The last few years have seen increased regulatory scrutiny and industry debate about behavioral targeting and the use of third-party cookies in online advertising. A report by DLA Piper reveals that GDPR fines surged 168% to $3.1 billion in 2022.
While alternative solutions are being developed, behavioral targeting continues to play an important role in how ads are targeted and delivered on the web.
In this article, we will explore what behavioral targeting is, how it works, the different types of behavioral targeting and the pros and cons of this method of advertising, the role third-party cookies play, as well as the revenue impact of losing third-party data and what publishers can do to prepare for such a future.
How does behavioral targeting work?
Behavioral targeting uses information about a user’s online behavior, such as browsing history, search queries, and purchase history to deliver targeted ads.
Using this data, advertisers can deliver ads that are more likely to be relevant. Behavioral targeting can increase ad effectiveness, as they are delivered to users who are more likely to be interested in the products or services being advertised.
There are a few different ways that data can be collected for behavioral targeting.
Another way to collect data is through tracking pixels. These are transparent, 1×1 images that are placed on a website or in an email. When a user loads the page or email, the tracking pixel relays information to the advertiser about the user.
Once the data has been collected, it can be used to create a profile of a user’s interests and preferences. Behavioral targeting can also be combined with other forms of targeting such as demographic targeting, which target ads based on age, gender, and location, etc., to further increase the relevance of ads.
Types of behavioral targeting
There are several types of behavioral targeting, including:
- Retargeting, which targets ads to people who have previously interacted with a brand or website.
- Geographic targeting, which targets ads based on a user’s location.
- Demographic targeting, which targets ads based on characteristics such as age, gender, and income.
- Search retargeting, which targets ads to people who have previously searched for certain keywords.
- Behavioral segmentation, which targets ads based on a user’s past behavior, such as the pages they have viewed or the products they have purchased.
- Interest-based targeting, which targets ads to users based on their interests.
- Recency, Frequency and Monetary targeting, which segments customers based on their purchase history.
Pros and cons of behavioral targeting
Behavioral targeting can have a number of benefits and drawbacks.
- Increased relevance: Behavioral targeting can increase the relevance of ads shown to users, as they are tailored to the user’s interests and browsing history.
- Improved efficiency: Behavioral targeting can make advertising more efficient by showing ads to users who are more likely to be interested in them.
- Better conversion rates: Behavioral targeting can lead to higher conversion rates, as users are more likely to click on ads that are relevant to them.
- Increased ROI: Behavioral targeting can also lead to increased return on investment for advertisers, as they can target their ads to users who are more likely to make a purchase.
- Privacy concerns: Behavioral targeting raises privacy concerns, as it involves tracking users’ browsing activity and collecting their data without explicit consent.
- Annoyance and mistrust: If a user is repeatedly shown ads that are not relevant to them, it can lead to a sense of annoyance and mistrust of the advertiser.
- Limited audience reach: Behavioral targeting can limit the reach of an ad campaign, as it only targets ads to a specific subset of users.
- Dependence on third-party cookies: Behavioral targeting relies heavily on third-party cookies, which can be blocked by users or by browser and mobile operating systems, which can make tracking and targeting more difficult.
- Potential discrimination: Behavioral targeting can lead to discrimination if the algorithm that decides which ads to show to which users is biased and shows ads to certain demographic groups over others.
Behavioral targeting vs. contextual targeting
Contextual targeting is often pitched as an alternative to behavioral targeting. However, it’s important to know how both forms of targeting work, as well as their relative strengths and weaknesses.
- It targets ads to users based on their past browsing behavior and actions.
- By analyzing the user’s browsing history, it can infer their interests and preferences.
- Behavioral targeting can increase the relevance of ads shown to users.
- Behavioral targeting relies heavily on third-party cookies, which can be blocked by users or by browser and mobile operating systems, which can make tracking and targeting more difficult.
- It targets ads to users based on the content of the webpage or app being viewed.
- By analyzing the keywords and topics on a webpage, it can infer the user’s interests.
- Contextual targeting can increase the relevance of ads shown to users, but often not to the same degree as behavioral targeting.
- Contextual targeting is less reliant on third-party cookies, as it doesn’t require tracking of the user’s browsing history.
In summary, behavioral targeting can provide more personalized ads but can raise privacy concerns. Contextual targeting is less privacy-intrusive, but it may not be as relevant as behavioral targeting. Further, advertisers are typically willing to spend more on behaviorally targeted campaigns.
Third-party cookies are small text files that are placed on a user’s device by a website other than the one the user is visiting. In the context of behavioral targeting, third-party cookies are used to track a user’s browsing activity across multiple websites.
This information is then collected and analyzed by the third-party cookies provider, which can then use the data to target ads to the user based on their browsing behavior.
For example, if a user visits a website that sells shoes, a third-party cookie placed on the user’s device by the shoe website will track the user’s browsing activity on that website. If the user then visits a different website that also uses that third-party cookie, the cookie provider will know that the user has an interest in shoes and may target shoe ads to the user on that website.
This type of tracking and targeting has become controversial, as it raises concerns about user privacy and data protection. Some browser and mobile operating systems have implemented features to block or limit the use of third-party cookies.
The loss of third-party cookies, which are used to track users’ browsing activity and target ads to them, could lead to a significant revenue loss for publishers.
The main way in which third-party cookies generate revenue for publishers is through programmatic advertising, which uses real-time bidding to place ads on websites based on users’ behavior. Without the ability to track users’ browsing activity with third-party cookies, programmatic advertising becomes less valuable to advertisers.
The exact revenue loss that publishers can expect from the loss of third-party cookies is difficult to predict, as it will depend on a number of factors such as the specific business model of the publisher, the degree of dependence on third-party cookies, and the effectiveness of alternative tracking methods.
However, estimates suggest that publishers could see a decline in programmatic ad revenue of 20-30% or more without the use of third-party cookies. Additionally, some experts predict that the loss of third-party cookies could lead to a decline in the overall value of digital advertising, as the targeting and measurement capabilities that third-party cookies provide will be lost.
It’s important to note that some browser providers such as Safari and Firefox have already blocked third-party cookies, and Google Chrome plans to phase them out by 2024. Therefore, it’s important for publishers to start looking for alternative ways to track and target users, such as through alternative ID solutions, first-party data, and to explore alternative ad formats like native ads and sponsored content.
How publishers can start collecting first-party data
There are several ways in which publishers can start collecting first-party data, which refers to data that is collected directly from users through interactions with a publisher’s website or mobile app. Some methods include:
- Registration and login: Publishers can require users to register and login to their website or mobile app, which allows the publisher to collect information such as name, email address, and location.
- Surveys and questionnaires: Publishers can conduct surveys and questionnaires to gather information about users’ interests and preferences.
- Email marketing: Publishers can collect email addresses and other information from users who sign up for email newsletters, and use this information to create targeted email campaigns.
- On-site interactions: Publishers can track user interactions with the website or app, such as which pages are visited, how long users spend on the site, and which items are added to shopping carts.
- Social media: Publishers can collect data from social media profiles of users who connect their accounts to the publisher’s website or mobile app.
- Analytics: Publishers can use website analytics tools to track user behavior and gather data such as the number of visitors to the site, the pages they visit, and the devices they use.
- CRM: Publishers can use customer relationship management (CRM) software to collect and analyze data on users’ interactions with the publisher, including purchase history, email interactions, and support tickets.
When collecting first-party data, publishers should be transparent about the data they are collecting and how it will be used. In addition, publishers also need to comply with data protection regulations such as GDPR and CCPA.
Behavioral targeting can be an effective way to increase the relevance and efficiency of advertising by delivering ads to users who are more likely to be interested in the products or services being advertised.
However, it also raises important privacy and ethical concerns. Additionally, the loss of third-party cookies, which are used to track users’ browsing activity and target ads to them, could lead to a significant revenue loss for publishers.
As a result, publishers should start looking for alternative ways to track and target users, such as through first-party data, and to explore alternative ad formats. It’s important for publishers to be transparent about the data they are collecting and how it will be used and comply with data protection regulations.
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