- Google said it will only use "privacy-preserving technologies'' that rely on methods like anonymization or aggregation of data after it stops supporting cookies.
- The announcement raised questions in the industry about future initiatives from ad-tech players.
- Here's what analysts said about the shakeout and what it means for Google and public ad-tech companies.
Some analysts said their views haven't changed. But BMO downgraded one ad tech stock, noting it's "too hot in the kitchen."
Google said in a blog post Wednesday it will use "privacy-preserving technologies'' that only rely on methods like anonymization or aggregation of data after it stops supporting cookies. Cookies are small pieces of code that websites deliver to a visitor's browser and stay with them as that person visits other sites. They have been used to track users across multiple sites to target ads and see how they perform. Google announced plans in January 2020 that its Chrome browser will end support within two years for third-party cookies, which fuel much of the digital advertising ecosystem.
Here's what analysts said about the shakeout and what it means for Google and public ad tech companies:
Bank of America analysts said Thursday that Google's comments "suggest app developers and publishers will have to move away from all individual identifier alternatives, which could make Google's 'privacy sandbox' capabilities even more valuable in the industry."
They cited figures from Jounce Media, estimating that 40% of the money flowing from advertisers to publishers on the open internet go through Google's ad buying tools.
KeyBanc analysts said their real question was whether Google plans to restrict alternative identifiers from Google products. They said such a move would "clearly favor Google over the open Internet, and poses an interesting dilemma for regulators — how should consumer privacy be balanced against market power?"
Google said Wednesday its blog post was about how its own ad products will work, and that it won't restrict what can happen on Chrome by third parties. The company said it won't use Unified ID 2.0 or LiveRamp ATS, two tools that say they would help target ads in a more privacy conscious way, but wouldn't speak specifically about any one initiative. Uncertainty still looms over whether Google will restrict that activity on Chrome in the future.
"In our view, the inherent problem with current efforts to regulate Internet companies is that efforts to provide more privacy simply make the largest companies stronger," KeyBanc analysts said. "Until tradeoffs between privacy and competition are contemplated, we suspect regulation risks stifling competition."
"It appears to put Google into a different part of the ad targeting business – which it can afford to do given its scale, and probably needs to do given privacy concerns and increasing government scrutiny of its methods," Macquarie analysts said. "But it still raises the walls around its garden even further, as any advertiser working with Google's ad serving technology will have to adopt Google's new API-based protocols – which target consumers in a very different way."
Shares of Google-parent Alphabet rose 1.7% on Thursday.
KeyBanc analysts said it believes The Trade Desk would contest changes to Google's Chrome browser if it restricts the use of alternative identifiers.
The Trade Desk led the formation of Unified ID 2.0, a framework that will rely on email addresses that are hashed and encrypted from consumers who give their consent. The Trade Desk has painted the identifier as a superior alternative to cookies. The Trade Desk passed last month control of Unified ID 2.0 to a nonprofit called Prebid.
"In short, Unified ID 2.0 puts privacy back in the hands of the consumer, which appears congruent with privacy goals and the value exchange of the open Internet," KeyBanc analysts said. "If Google is able to restrict alternative IDs, then Google just became even more powerful in the advertising industry."
Macquarie analysts said Wednesday the announcement appears to restrict the ability of The Trade Desk to buy ads using IDs on Google's exchange or supply-side platform.
"But that only encourages TTD to work with publishers directly and across a broad spectrum of other [supply-side platforms] through private marketplace transactions," they wrote. "We expect Unified ID 2.0 will continue to develop as a device- and browser-agnostic industry standard with [opt-in] and consent between publishers and consumers, and TTD will continue to leverage its position as the largest independent DSP by far to help advertisers reach consumers across the open web beyond Google."
A Trade Desk spokesman said in a statement there is "significant industry focus on building a new identity solution that preserves the value of relevant advertising while protecting consumer privacy."
"Unified ID 2.0 puts the consumer in the driver's seat, ensures that they are not identifiable, and gives them control over how their data is used," he added.
The Trade Desk stock was down more than 9% Thursday afternoon.
BMO downgraded LiveRamp on Thursday in a note titled "Too Hot in the Kitchen."
Analysts at the bank said Google's confirmation that it won't integrate "alternative identifiers" could slow LiveRamp's sales cycle as players in the ecosystem reevaluate how best to move forward this year.
LiveRamp said in October the Unified ID 2.0 will be available to publishers through its platform, which it says helps advertisers target actual people instead of cookie-based profiles or devices. LiveRamp has what it calls its "Authenticated Traffic Solution," which lets consumers opt-in to gain control of their data. On the other side, brands and publishers can tap into that data. It's the company's solution to deal with the deprecation of third-party cookies.
"We think further clarity and revenue re-acceleration are possible in 2022 (when GOOG finalizes its cookie roadmap, among other things), but visibility today is limited," BMO analysts wrote. They said the industry is still waiting for Google to provide more clarity on how it will treat alternative options.
BMO analysts said the near-term revenue impact to LiveRamp is likely limited but warned of a lower likelihood of upward estimate revisions.
Macquarie analysts said announcements such as Google's usually cause stock volatility on the perceived headline risk. "But we believe that while this is yet another twist in the evolving ad tech landscape, the outlook for TTD, RAMP and CRTO is more or less unchanged."
In a blog post responding to the news, LiveRamp said Google's announcement is in line with what it's been advocating. LiveRamp argued that its ATS solution embraces the ideas of first-party relationships with consumers, transparency and consumer control.
"In short – marketers will continue to be able to buy people-based inventory on DV360 using LiveRamp," the post said. DV360 is a Google ad tech product.
LiveRamp shared slid more than 7%.
Ad tech company Criteo said in a statement that Google's post "does not in any way change or impact Criteo's plan and roadmap."
"As we have said before, we continue to invest in our first-party media network, as well as cohort-based and contextual advertising, which allow marketers to effectively engage with their customers in a privacy-safe and consented manner," a company spokesperson said. "User permission and consent are at the core of our solution."
Criteo announced in October its involvement in collaborating with Unified ID 2.0. The company said it will provide the sign-on solution and help develop a "transparency portal," which gives consumers more control over their advertising experience.
Macquarie analysts said the firm's outlook on Criteo was unchanged following Google's announcement, and noted Criteo has been an active contributor to Google's privacy initiatives.
BMO analysts raised their target price on the stock to $45 per share from $25 per share. They added that they're becoming more confident in Criteo's turnaround efforts as it repositions its retargeting-heavy business.
"For CRTO, we expect the basic use case for re-targeting will continue to draw investor questions," the BMO analysts said. "But we continue to believe that CRTO has been developing alternative techniques for effectively reaching consumers that have previously showed interest in an advertiser's products."
The BMO analysts said the changes may require a shift from one-to-one targeting to messaging a group of users that have shown similar interests in an advertiser's product.
"When combined with strong machine learning, we believe CRTO can continue to show improvement in its core business of helping advertisers remarket to interested customers," they wrote.
Criteo shares traded around $31.49, down 7.1%.
CNBC's Michael Bloom contributed reporting.