Can contextual advertising replace third-party cookies?

It’s no secret that there is palpable apprehension in the ad industry about programmatic advertising in the post-third-party cookie era. Digital media companies will want to hedge against the revenue loss expected with the depreciation of third-party cookies. But, the question is how? 

Contextual advertising is a popular alternative and is gathering steam amongst industry experts. Whether it’s a sustainable solution for replacing or supplementing targeted advertising is something we’ll analyze in this blog.

Contextual vs. behavioral advertising

So, to start, let’s lay out the principles behind contextual and behavioral advertising. Before the advent of third-party cookies, which is at the heart of behavioral advertising, the nature of advertising was contextual.

As most know, contextual targeting is the practice of displaying ads based on the content of a website. For example, if a user is reading about advanced yoga techniques, advertisements for travel yoga mats or special support cushions are a seemingly good fit.

In this case, there is no need to trace a user’s habits, because it is assumed that we focus on what is of most interest to us. On the other hand, behavioral advertising collects personal data from third-party cookies and uses this to serve ads.

Contextual targeting in the modern sense can also be connected to keywords, or semantic strings with advanced Machine Learning algorithms being able to analyze the content on given pages, allowing for effective placement of contextually ‘fitting’ ads.

Criteo notes, “The most recent iteration of contextual advertising can also use first-party data to add commerce signals to contextual signals and build product affinity scores for each URL, so that marketers can zero in on the pages and products that will have the most impact.”

This is, of course, a way to reach users without relying on their personal data like the widely-used targeting involved in behavioral advertising. Advertisers want as much certainty as possible about the groups they are targeting. And segmentation of users based on behavior has allowed marketers to precisely target users based on their behaviors, as with web searches and online shopping.

The result is that ads can become highly personalized, leaning more towards the desired conversion, and making ad budgets potentially more cost effective. 

However, with third-party cookies being deprecated starting Q1 2024, the focus will shift “back” to first-party cookies, creating more emphasis on site-specific information (as opposed to tracking users across the web and multiple sites).

It thus stands to reason that placing ads based on contextual approaches could hedge a lot of the frustrating loss that will be linked to the decline of third-party cookies.

Benefits of contextual advertising

Before we get into what this means for publishers, it’s important to understand why these changes are even kicking in. As with most online trends at the moment, the answer is the user.

Users want more control of their data, more privacy, and more transparency.

An advertising strategy that takes this into account is more likely to succeed now that control and privacy are so high on users’ lists of concerns. With contextual advertising, there is no feeling of being ‘tracked across the web’, which is one of the apprehensions users have voiced.

For instance, in a University of Pennsylvania study on user perception it was found that 74 percent of consumers feel defeated by the lack of transparency and control over how their data is being collected and 80 percent fear that what companies know about them from their online behaviors can harm them.

It makes sense to build trust and interact with the user on their terms. That means that by relying on first-party information and the context of a site, an advertiser is not reaching out to a segment, but to a user’s interests at the current moment (and those interests at a specific moment are often more appropriate for reaching that particular user than a string of gathered personal data).

It’s irrelevant who that user is, just that they are interested in that particular content. Contextual advertising respects user preferences to a much higher degree than behavioral methods. 

This also means there is no opt in, as with cookie walls in the EU. As Publift notes, “to run an effective behavioral advertising campaign, ad publishers need to collect user data through different channels including the following, the operating system they’re using, the websites they are visiting, what they like and what they dislike, and which buttons and CTAs they click on.”

These considerations are not important with advertising based on first-party data. Thus making this a very compliant option (another plus). With contextual advertising, we are talking about an ‘old’ alternative that is user friendly, compliant and scalable. 

Revenue impact of losing 3P data

To assess the revenue impact of losing behavioral signals, several studies have been conducted.

In one study conducted by Google, disabling third-party cookies on certain users reduced average revenue by 52% for the top 500 global publishers, and 62% for news publishers. Some publishers lost over 75% of their revenue. Another study focusing on users who opt-out of third-party cookies found that publishers saw a revenue reduction of 40.3%. A third study found a less dramatic effect, with publishers’ revenues increasing only by about 4% when a user’s cookie is available.

But wait, a 4% delta is not that bad, right?

In his op-ed for AdExchanger, Paul Bannister points out several limitations of the study. Firstly, it was based on data from a single publisher in a single week from May 2016, which may not accurately reflect the current state of the industry. Additionally, the study’s focus on the presence of cookies, rather than the distinction between first- and third-party cookies, is an oversimplification. Since the researchers were likely examining first-party cookies, the study may not accurately reflect the impact of behavioral targeting on publisher revenues.

Paul also stressed the importance of accurate and comprehensive research in this field, given the ongoing debates around privacy, behavioral advertising, and the dominance of certain tech giants in the advertising market. Misinterpretation of studies like this could lead to regulatory decisions that hurt struggling publishers, particularly smaller ones heavily reliant on programmatic advertising, and further solidify the dominance of tech giants who have their own internal targeting systems.

Despite the available research (or maybe because of it), it’s hard to present a precise estimate for how much revenue loss publishers can expect from the deprecation of third-party cookies. If you go by the findings of the first two studies (with the third one being arguable), a revenue decline between 30-50% could be possible.

But remember, publishers have had a reasonable amount of time to prepare for this change and test alternatives, one of which is contextual ads, which brings us to the next point.

Can contextual replace behavioral?

Of course, for many, the question will be to what extent contextual advertising can replace or supplement behavioral advertising.

Many experts are looking positively at what contextual advertising has to offer, though with the caveat that it cannot entirely replace behavioral advertising. It is rather a part of an overall monetization strategy that will help ease some of the burden inherent in the deprecation of third-party cookies. 

In an article in The Drum, Joe Manalac, senior agency sales partner at Oracle Data Cloud, stated, “There are multiple use cases for context and, in many ways, it’s a tried and tested solution, so it’s not surprising that context is moving more into the spotlight right now. Agencies are finding ways to use context campaigns to deliver goals traditionally achieved through ID-based targeting.”

As Sophie Wooller, director of digital transformation at Croud, and Steve Silvers, VP of product management for the Neustar Identity DMP have both separately pointed out, the goal of contextual advertising should not be to entirely replace behavioral, that while offering a viable solution, especially in the case of regulations, it does not solve problems of measurement, which tend to be more complex with contextual advertising.

Azad Ali, head of programmatic at Spark Foundry, in the same The Drum article noted above stated, “We can definitely use contextual as a pathway to build a better way of doing things, so long as we don’t make the same mistakes that we did when we had the freedom to do whatever we wanted with customer data.”

In short, the days of the wild west of data collection should teach us that sustainable approaches will be the new way forward.

Moving forward

The extent to which contextual advertising will be a part of each publisher’s strategy is dependent on many factors, though it will undoubtedly represent one of the most strategic methods of online advertising in 2023 and beyond.

Through the years, the pendulum swung too far in the direction of reliance on third-party cookies, and other approaches, most notably contextual advertising, offer proven and compliant options to effectively plan impactful advertising campaigns.