Innovation Monitor: FLoCs and a Cookie-Less Future
Welcome to this week’s Innovation Monitor.
A major conversation in media and advertising right now is a “cookie-less future.” As companies like Apple lead the way with major changes to Safari, and most recently iOS, even companies built on tracking-led ad revenues like Google are forging their own paths.
The world where marketers could depend on a cookie to help track users around the web and keep marketing that pair of shoes you looked up once is likely coming to an end, and signals major changes to the entire ad-tech infrastructure that underlies and funds so much of our digital spaces.
First, as a piece of fun internet trivia to throw around this weekend, the cookie was invented in 1991:
According to the man himself, cookies are named after the computer science term “magic cookie,” as discovered by Clouseau on Google Answers. The Jargon File describes a magic cookie as “something passed between routines or programs that enables the receiver to perform some operation; a capability ticket or opaque identifier.”
So…What does a post-third-party cookie world look like? How can companies like Google adapt? For Google, their answer is based on the AI method of Federated Learning of Cohorts, or FLoC. This is a way for businesses to reach people with content and ads by clustering them in groups of similar interests, in the process protecting individuals’ privacy — and the company’s ad business. (On-device processing also keeps a user’s web history private.)
This week we’re digging into FLoC and IDFA — another system that tries to balance consumer privacy with targeted advertising — and how these systems will affect the ad landscape — and everyone on the sidelines — in the coming years. We’ll explain how FLoC works, and dive deep into the pros and cons of the method. Before we proceed, check out Jonathan Foote’s slightly technical tweet thread on FLoC.
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Erica Matsumoto Shepherding Google’s FLoC Neil Campling, an analyst at Mirabaud Securities, describes FLoC as a sort of behavioral credit score that replaces something “users hate and Google doesn’t need.” What does that mean exactly? We searched far and wide, and the best explanation we found was from The Verge:
FloC is a proposed browser standard that, in Google’s words, will enable “interest-based advertising on the web” without letting advertisers know your identity. Instead, you’ll be associated with a “cohort,” a group of users sufficiently large enough to make you at least semi-anonymous to the companies targeting you.
That’s the simple explanation. The technical one gets very complicated very quickly. Here’s a quick version. Chrome browsers will use algorithms (the “Federated Learning” part) to create a very large number of “cohorts,” groups of people that share certain qualities and interests. Each person’s individual browsing history is kept private and never shared with anybody, but the browser itself will look at the history and then assign a user to one of those cohorts.
When you visit a website, Chrome will tell that site that the visitor is part of cohort 198273 (or whatever) and then it’s up to the website to know that cohort 198273 (or whatever) is interested in pickup trucks and shoes with vegan leather. Since Chrome will never assign a user to a small cohort (Google has proposed that it will wait until there are “thousands” in a group), your identity as an animal-loving coal roller is theoretically protected.
Chrome itself isn’t assigning any content labels to these FloCs; Google is leaving that to the ad tech industry to figure out. So you won’t be able to open up a privacy page inside Chrome and see what it thinks you’re interested in (though there’s theoretically nothing stopping a third-party website from telling you).
Either way, advertisers are frustrated by the uncertainty. In the end, Google seems to come out on top: “Google will continue to use powerful information about individuals to run ads on its own services. So when you log in to Google Search or YouTube, the company will know who you are, and can link your online behavior to your identity,” writes Bloomberg.
This thread from Jason Kint does a great job in outlining the potential conflicts of the FLoC model:
Permissions for advertisers Actually, Chrome isn’t the first to block third-party cookies by default. It’s the third (or will be, when it phases out third-party cookies completely by 2022). The first was Tor, and the second was Safari, which made the announcement in March last year. Starting with Safari 13.1, Apple began to block all third-party cookies. According to the company, this wasn’t big news — they were already blocking most of these cookies anyway.
Apple has led the charge for consumer privacy — or, at least, some compromised version of it — since 2012, when it introduced the Identifier for Advertisers (IDFA), a randomly generated number representing iOS users that allowed ad networks to identify individuals without learning their personal information.
The industry — and especially Facebook — was shaken when Apple announced that sometime this spring, IDFA tracking would require explicit consent from users.
AdExchanger reacted last week with “IDFA Loss Will Kill A/B Creative Testing,” while Mark Zuckerberg — after months of fighting — turned around this March and said the changes will, in fact, strengthen Facebook’s position. (Some of the tech giants have accepted the change.)
Zuckerberg: “The thing that I’ve been mostly focused on is that a lot of these changes are going to make it harder for small businesses and developers. And I think the situation is going to be challenging for them to navigate. I just think it’s one of the reasons why Facebook has been a bit outspoken on this is, there are certain principles that we care about and empowering individuals is one of them.” The bottom line There are several sides in this fight. The apparent winners are the companies dictating the terms — Google and Apple — while Facebook and the ad industry in general sort of react to things, and justifiably so, given they’re getting the brunt end. Or as Digiday calls it, “a byzantine maze of conflicted emotions.”
Google gets a tighter grip on its half of the digital ad duopoly, but the move is still a win for privacy advocates. Third-party cookies “were the most privacy-invasive technology in the world for a while,” said Bennett Cyphers, a technologist at civil liberties group the Electronic Frontier Foundation.
With Apple, they sell devices and digital services where the advertising is basically just being Apple. So there are zero upsides with invasive tracking. And it’s genuinely just better for users, and will sell more phones… and make people like Apple more.
Media companies are in a grey zone. While larger players like The NY Times have been preparing a first-party data approach for a year, others reliant on personalized adverts, like smaller publishers, will feel the impact if they don’t have a similar solution ready.
As Azeem Azhar pointed out in The Essential Ethical Quandary of Industry, “industry-driven research may be lucrative and comfortable, but researchers are ultimately employed by a company with a profit motive, not the academy charged with furthering the frontiers of knowledge.”
While Azhar was criticizing Google’s doublespeak around ethical AI, the point is that what’s better for the people and what’s better for the bottom line is often at odds in Big Tech. Users, then, are on the sidelines on this one. They get more privacy, yes, but not on their terms. This Week in Business History April 13th, 2000: Metallica sues Napster
An event that would set the tone for the copyright battles that slowly evolved into the streaming music services (and to extrapolate, the entire streaming media ecosystem), on this day Metallica sued Napster.
This lawsuit led to the famous July 2000 hearing, featuring drummer Lars Ulrich appearing before the Senate Judiciary Committee. Metallica ultimately prevailed, and this piece does a great job explaining the ramifications of this decision for the music industry.
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