In May 2018, as the European Union’s landmark privacy law, the General Data Protection Regulation, went into effect, the main Dutch public broadcaster set in motion a grand experiment. The leadership at Nederlandse Publieke Omroep—essentially the BBC of the Netherlands—interpreted the law strictly, deciding that visitors to any of its websites would now be prompted to opt in or out of cookies, the tracking technology that enables personalized ads based on someone’s browsing history. And, unlike with most companies, who assume that anyone who skips past a privacy notice is OK with tracking, any NPO visitor who clicked past the obtrusive consent screen without making a choice would be opted out by default.
The results weren’t terribly surprising: 90 percent of users opted out.
Here is where the ad tech industry would have predicted calamity. A study performed by Google last year, for example, concluded that disabling cookies reduced publisher revenue by more than 50 percent. (Research by an independent team of economists, however, pegged the cookie premium at only 4 percent. Needless to say, there were methodological differences.) If the Google study was right, then NPO should have been heading for financial disaster. The opposite turned out to be true. Instead, the company found that ads served to users who opted out of cookies were bringing in as much or more money as ads served to users who opted in. The results were so strong that as of January 2020, NPO simply got rid of advertising cookies altogether. And rather than decline, its digital revenue is dramatically up, even after the economic shock of the coronavirus pandemic.
This makes NPO a particularly powerful entrant into a long-running debate over the value of targeted advertising. Ad tech companies, a category dominated by Google and Facebook but which teems with other players, argue that microtargeting is better for everyone: users like “relevant” ads, advertisers like being able to reach potential customers more precisely, and publishers get paid more for ads with a higher click rate. A growing body of evidence, however, calls each of these premises into question. The significance of the debate goes far beyond internet privacy, implicating the viability of journalism and, by extension, the health of democracy.
Most of the ads that appear next to online content are sold through an automated system known as programmatic advertising. Advertisers don’t choose the site or app where their ads will run; rather, they bid to show their ads to users who fit certain profiles based on their browsing history. NPO’s mass cookie opt-out meant that option was suddenly unavailable for 90 percent of its visitors.
Like many publishers, NPO relied on Google Ad Manager to sell its ad space. But now it needed an alternative platform that didn’t track users, an option Google doesn’t offer. The job of creating one fell to NPO’s advertising sales house, Ster. It only took a weekend to get started.
“We were having a chat on a Thursday,” recalls Tom van Bentheim, who at the time was Ster’s head of programmatic advertising and is now its manager of digital strategy, operations, and technology. “And we were back in the office on Monday, and [our developer] said, ‘OK, guys, I have a new custom ad server that can serve nonpersonalized ads.’”
The new server was crude, and it could only be operated by the developer who built it, meaning it couldn’t work at scale. But over the next month it allowed Ster to prove an important point: Major advertisers were still willing to buy ads that weren’t targeted based on user behavior. “I think in the first month we made 100,000 euros,” said van Bentheim. “And we were like, oh my God, this is something—we have to make it scalable.” So Ster contracted with a Dutch company, Ortec, to build a new ad server for NPO. Migrating over took a year.
Like Google’s product, the new system is automated. When a user visits an NPO page, a signal automatically goes out to advertisers inviting them to bid to show that user their ad. But there’s a crucial difference: With Google and most other ad servers, advertisers are bidding on the user. With Ster’s new ad server, advertisers are blind—they receive no information on the user. Instead, they get information about what the user is looking at. Pages and videos are tagged based on their content. Instead of targeting a certain type of customer, advertisers target customers reading a certain type of article or watching a certain type of show.
This approach, known as contextual advertising, harkens back to the days before microtargeting. Until the last decade, when a company wanted to reach a certain type of reader, it had to buy an ad with a publication whose audience probably included that type. But technology has allowed contextual targeting to become much more precise—to operate on the level of the webpage, as opposed to the publication. Advertisers on NPO can pay to advertise on specific content—the Dutch version of Farmer Wants a Wife is still wildly popular in the Netherlands, it turns out—but can also choose to advertise on one of 23 curated “custom interest channels” based on what a user is reading or watching. (The software scrapes subtitles to tag video). Channels include things like sport and fitness, love and dating, religion and faith, and politics and policy.
In 2019, Ster ran an experiment with 10 different advertisers, including American Express, to compare the performance of ads shown to users who opted in or out of being tracked. On the most important metric, conversions—the share of people who ended up taking the action the advertiser cared about, whether it was adding an item to their cart or signing up for a subscription or credit card—contextual ads did as well or better than microtargeted ones.
“When do people want to buy a Snickers?” said van Bentheim, recalling a conversation he had with someone who worked at an ad agency. “It’s not because someone is in a specific age or in a specific region or has a high income; it’s because they are hungry and they are looking at food at that moment.”
On the whole, the new tracking-free ad server was performing so well that NPO decided to abandon cookies entirely beginning in 2020. As of January, visitors aren’t even asked to opt in or out; the site simply doesn’t track anyone. The results have been striking. In January and February of this year, NPO says, its digital ad revenue was up 62 percent and 79 percent, respectively, compared to last year. Even after the coronavirus pandemic jolted the global economy and caused brands to drastically scale back advertising—and forcing many publications to implement pay cuts and layoffs—NPO's revenue is still double-digit percentage points higher than last year.
The main explanation is simple: because the network is no longer relying on microtargeted programmatic ad tech, it now keeps what advertisers spend rather than giving a huge cut to a bunch of middlemen. A report by the Incorporated Society of British Advertisers found that fully half the money spent by advertisers was getting sucked up by various ad tech companies before it got to the publishers running the ads. Even Google publicly states that when an advertiser and publisher both use Google’s platforms to buy and sell programmatic ads, Google takes more than 30 percent of the money. That’s before factoring in other players in the hyper-complicated digital advertising world, as well as the ever-present problem of fraudulent sites sucking up money in exchange for fake clicks.
“Something goes to the DMP, something goes to the DSP, something goes to the exchange, something goes to the SSP,” said Linda Worp, a product manager at Ster, describing the way programmatic ads typically pay out. (Those initialisms: data management platform, demand-side platform, and supply-side platform.) “Then, after all those parts, the publisher comes around.” Because the contextual ad server doesn’t rely on tracking, however, it renders the thicket of middlemen largely obsolete; the money goes straight from advertiser to publisher, minus a small fee to the company that runs the ad server.
The experience of NPO is perhaps the strongest counter-example to some of the biggest claims made in defense of targeted advertising based on tracking users online. Microtargeting is supposed to help advertisers reach the right people, but advertisers converted more new customers using the contextual approach. It’s supposed to help publishers make money, but NPO is making a lot more money since it abandoned cookies. It’s supposed to give users ads that they would prefer to see, but NPO’s users overwhelmingly declined to trade relevance for surveillance. Of course, we’re still talking about one case, but it raises the question of whether anyone besides ad tech companies benefits from the status quo.
This doesn’t mean that US publishers could abandon microtargeting en masse right now and start raking in more money, however. The European market has more stringent privacy laws, and with more users opting out of tracking, there’s more demand for advertising platforms that don’t rely on it. According to van Bentheim, part of NPO’s rapid success came from the fact that advertisers saw the privacy writing on the wall and were eager to find out if a nontargeting ad platform could deliver results. In the US, by contrast, which lacks a national privacy law, there’s still very little impediment to advertising that relies on extensive surveillance.
“It would be difficult for a lot of publications in the United States to have the same experience, in exactly the same way, that NPO did at this moment, because the nature of the marketplace is that, essentially, money flows to the most invasive option,” said Aram Zucker-Scharff, the ad engineering director for The Washington Post’s research, experimentation, and development team. “If you want to target users, you want the most precise level of user targeting.”
One of the key reasons why journalism has experienced a decade of brutal layoffs and bankruptcies is that its financial foundation—advertising—has been diverted toward companies that specialize in using data to track people online. According to a 2019 eMarketer report, Amazon, Facebook, and Google account for nearly 70 percent of US digital ad revenue.
That leaves publishers fighting over the remaining piece of the pie. “If one publisher decides to turn [tracking] all off, and another publisher decides to leave it all on, and they’re not restricted by GDPR the same way that publishers in the Netherlands are, then the results are going to be different,” said Zucker-Scharff.
The US might not be on Europe’s level yet, but if you squint, you can see signs pointing in a similar direction: rising demand for privacy from users and lawmakers, the growing use of privacy tools that block ads and trackers, Google’s looming phase-out of third-party cookies—these all could presage a shift toward something that looks more like the Dutch broadcaster model.
“We’re going to have a more private internet. It’s either going to be through tech or regulation, or through users making choices with what they download or the extensions they use or how they interact with publishers through subscriptions or other mechanisms,” said Zucker-Scharff. “I think that contextual is fundamentally the future of web advertising, and what they’re doing at NPO is pretty much what every publisher’s going to end up having to do.”
That’s one view, anyway. There are other possibilities. Google’s critics argue that the looming elimination of third-party cookies in Chrome will merely enhance Google’s own market position, because if no one else can track you around the internet, then the data Chrome gathers while you’re logged into the browser becomes all the more valuable. Meanwhile, companies in the “identity resolution” sector are hard at work developing ways to facilitate microtargeting in a post-cookie world. It’s no sure thing that the American advertising market will reach a privacy tipping point. (Some media companies, notably The New York Times and WIRED’s publisher, Condé Nast, are experimenting with a hybrid route, ditching third-party cookies while allowing advertisers to target users based on so-called first-party data gathered by the publisher. This can only work if you have millions of logged-in subscribers.)
If privacy wins out, however, and if NPO’s experience is any guide, then the future of digital publishing could be one in which a lot of money shifts back to the organizations producing the articles people want to read and the videos they want to watch. If advertisers start paying to appear in a certain context rather than to target a certain user, it will advantage publishers whose content is actually good—and put out of business the long tail of low-quality or outright fraudulent sites that currently soak up much of the money spent on automated programmatic advertising.
“The supply right now of advertising is dictated by users and third-party cookies, but the future is going to be based around content,” said Zucker-Scharff. “When it’s based on users, what those users are reading matters less than this long history of where the users have been. But in a contextually targeted world, there’s a lot of advantages for publishers creating quality content, because that becomes what dictates where ad money is going to go on the web.”
Nor does that mean only the biggest players could make it work. Johnny Ryan, a senior fellow at the Irish Council for Civil Liberties, analyzed NPO’s data and found that even its smallest subsidiaries were making much more money after the company abandoned cookies. For example, Omroep MAX, an NPO publication targeted at people older than 50, is the 4,539th ranked site in the Netherlands, according to data from the traffic measurement site SimilarWeb. Yet its revenue has increased by 92 percent compared to last year. “What is really interesting here is that this example from a national broadcaster is applicable to publishers of smaller size as well,” Ryan said. Of course, Omroep MAZ has the advantage of Ster and its ad platform. To re-create that success, other small publishers would probably have to contract with an external sales house.
Tom van Bentheim and Linda Worp, the Ster employees who helped set up the new system, are eager to help other publishers adopt it. Every week they field requests to license their ad server. But there’s a problem: Under Dutch law, they explained, Ster is the exclusive agent of NPO. That means it isn’t allowed to license its ad server to other publishers—to van Bentheim and Worp’s great frustration.
“We can’t do the same thing for other publishers,” said Worp. “We really want to. We want to complete the whole ecosystem with our solution.”
Updated 8-5-2020, 10:45 am EDT: This story was updated to add Johnny Ryan's affiliation with the Irish Council for Civil Liberties.
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