch.