‘A system that is out of alignment’: Online ad industry faces its identity crisis at IAB’s annual meeting

That’s putting it mildly.

The online advertising industry is facing an identity crisis of its own making. The use of third-party cookies — to track people around the web in order to target them with ads — became so pervasive as to become a privacy problem. The ad tech industry has tried to address the problem on its own, such with as the AdChoices initiative for people to opt out of cookie-based tracking. But those efforts have proven insufficient, resulting in government regulators and browsers makers taking steps to rein in online tracking.

“We had plenty of time to get out of our way, but we have a really hard time getting out of our own way,” said one publishing executive. “How long have we seen the regulation freight train coming? Twelve years? Now it’s here, and all behavior has to change.”

Specifically, the industry’s method of tracking people’s online behavior to target and measure ads has to change. In two years, Google’s Chrome browser will no long support third-party cookies. This will serve as the final death knell marking the expiration of the tracking cookie and the official launch of the industry’s quest for an alternative.

Currently, the industry lacks a consensus alternative to the third-party cookie. Google has said that it will work with industry representatives to develop an alternative to the third-party cookie before its browser changes take effect in two years. Meanwhile, companies like LiveRamp and BritePool have developed their own identifiers. And more players likely to enter the fold. The explosion in identifiers will create complications as ad buyers and sellers must reconcile different identifiers that may serve different means or ends. “The real work is these IDs are going to need to be based on first-party identities like email addresses or phone numbers,” said an ad tech executive.

Of course, the use of email addresses or phone numbers to underpin the online advertising’s identity layer is much easier said than done. Not only will companies need to be able to collect people’s email address or phone numbers but they will have to receive their consent to have that information used for advertising purposes.

An easier alternative would be for the cessation of audience-based advertising altogether. That’s unlikely to happen, but the industry’s identity crisis has renewed interest in contextual, or content-based, advertising. “A lot of publishers are thinking about how do we get back to context, and it’s almost like everything old is new again,” said Condé Nast’s head of ad operations and monetization, Rachael Savage, who did not attend the IAB’s event.

Without a consensus replacement for the third-party cookie, all options are on the table, including a return to content service as the primary proxy by which to target audiences. In a town hall session during the IAB’s event, attendees on both the buy and sell sides of the advertising market said that the pendulum has swung too far from content-based advertising to audience-based advertising.

“Contextual [advertising] definitely is being presented as the life boat,” said Andrew Casale, CEO of supply-side platform provider Index Exchange, who described contextual advertising as “an alternative, potentially inferior lifeboat.”

Yet contextual advertising alone cannot save an industry that is trying to salvage audience-based advertising.

While contextual advertising sidesteps the identity issue, it reintroduces issues that the third-party cookie has been used to solve, such as managing how frequently someone is shown the same ad. “Frequency capping is so important to the consumer experience,” said Megan Pagliuca, chief media and data officer at Hearts & Science. “We have to deliver a better consumer experience.”

Being able to attribute product sales and other events to an ad would also be in jeopardy if the industry switched entirely to contextual advertising. “You lose the cookie, you lose multitouch attribution. Most conversion events get tied back to media events based on the cookie,” Casale said.

Ultimately, the online advertising industry is losing the third-party cookie. And that much is clear, if little else.