Why AdTech needs to evolve to survive

AdTech seems to be on an unstoppable rise, but are its days numbered?

Digital advertising technology (AdTech) is having another record year and is expected to grow exponentially in the decade ahead despite more data governance and consumer privacy laws coming into effect. From AI to identity management, AdTech technologies are redefining what it means to be a modern digital marketing and advertising platform.

Mobile has long been the frontier for AdTech. It is a device that 'lives' with the user, helps them create and consume highly personal content, and records the activity behind every swipe and click. This has enabled publishers to produce engaging social media content, and innovative products, but also deliver highly targeted and effective adverting campaigns.

But as technology, markets, and behaviours shift, so too do the opportunities.

The UK has the largest video game market in Europe and is the the sixth-largest gaming market in the world. The image of 'the gamer' has moved away from the adolescent male stereotype, and into a broader and more representative market of all ages and genders. This has enabled the gaming industry to grow into the UK’s most lucrative entertainment sector.

It has achieved this by embracing the opportunities around digital transformation. New tech, reduced manufacturing costs, and targeted games attractive to new audiences have spread the influence of the gaming industry out from the console, into the world of mobile games and apps. This has been such an effective and successful strategy that in 2020 the UK gaming industry revenue reached a record 3.5 billion U.S. dollars.

The gaming sector is a huge area of growth for AdTech, and as marketing technology draws closer to advertising technology, this is going to change the way that AdTech businesses and publishers work.

Advertising messages will become more personalised and in order to do that they will rely on publishers’ relationships with their audiences for relevant data insights.

The next big challenge for AdTech

Big tech has become more politicised over the last decade and the appetite to regulate the big four - Google, Amazon, Facebook and Apple - has grown.

There is far more political focus and social pressure around misinformation and fake news. The regulatory spotlight around data privacy and ownership is becoming more intense in this sector with fears that this could threaten innovation in AdTech.

1. LITIGATION

Since the GDPR was introduced in 2018, the number of claims for damages for breach of a data subjects rights has grown significantly. Claims management companies and no-win no-fee law firms are seeking to cash in.

Those firms place significant weight on the Court of Appeal’s decision in Lloyd v Google. In that case, Google breached its duties as a data controller under the DPA to over 4m Apple iPhone users during a period of some months in 2011- 2012 by using and collecting their browser-generated information. More significantly, the Court of Appeal held that there was no need for a data subject to prove actual loss where a data subject has suffered a loss of control of personal data.

However, the Court also held that there was a de minimis threshold below which a claimant still has to prove actual loss in relation to “an accidental one-off data breach that was quickly remedied”.  Many of the claims that are being brought will fall under the de minimis threshold, but that will not take away from the hassle and costs of dealing with such claims. Advertisers are likely to be a target for such litigation.


2. DATA DROUGHT

The industry is also facing an impending data drought over the coming years that will change the rules of the game. Evolving privacy legislation and platform changes by the big four means that very soon there will be less data available, not only to brands but to the entire ecosystem.

THE PRIVACY WARS

Data privacy is fast becoming a differentiator for consumers buying new devices.  Apple, in particular, have put privacy and data security at the heart of their marketing for iOS, introducing new features that will give users greater transparency on how advertisers are using their personal data.  Google have also announced they will look to introduce new features to Android to protect users’ privacy.

With iOS 14.5, Apple introduced a new feature that required apps to ask users’ permission to track them across apps on iOS (if you have an iOS device you’ll no doubt have seen the pop-ups). Analytics suggest as many as 96% of users are opting to block ad tracking.

iOS 15 will introduce further privacy features, including Mail Privacy Protection that will block tracking pixels in emails opened in the Mail App; the App Privacy Report that will give users greater transparency on the third party domains that apps contact when they are using an app; and iCloud Private Relay which will hide a user’s IP address and location information so advertisers cannot create detailed profiles of a user.

All of these features will make it harder for advertisers to collect data which then allows them to better target adverts to users. 

THE COOKIEPOCALPYSE 

Third party cookies (cookies that are not from the site a user is explicitly visiting) are a key part of AdTech’s current toolkit.  They allow advertisers to track a user’s activities across the web so they can serve you with targeted adverts.  Safari and Firefox have already blocked third party cookies, but Google Chrome (currently the world’s most popular browser) still allows third party cookies … for now.  

Google have announced that they intend to block third party cookies in Chrome with effect from 2023 and introduce a Privacy Sandbox.  The Sandbox will allow websites to request certain information about the user (for instance, details of the hardware the user is using so the website can optimise performance), but it will not allow websites to request information that Google deems goes too far.

One of the proposals for the Privacy Sandbox is the Federated Learning of Cohorts (FLoC), which is a proposed browser standard which will allow “interest based advertising”.  In FLoC, Google’s algorithms will associate a user with a “cohort”, a group of users with similar interests to you.  Google will then pass on anonymised information about that “cohort” to advertisers so they can serve ads to the users based on their interests.  For example, if previously a tracking cookie would previously tell an advertiser that you have recently bought a McDonald’s, booked tickets for the new production of Cinderella in the West End and looked at a new pair of Nike trainers, FLoC would tell advertisers that you liked fast food, musical theatre and trainers.  For advertisers, it means they will not be able to target adverts in the same way.

However, FLoC (or similar technology) may come with a benefit for advertisers.  If the information that advertisers receive is truly anonymous and cannot be tracked back to individual users by using other personal data the advertiser processes (and advertisers will need to satisfy them that is the case), the data they are processing may not be personal data so advertisers will not have to process that data in line with data protection laws.  We will only be able to assess the full impact once the details of how these new technologies work become known.

1. LITIGATION

Since the GDPR was introduced in 2018, the number of claims for damages for breach of a data subjects rights has grown significantly.  Claims management companies and no-win no-free law firms are seeking to cash in. 

Those firms place significant weight on the Court of Appeal’s decision in Lloyd v Google.  In that case, Google breached its duties as a data controller under the DPA to over 4m Apple iPhone users during a period of some months in 2011- 2012 by using and collecting their browser generated information.  More significantly the Court of Appeal held that there was no need for a data subject to prove actual loss where a data subject has suffered a loss of control of personal data. 

However, the Court also held that there was a de minimis threshold below which a claimant still has to prove actual loss in relation to “an accidental one-off data breach that was quickly remedied”.  Many of the claims that are being brought will fall under the de minimis threshold, but that will not take away from the hassle and costs of dealing with such claims  Advertisers are likely to be a target for such litigation.


2. DATA DROUGHT

The industry is also facing an impending data drought over the coming years that will change the rules of the game. Evolving privacy legislation and platform changes by the big four means that very soon there will be less data available, not only to brands but to the entire ecosystem.

THE PRIVACY WARS

Data privacy is fast becoming a differentiator for consumers buying new devices.  Apple, in particular, have put privacy and data security at the heart of their marketing for iOS, introducing new features that will give users greater transparency on how advertisers are using their personal data.  Google have also announced they will look to introduce new features to Android to protect users privacy.

With iOS 14.5, Apple introduced a new feature that required apps to ask users permission to track them across apps on iOS (if you have an iOS device you’ll no doubt have seen the pop-ups).  Analytics suggest as many as 96% of users are opting to block ad tracking,

iOS 15 will introduce further privacy features, including Mail Privacy Protection that will block tracking pixels in emails opened in the Mail App, the App Privacy Report that will give users greater transparency on the third party domains that apps contact when they are using an app and iCloud Private Relay which will hide a user’s IP address and location information so advertisers cannot create detailed profiles of a user. 

All of these features will make it harder for advertisers to collect data which then allows them to better target adverts to users. 

THE COOKIEPOCALPYSE 

Third party cookies (cookies that are not from the site a user is explicitly visiting) are a key part of AdTech’s current toolkit.  They allow advertisers to track a user’s activities across the web so they can serve you with targeted adverts.  Safari and Firefox have already blocked third party cookies, but Google Chrome (currently the world’s most popular browser) and allows third party cookies … for now.  

Google have announced that they intend to block third party cookies in Chrome with effect from 2023 and introduce a Privacy Sandbox.  The Sandbox will allow websites to request certain information about the user (for instance, details of the hardware the user is using so the website can optimise performance) but it will not allow websites to request information that Google deems is too far.

One of the proposals for the Privacy Sandbox is the Federated Learning of Cohorts (FLoC), which is a proposed browser standard which will allow “interest based advertising”.  In FLoC, Google’s algorithms will associate a user with a “cohort”, a group of users with similar interests to you.  Google will then pass on anonymised information about that “cohort” to advertisers so they can serve ads to the users based on their interests.  For example, if previously a tracking cookie would previously tell an advertiser that you have recently bought a McDonald’s, booked tickets for the new production of Cinderella in the West End and looked at a new pair of Nike trainers, FLoC would tell advertisers that you liked fast food, musical theatre and trainers.  For advertisers, it means they will not be able to target adverts in the same way.

However, FLoC (or similar technology) may come with a benefit for advertisers.  If the information that advertisers receive is truly anonymous and cannot be tracked back to individual users by using other personal data the advertiser processes (and advertisers will need to satisfy them that is the case), the data they are processing may not be personal data so advertisers will not have to process that data in line with data protection laws.  We will only be able to assess the full impact once the details of how these new technologies work.

An unexpected ally could protect AdTech's future

GDPR – THE ADTECH INDUSTRY’S FRIEND

It’s virtually impossible to get away from the fact that we now live in a data-driven world. Personal data is the key asset of many of the world’s most valuable companies.

The introduction of the GDPR shone a spotlight on data privacy and the requirement to obtain end-user consent for certain activities. Whilst some may see the requirement for consent to track users online as a frustrating barrier for advertisers, protecting the privacy of consumers is important and should not be seen as a negative. The current changes affecting the AdTech industry will ultimately result in cleaner and more precise, reliable data. This has established further trust between the advertisers and publishers they work with and allows them to target only interested users with relevant ads.

Issues surrounding consumer privacy and data protection are not going to go away. The Information Commissioner’s Office has launched an investigation into AdTech and the risks posed to the rights and freedoms of individuals, so further evolution and possible regulation of the AdTech ecosystem seems likely.

The challenges will also give AdTech opportunities to develop new technologies to improve the way in which they interact with users and get ahead of the competition.  Those players that adopt a privacy by design approach putting consumer privacy first are likely to come out on top. The AdTech industry needs to be prepared to react, adapt and innovate rather than resisting change.


Make sure to listen to our accompanying podcast episodes, featuring Carl Selby and Charlotte Ebbutt:

Carl Selby,
Royds Withy King Commercial Partner & Head of Technology

T: 01865 264004
M: 07590 845 436 
E: carl.selby@roydswithyking.com