Advertisers have always turned to digital media for scale. But what happens when the mechanisms that make that scale so readily available disappear? Advertisers are finding out two forces limit their power to target audiences as efficiently in the past.  

The first is consumer behavioral change, as the rise of AI search is reducing overall traffic to publisher pages. As a result, ad supply fell by 40% in the most recent quarter. 

Then there’s the decline of cookies. Browsers like Safari haven’t supported cookies for some time, consumers face opt-ins on every page they visit, and a patchwork of state and other local privacy regulations have sprung up in recent years. As a result, at most, only half of all web traffic is linked to cookies today. 

Advertisers now face a smaller amount of available quality inventory than they had a year ago, and cookies only allow them to target across half of this inventory. As these trends continue, advertisers face the impossible situation of watching their performance metrics collapse and prices go up unless they change their targeting strategy.  

Swimming in a shrinking data pool 

With fewer impressions linked to cookies and other legacy identifiers, the basic laws of supply and demand dictate that these impressions will create greater competition. Advertisers will pay more for impressions linked to an identifier, and they may pay more for audience data that helps them find some kind of edge.  

If only it were so simple. One of the worst kept secrets in digital advertising is that everyone relies on pretty much the same third-party data to target their consumers. And keep in mind that the underlying data used to generate cookies is suspect from a quality and ethical standpoint at best. 

Take the auto industry as an example. There are only a handful of reputable automotive data providers, and these third-party providers are used by nearly every brand in the auto industry. This includes the manufacturers and extends out to include insurance providers, local dealerships, accessory brands, and anything else auto related.  

What about the efficacy of that data itself? Another widely-known but rarely acted upon truth is that cookie audiences go stale very quickly. Most are updated every 30 days, and some are updated less often. That means advertisers may be targeting a consumer who has already finished their purchase journey or is no longer interested in a product or service. 

Overcoming the performance dip 

The result is that advertisers bid higher and higher to reach consumers within a shrinking audience pool. The best-case scenario is that the advertiser outbids the competition to reach an in-market consumer with a relevant offer, albeit at a steadily increasing CPM with steadily declining quality. 

There are several worst-case scenarios. Advertisers may be upping their bid thresholds to reach consumers who are no longer interested, because the data driving the transaction is out of date. The decreased cookie pool may mean that even if the consumer is in-market, a brand may hit the same consumers in this pool again and again, oversaturating the audience. Or the opposite could be true. Increased competition may mean that a brand doesn’t win enough impressions to generate the necessary exposure to drive an outcome. 

There are lots of winners in this scenario. Buying platforms will gladly accept their cut, while data providers are happy to supply audiences to anyone who wants them. But this isn’t a sustainable future for advertisers, who are going to lose scale, watch ROI shrink, and fail to reach new customers at scale. 

We’re not going to see any reversal in the declines in identifiers and overall traffic. Advertisers who continue to rely solely on these types of audiences are headed for a death spiral as they increase their bids and watch ROI decline.  

 What very few acknowledge is that it’s possible to reach the rest of the internet audience: the half that doesn’t have an identifier attached. Advertisers need to explore alternative ways of building addressable audiences through other signals, including geographic, social search, contextual, and other data signals that will not disappear amid declines in identifier support. 

There is a wealth of privacy compliant, PII-free data available to advertisers to deliver messages to targeted audiences. While this could certainly help verticals like auto avoid overly competitive auctions, it also opens the door to regulated industries like pharma, healthcare and finance. The arrival of privacy-compliant, audiences free of legacy identifiers allows these brands to deliver targeted messages without PII, ensuring they are in compliance with all state laws. 

The future is available to advertisers. They just need to see the writing on the wall with cookies and other legacy identifiers, and then act on it. 

Originally posted on: martechview.com