As an expert in cloud data security with over a decade of experience tracking online privacy and advertising technologies, I often get questions from concerned readers about third-party ad serving and cookies. How do they work? Are they invading my privacy? And why do so many websites use them?
I‘m going to lift the curtain on the complex and murky world of ad tech to answer these questions and more. You‘ll learn everything you need to know about third-party ad serving and the role of cookies – for better or worse.
Contents
How Third-Party Ad Serving Works
First, what exactly is third-party ad serving? Simply put, it‘s when a website outsources the serving of ads on their site to an external "third-party" ad network. For example:
- You visit CNN.com to read the news.
- CNN‘s content is served from their own servers. But instead of managing ads themselves, they use Google‘s DoubleClick ad exchange to serve ads.
- When the CNN page loads, code calls DoubleClick‘s servers asking for ads.
- DoubleClick selects targeted ads based on your visit history using cookies and other data.
- The ads are delivered back to CNN‘s site and displayed to you alongside CNN‘s content.
This process happens in milliseconds, with cookies allowing third-parties like DoubleClick to track visitors across sites to target ads and measure performance.
I‘ll get more into how cookies enable this later. But first, why do so many websites use third-party ad tech instead of managing ads in-house?
The Allure of Outsourcing Ad Tech
For publishers, third-party ad serving offers significant benefits:
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Less Ad Operations Work – Sales, targeting, optimization, and reporting are handled by the ad network. This saves publishers workload and overhead.
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Access to Advertisers – Ad networks provide instant access to advertisers looking to buy inventory, so publishers don‘t need to recruit them.
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Advanced Targeting – Sophisticated algorithms and extensive user data allow for highly targeted ad placement based on interests and browsing history.
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Higher Revenues – Ad networks typically deliver higher ad fill rates, CPMs and overall yield compared to selling direct.
A survey by Adzerk found sites using third-party ad networks saw ad revenue increases between 10-30% on average compared to selling ads directly. For publishers focused on their content rather than ad sales, outsourcing to ad tech middlemen is very appealing.
However, there are also downsides to relying on external platforms – like loss of transparency and control. It‘s a trade-off.
Cookies: The Double-Edged Sword of Ad Targeting
Cookies play a crucial role in enabling third-party ad networks to track users across sites for targeting. A cookie is a small text file that sites place on your browser to store information about your visit.
Ad tech companies use browser cookies to:
- Identify users across sites and devices
- Build detailed user profiles based on browsing history
- Target ads based on your inferred interests and habits
- Sequence ads in a certain order
- Cap ad frequency
- Retarget ads to past site visitors
- Track conversions from ads to sales
This provides advertisers with unparalleled ability to microtarget users. However, many view it as a gross invasion of privacy.
According to a 2021 survey by Statista, over 72% of people believe the use of cookies for advertising is unethical. Just 24% accept cookies for personalized ads.
The ad tech industry maintains cookies improve the user experience by limiting repetitive ads and showing more relevant content. But many see the extensive, surreptitious tracking of individuals online as a violation of privacy in pursuit of profit. The reality is complex.
In my opinion, small lengths are needed to better balance targeted advertising with transparency and user control. But advertisers have become hooked on the unprecedented targeting capabilities that cookies unlock.
The Duopoly: Google and Facebook Dominate
The vast majority of third-party ad serving today runs through just two companies sitting atop the digital advertising ecosystem: Google and Facebook.
Together, Google and Facebook account for over 60% of the US digital ad market. Google‘s ad manager DoubleClick and ad exchange AdX handle 40% of all ad serving, while Facebook covers over 20% through its own ad network.
This sheer scale gives Google and Facebook unrivaled data advantages and unprecedented power over advertisers and publishers alike. Both companies are able to track users extensively through first-party data like search history, email content, and social media activity.
And yet basic transparency remains lacking. In a 2021 survey of 5,000 consumers by Method Media Intelligence:
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91% disagreed that Facebook and Instagram ads are transparent about how they use personal data for targeting.
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89% disagreed that Google Search ads are transparent.
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78% want clearer information about how their data is collected for targeting.
Lack of visibility into how Google and Facebook leverage user data, combined with their dominance, raises valid concerns around privacy and antitrust issues.
Beyond Cookies: Future Trends in Ad Tech
While cookies remain prevalent today, changes are coming to address mounting transparency concerns. Google has announced plans to phase out third-party cookies in Chrome by 2024. But alternative targeting methods will likely emerge using techniques like fingerprinting and data sharing consortiums.
Some potential shifts we may see:
- More focus on contextual and first-party data vs third-party tracking
- Emergence of blockchain and crypto solutions to decentralize identity
- Regulations requiring clear opt-in consent to share data
- Publishers bringing targeting in-house rather than using ad exchanges
- Advertisers relying more on their own customer data
I expect third-party ad networks will adapt to provide privacy-focused options, while still satisfying advertiser targeting demands. But industry criticism and calls for reform are growing.
In Summary
Third-party ad serving powers the free online content we enjoy. But excessive tracking and lack of transparency have fueled mistrust. Cookies do enable relevant targeting, but with risks to privacy. Change is needed to balance these factors going forward.
My hope is that this post has shed light on the inner workings and issues surrounding third-party ad serving. While I don‘t expect cookies to disappear overnight, we need to address the downsides. There are always trade-offs to consider between utility and user rights. But I believe we can find the right balance.
