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InContext / An inside look at the business of digital content

Identity crisis: Why Google and Facebook dominate digital advertising

May 19, 2020 | By David J. Moore, CEO – BritePool

Last year, Google and Facebook accounted for over 60% of all U.S. digital advertising spending, and 33% of all U.S. advertising spending.

It is tempting to simply assume that Google and Facebook’s outsized share of advertising revenues reflect the popularity of their services with consumers. In fact, consumer attention falls short as an explanation for the advertising success of these services.

For example, research by Comscore found that consumers spent 34% of their online time with Google and Facebook properties. However, these services captured 63% of all U.K. digital ad spending. Google and Facebook received almost double the ad spending their consumer attention warranted.  Mary Meeker has found the same anomaly.

Sherlock Holmes famously said “the art of disguise is knowing how to hide an object in plain sight.” The often-overlooked reason for Google and Facebook’s rise to dominance of digital advertising reflects this principle. To experience the great majority of the benefits of Google and Facebook, users must, with few exceptions, log in. Hidden in plain site is the often unrecognized value of identity knowledge.

Because users must log in, Google and Facebook know, with near perfect certainty, the identities of their users. The net result is these services can offer advertisers targeted ads, to reach specific individuals, with near-perfect accuracy.

Free services create valuable knowledge

In addition, Google and Facebook collect a wealth of information about their visitors, as a by-product of the services they offer free of charge. This data enables these services to offer advertisers, of all sizes, the opportunity to target look-alikes. By comparing a list of current customers, these services help companies to grow by identifying individuals who “look like” their current customers, with respect to key attributes, and accurately deliver targeted ads to these look-alikes.

The industry often refers to Google and Facebook as “Walled Gardens,” because they operate their own advertising eco-systems, without the aid of third parties. In fact, a better description is “Moated Gardens.” The “price of admission,” to cross the moat and enjoy the botanical wonders free-of-charge, is a visitor’s identity.

Google and Facebook’s 1:1 accuracy in identifying visitors stands in stark contrast with the identity knowledge of most publishers. How many publishers can claim to know the verified identities of 50% or even 30% of their visitors?

Identity disorder

To enable publishers to compete with the Moated Gardens, a sprawling ad tech industry has developed. Phrases such as identity graphs, third-party cookies, plus probabilistic and deterministic determinations all reflect activities that help web publishers estimate the identity of website visitors, without visitor logins. Unfortunately, these sprawling efforts at estimating the identities of visitors are an ineffective means of competing with services that offer verified identities.

First, an internal study by Pubmatic found that a typical advertiser was willing to pay a 261% CPM premium for a verified identity, as opposed to an anonymous identity, while a cookie-based derived identity realized a far lower 90% CPM premium. Second, studies find that the error rate associated with the delivery of ads, based on third-party cookies, is shockingly high. For example, one study found that cookies-based ad campaigns, on average, overstated the reach to targeted individuals by 200%, and understated frequency by 66%. Cookie-based targeting led advertisers to mistakenly believe their ads were delivered to triple number of actual, individual ad recipients.

Today, publishers are understandably focused on the immediate challenges to ad revenues created by the pandemic. However, over the next 19 months, many web publishers will confront yet another challenge to their revenues.

Post-cookie identity

Cookie-derived estimates of identities are far less valuable than verified identities.  Nonetheless, third-party cookies do enable publishers to realize CPM’s that, on average, are 90% to 108% higher than the prices derived from otherwise anonymous users. By 2022, publishers will lose these vital, higher CPM revenues as Google follows Apple to eliminate third party cookies.

BritePool (and others) are building identity solutions that enable web publishers to effectively compete with Google and Facebook, and achieve the high CPM’s associated with verified users. Strategies and solutions that will bring web publishers competitive advantages versus the Moated Gardens, are also hiding in plan site.

Yet, there seems to be an impractical assumption in the offices of most web publishers. There’s a notion that there is adequate time to address the disappearance of cookies.

In fact, this notion of time is an illusion. To take advantage of emerging identity solutions, web publishers must focus on developing user logins. This will allow them to gain both identity knowledge and the associated high-CPM advertising. Moreover, the testing, development, and successful implementation of these initiatives will necessarily span lengthy periods of time. There is no quick fix.

When Google announced it planned to eliminate third-party cookies, we put a countdown clock in our office, and our publisher website. Theses clocks continue to tick away, and the available time for effective publisher action is quickly evaporating.


About the author

David J. Moore is the CEO of BritePool. Prior to founding BritePool, Moore was Chairman of Xaxis and global President of WPP Digital. Earlier, Moore was the founder of 24/7 Real Media, which he sold to WPP. He has also served as Chairman of the Board of the IAB and Chairman of the IAB Tech Lab.

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