Online Innovation May 3rd, 2021
There are very few universal truths in life beyond death and taxes, but when browsing the internet you might experience a third: overwhelming and increasingly personal targeted advertising. If you’ve checked out a Nike shoe online, you’ve likely been exposed to all sorts of online ads, not just for that Nike shoe, but for other Nike shoes, Adidas products, fitness tracking devices, meal delivery kits, and so much more.
Some of us just ignore the ads we see across the online landscape; for those of us who grew up using the internet, our selective browsing habits have evolved to shift most of our attention away from ads. Many of us proactively look to minimize these ads’ appearance on our radar – the invasion of privacy that came with increasingly advanced internet browsers never really sat right. Believe it or not, a smaller portion of us actively engage with these online ads, often to make an immediate purchase or subscription online – but also sometimes to gain exposure to similar products and companies in the future.
In the post-pandemic world, in-person shopping will be fraught with limitations and inconveniences. With retail e-commerce sales growing 27.6% in 2020, it’s clear that shopping experiences will increasingly take place online.
Regardless of how you interact with online ads, two things are clear about them: First is that most people don’t understand exactly how they work. Second, many internet users aren’t particularly fond of them. Fortunately for those who fall into the latter category, online ads will soon be changing in a major way.
This blog aims to explain how online ads originated, how internet users are targeted with personalized ads today, why there are such polarizing feelings towards these ads, and finally, what’s changing to ensure that they’re more privacy-conscious in the future.
The first online ad – the banner ad that you see above – appeared on October 27th, 1994. Wired magazine had launched its online offshoot, hotwired.com. While Wired magazine was able to sell subscriptions to readers and space in its physical magazine to advertisers, hotwired.com couldn’t rely on the former, so they had to look at applying the latter to their online model.
In doing so, they faced some of the same reservations towards online advertising that exist today: ads slow websites down, and distract users by taking them away from websites’ primary content. However, by running the ads on their website, the company would be able to pay their writers and expand their online content. So they set aside space on their website for ads, just like they did in their physical magazine, to sustain their online business.
On October 27th, 1994, after negotiations with AT&T, hotwired.com ran the above ad on its website for 3 months, at a cost of $30,000. Sure enough, the ad was a hit: it achieved a clickthrough rate of 44% (for reference, modern-day banner ads typically see a rate of 0.06%), and soon hotwire.com had more employees than Wired Magazine.
Competitors and advertisers began to take notice, while also having the same initial reservations towards online ads that hotwired.com did. It may not feel like it, but these reservations have certainly shaped the ads on the internet today – you don’t see too many ‘pop-up’ ads online these days, as the user reaction to this type of advertising was overwhelmingly negative. It took time for the ubiquity of pop-up ads to decline online, and though you’ll see the odd pop-up ad here and there, internet user sentiment ultimately won out: most online browsers now automatically block pop-up ads.
Still, the internet remains a valuable, accessible, and increasingly universal channel and online advertising quickly grew into the massive industry it is today. As internet advertising continued to evolve, both website publishers and advertisers learned two things that would inform the online landscape for years to come.
In comparison to other media channels, websites retain detailed, granular information about their use. Website publishers can see how many users visit their website, where those users come from, the amount of time those users spend on their website, and the specific buttons and pages that users click on and visit.
The addition of clickable ads to websites allowed advertisers to see exactly how many times their ad was looked at, as well as the number of times a user interacted with their ad for the first time. This made online ads a highly attractive advertising opportunity – especially when compared to radio or TV ads, whose effectiveness is extremely difficult to quantify.
As the internet became more prevalent across the world, more and more new users began to spend time online. Likewise, internet technology rapidly evolved and improved. Market researchers, measurement companies, and ad agencies also began to gather granular data on the types of users who visited websites. Each of these developments helped increase the value of internet ad space – while also subjecting internet users to increasingly personal forms of advertising and communication.
For example, cookies (more on those below) were increasingly used to target users based on their previous online activity. Remember that Nike shoe that you checked out online earlier? On other websites, you might begin to see an image advertisement of that exact Nike shoe – perhaps even offering you a discount on it – encouraging your return to the online store to complete the purchase. In some cases, these persistent advertisements are what push you over the finish line, and result in the purchase of some brand new Nike kicks online.
Fast forward to the internet ads that you see today, and you’ll notice two things: online ads are everywhere, and they are also unsettlingly personal. It’s the personal element of these ads that concerns so many, which is why the features that inform these ads are so important to understand.
What many people don’t realize is that the online browser that you use to access the internet – whether that’s Google Chrome, Firefox, Internet Explorer, Safari, or something else – is not like other electronics that you simply turn on and off. This is specifically because internet browsers are built to send and receive inputs on an ongoing basis, and improve the online experience to better suit you.
Cookies, also known as HTTP cookies or web, browser or internet cookies, are one of the primary mechanisms at play here. A cookie is a small piece of information placed and stored on your computer’s internet browser by a website to associate your browser with the information you input onto the website. It’s what turns your initial input of information on a website into an ongoing ‘handshake’ between that website and your internet browser.
First party cookies stay between you and the website where the information was inputted, while third party cookies are placed on your internet browser by other websites. Cookies are built into almost all internet browsers today, and they can remain on your internet browser for as long as a website dictates – but privacy-conscious internet users can privately browse the internet or clear their browsers’ cookies at any time.
Since cookies are enabled on almost all internet browsers, and many people aren’t aware of what they entail, they often build up over time on users’ go-to internet browser. As an increasing number of websites are connected through online ad exchanges (more on those below), and more cookies are placed on your internet browser, the more likely it is for the information you input onto one website to ‘follow’ you around on other websites. This is often why you’re exposed to ads from other companies like Adidas, or maybe even similar brands like Skechers, after browsing Nike products online.
Consider the last time you logged into your Facebook account: when you typed in your account login information onto Facebook’s website, the website responded by applying a first-party cookie onto your internet browser. Your internet browser temporarily stored that cookie, which contained the account information you typed to log in. This way, you can continue to use your internet browser to visit several different pages on Facebook, without having to re-input your username and password on the website each time you load a new page.
So you can add a Post to your Facebook profile all about your new Nikes, go to the Nike company page on Facebook and Like it, and then change your Facebook profile picture to a picture of your new Nikes, without inputting your username and password three separate times. The first-party cookie that enables the ongoing ‘handshake’ between your internet browser and a website (in this case, Facebook) makes this all possible.
Some internet features like first-party cookies are genuinely valuable, and can even make your life easier! In fact, cookies were first developed and created for online websites and browsers because maintaining a virtual shopping cart is almost impossible without the temporary storage of user information, such as the product that was added to your cart.
As browser cookies and internet use gained more and more mainstream media attention in the 1990s, the implications for user privacy were difficult to imagine. Like hotwired.com, many businesses sought online advertising to offset the time and resources invested into their shift online. Ad placements came about through direct negotiations with other companies and increasingly through intermediaries that made use of the cookies that exist on internet browsers.
In February 1996, The Financial Times published a cautionary article detailing the lack of understanding behind browser cookies. The article introduced this emerging online technology to many members of the public and noted the positive opportunities for businesses – as well as the privacy implications for many enthusiastic new internet users.
The Internet Engineering Task Force, an organization dedicated to worldwide internet standards, published a formal specification recommending that all online browsers either disallow third-party cookies by default or offer their users the explicit option of opting into them. The leading internet browser developers, Microsoft and Netscape, ignored these guidelines, a decision that many companies supported. They also chose not to give users the option to ‘opt-in’ to allow third party cookies on their browser.
Browser cookies were discussed at multiple Federal Trade Commission hearings, but no substantial regulation of browser cookies resulted, and the US Government’s advisory assessment of browser cookies was decidedly positive. The implications of this were clear: browser cookies were here to stay. The US government also passed Section 230, shielding website publishers from liability for any third party content that’s published on their own website.
It’s important to note that the mixed feelings towards browser cookies, and the personalized tracking that they enable, is not just a recent trend. Beyond the Financial Times story, the New York Times lamented the tradeoff between cookies and online privacy in 2001, and Leslie Knope of Parks and Recreation advocated against the personalized tracking being utilized by her town’s satirical internet behemoth, Gryzzl.
The third-party cookies that are part of all major internet browsers open the door to many more possibilities – including the increasingly personal targeted online ads that you see today. As the online world, and the online advertising world, continue to grow, third-party cookies supply much of the information that informs these increasingly personal targeted online ads.
All of that Nike interaction on Facebook that we talked about earlier informs the ads that you see on other websites through your internet browser’s third-party cookies, which is why you’ll see so many Nike ads that seem to follow you around the internet. Keep in mind that this would happen if you searched for and interacted with Nike products on Google, or Amazon, or eBay, or many other websites.
Third-party cookies result in such ubiquitous, personalized online advertising because there are large networks of websites connected by third-party cookies across the internet through online ad exchanges. Online ad exchanges are online platforms that showcase internet ad space inventory and facilitate the buying and selling of online ads that are placed within this inventory.
Remember how the members of hotwired.com negotiated directly with AT&T to finalize their ad placement? Today, the majority of online advertising takes place through online ad exchanges, rather than personal negotiation. Advertisers can bid on ad space on an online ad exchange, and the ad exchange will utilize the bid amount and the ad quality (among other factors) to automatically place the advertisement on relevant connected websites’ ad space inventory across the internet.
Google’s display ad exchange, the Google Display Network, connects at least 2 million websites and reaches over 90% of internet users across the globe (this is without factoring Google Search into the equation). Facebook’s Pixel, the tool used to build Facebook’s advertising exchange, is in place on at least 5 million websites online. While the reach of Amazon’s advertising exchange is less established, Amazon’s advertising revenue has increased by over 50% in each of the past two quarters, and further expansion of the exchange is all but certain.
The size of these three advertising exchanges alone, combined with the utilization of third-party cookies across the internet is the primary reason why the ads that you now see online are more personal and targeted than ever before.
If you find targeted online ads uncomfortably personal, you’ve likely used an ad-blocker – and you’ll be pleased to learn about recent changes that Apple, Google and many other companies are soon implementing to focus more on user privacy.
Ad blockers use various methods to prevent online ads from appearing on a website. They can also integrate with a specific online browser, or act as an external program. They may block the transfer of third-party cookies between your online browser and the websites you visit, or they may prevent flash animation, image or video rendering on websites, among other processes.
The use of ad blockers has consistently increased since at least 2014, and an estimated 27% of American internet users today utilize an ad blocker. Websites and online publishers have often opposed ad-blocking software, arguing that online ad sales sustain their website and business.
Some websites have implemented software designed to recognize the presence of ad blockers and prevent the display of their content in these circumstances. Many online publishers have put up paywalls or required subscriptions, while others have put up tip jars on their website, along with other prominent payment requests from their users.
In today’s age of online misinformation and fake news, the growth of ad blockers has made it increasingly difficult for credible publishers online to accurately pinpoint bad actors and achieve financial sustainability online. The ‘arms race’ between the creative developers of ad-blocking software who are increasingly irritated with online ads, and the businesses and publishers looking to monetize the content they share online with the public continues – with no end in sight.
Independent of ad blockers, online browsers are increasingly adapting to prioritize user privacy – roughly 25 years after Microsoft and Netscape initially decided to ignore these concerns. The overwhelmingly negative perception of internet popup ads forced online browsers to proactively stamp them out, and now an increasing focus on online privacy is forcing internet browsers to continue to evolve.
Many are familiar with the Private Browsing feature available on most online browsers (also known as ‘Incognito Mode’ on Google Chrome), which creates a temporary online session and clears all cookies that are stored at the end of the session. The Firefox browser blocked third-party cookies in 2019, and Apple’s Safari browser made the same update in early 2020.
Now, Google Chrome has announced that they’ll be phasing out third-party cookies over two years as well. Online advertisers, and Facebook, in particular, have bemoaned these changes’ impact on their ability to advertise efficiently across the internet, but the trend towards online privacy appears to be here for the long run.
So, will you no longer see those pervasive ads for Nike, Adidas, and even Sketchers the moment you check out a Nike product online? I wouldn’t count on it just yet.
Firefox places ads on new tabs and works with other partners, Apple relies on its IDFA but also increasingly its SKAdNetwork, and Google will increasingly rely on its FLOC to ensure that online businesses can place relevant ads across the internet. The latter two systems track user activity and share that information with businesses and advertisers, but separate that activity from your browser and your device. Sometimes they group your activity into larger behavioural cohorts.
It’s not exactly clear just yet if, and to what extent, this will result in fewer personal online ads. Critics of these recent changes rightly point out that larger companies will be able to push out their smaller competitors with this data collection advantage, and that online competition between one another likely fuels these changes more than a genuine, benevolent appreciation for consumer privacy.
In the meantime, the ability of websites and businesses to collect first-party information directly from their users, to create relevant and beneficial advertising and communication for their target market, will become even more important as third-party cookies recede from the online landscape.
Nonetheless, these changes are widely applauded by consumers, and they signal a shift towards a more private, consumer-focused internet. The almost universal reliance on third-party cookie data collection online long ago proved unpopular and unsustainable – and businesses whose online model relied entirely on third-party cookie data collection are paying the price.
If the shift away from third-party cookie tracking online spurs further innovation within the online advertising and measurement industry, then online users, publishers, and advertisers will all benefit. And, fortunately, the Nike shoes that you checked out online won’t push you into an unending, personal internet ad vortex.
The 1995 Financial Times story that first detailed browser cookies to the public ended on a hopeful note, writing:
“The tale of these cookies is an illustration of the possibilities that internet marketing opens up. In the old days, placing an advertisement was like firing a blunderbuss; remember the old quip that half the money spent on advertising was wasted, but no one knew which half. Today, technology has created a silver bullet that allows companies to target people individually. This is a good thing in the long term, for it will tailor advertising more closely to what consumers want. But at stake is the issue of privacy, which needs to be debated. The only consolation is that breaches of privacy using this technology are unlikely to have any life-and-death consequences. The worst thing that most companies will do, after all, is try to sell you something.”