I'm heading back to Miami today after a couple weeks away. Big thanks to the PPA and DLD for inviting me to speak at their events. This week, I spoke to Permutive CEO Joe Root about why respecting data privacy doesn’t mean you can’t make money from advertising, and also have some thoughts on subscriptions in a downturn and the fraught nature of travel in the Covid era.
The digital ad industry has always claimed, quite earnestly if not entirely persuasively, that it is serious about data privacy. The devil, of course, was in the details. For far too long the line given pretty much boiled down to there wasn’t “personally identifiable information” used (that was debatable), people got free services and content in exchange for “personalized” ads, and where is the harm exactly? Privacy was always literally and figuratively the last panel of the day before cocktails.
It’s clear that won’t work in the next era of digital advertising. That’s why I’m happy to be working with Permutive as an underwriting sponsor of a series of The Rebooting Show that looks at how publisher ad businesses are changing. Since its founding eight years ago, Permutive has bet on privacy being a key consideration in the future of ad tech. As part of the series, I spoke to Permutive CEO Joe Root to delve into what privacy-conscious advertising looks like – and if it’s possible. Some highlights:
The GDPR was a harbinger. Four years ago, GDPR took effect. Most U.S. companies didn’t understand how far-reaching the General Data Protection Regulation would be to them. The landmark move to rein in the collection and use of user data without consent is not without its critics, but it set in motion a focus on privacy that led to Apple’s move to crack down on data collection and the ultimate end of the third-party cookie.
“What we've seen is regulation just takes a long time to build. In the near term, no, it hasn't been as effective as it promised to be. But fast forward a couple years of GDPR, and enormous companies have been forced to re-architect their entire data infrastructure to adapt for GDPR.”
U.S. dominance in digital markets is ending. The tech industry has been mostly an American creation, dominated by U.S. platforms and largely operating along the extreme free market proclivities that are a hallmark of American capitalism. But Europe remains a regulatory superpower, and it is determined to use those powers to shape digital markets.
“We're starting to see the earliest signs in Europe of regulators having teeth, and forcing that perspective onto the rest of the ecosystem. Going forward, we see regulation is far more powerful than platforms. We think regulators are bigger than Google and bigger than cookie changes.”
Consent – real consent – is inevitable. Clicking out of endless cookie consent pop-ups is a wonder of traveling in Europe, on par with being able to take a train to the airport. GDPR led to these consent requests as ad tech’s response to the regulation, giving the appearance of consent but not really. That’s going to change.
“We're seeing consent actually brought up to the top and a user having real optionality. The opt-out rates are staggeringly high, and that's a problem in maybe Italy or Spain. Fast forward a year, it will be a problem through Europe and fast forward three or four [years], and will likely be a problem globally.”
Context is having a moment. The original targeting signal for advertising was context. Someone reading Field & Stream is likely into the outdoors if you’re selling fly-fishing gear. Digital advertising shifted to taking all kinds of signals in order to target ads to individuals. With the collection and application of other signals growing more difficult and expensive, the pendulum is shifting back to contextual signals.
“What we're starting to realize is contextual signals are hugely important because the industry is so used to having them packaged up as third-party data. If I want access to those contextual signals in a post-GDPR world, I need to go to the place where the user has the relationship and is generating those [signals] because that's the only stable place where consent is going to remain.”
Big publishers stand to benefit. The new era of digital advertising will have winners and losers, with many still to be determined. One divide that will likely open is between the biggest publishers that have enough user data of their own to be compelling to advertisers who can’t simply rely on the cookie targeting and the long tail of sites that will likely find competing for ad dollars far more difficult.
“For the top 500 publishers in the world, this is going to be an amazing change. All of a sudden they have deep data and that data only belongs to them. Advertisers have to go to them. For the long tail of publishing, though, if you're not in that top 500, how do you monetize in this world? This is a potentially unintended consequence that a huge chunk of the internet becomes unmonetizable.”
Subscriptions in a downturn
I tend to think of digital media through the lens of a series of pendulums that are always off kilter. Part of that is the herd nature of markets, part of that is the propensity of publishers to grasp for a gamechanger that will magically fix deep-seated business model issues. For decades, the business model pendulum was firmly on the side of advertising, with only a few outliers on the subscriptions side. Now it’s a lot more crowded over there as advertising has lost its luster as the basis of a sustainable digital publishing business strategy.
We’ve started to see a correction to balance subscriptions with ads. After all, nobody is converting more than 10% of their audience to subscriptions, so you don’t need a Nobel Prize in economics to know that you need to adapt to make money from your entire audience. For most publishers, ads and subs together are the answer, with advertising playing a top of the funnel role while subscriptions and memberships dominate the lower funnel and “super fans.”
Sounds great, but what about the impending recession as inflation continues to beset the economy? One line of thought is that subscriptions are a safe harbor since the first thing cut in downturns is advertising, no matter how many articles consultants write on Ad Age and Forbes that this is a bad strategy. Subscriptions are typically locked in for longer periods, often annually. But plenty of signs are emerging that subscriptions will come under pressure as people cut back on discretionary spending. That will become more acute as many publishers have relied on cheap intro offers that skyrocket in cost after the trial period. What’s more, many publishers delayed price increases on subscriptions during Covid. Sending a price increase email now – I just got one from The Economist, raising the 12-week cost of a subscription by 14.4% to a healthy $79 ($342 over the course of a year) – is a risky proposition.
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Final note: Summer travel
The summer travel season will be an oddity this year. I came to Europe last summer, and most places were desolate due to the Delta wave. This year should be far different, and somewhere like Madrid is already crowded with visitors. But I have to wonder how the latest Covid wave will affect U.S. travelers. Finishing this newsletter in the lobby this morning, I overheard a distinctive American accent asking to extending her hotel stay because she tested positive for Covid and can’t get back to the U.S. There’s going to be a lot more of that. I’ve noticed a lot of people out and about while coughing. Most people have gotten less cautious about eating and drinking inside, and masks have been rare in all three places. The U.S. requirement of a negative Covid test for re-entry is going to lead to more cautionary tales of people stuck on trips because of a positive test. Those stories will end up making more people cautious about going abroad for a vacation.
Thanks for reading and listening. Send me a note with feedback: firstname.lastname@example.org.