A Major Shift Is Coming to the Digital Ad Industry: Are You Prepared?

Guest post by Conrad Lisco, chief strategy officer at Fyllo

Originally published on ANA Knowledge Center

The foundational business model of the ad-supported internet, which revolves around offering free content in exchange for behavioral tracking, is undergoing a dramatic transformation. Over the past two decades, the focus of digital advertising has been on targeting individuals to deliver increasingly personalized and relevant ads. This has created a vast and intricate infrastructure for tracking people's online behavior.

This infrastructure, based on the third-party tracking cookie, is going away, and with it the revenue channels that made the internet function as we've known it up until now. Too many players within the ecosystem are unprepared. In fact, since 2022, there has only been about a 10 percent improvement in self-reported readiness on the part of advertisers for the deprecation of third-party tracking cookies.

The practice of targeting ever-more-precise audiences with digital ads prompted numerous crises as it evolved. Issues like fraud, viewability, brand safety, data breaches and privacy regulations have intermittently plagued the industry, undermining its profitability and efficiency over the past decade-plus. The ultimate demise of behavioral tracking is looming with Google's phase-out of the third-party tracking cookie in 2024. The future of targeted advertising lies in a different direction: the intersection of audience and context.

This new world of targeted advertising will rely heavily on contextual placements driven by advanced technologies. Instead of gathering personal data and tracking individuals, advertisers will leverage AI algorithms to analyze the context in which ads are being served. This contextual targeting approach considers factors like the content of the webpage, the user's current activity, and the overall online environment. By understanding context, advertisers can deliver more relevant ads without compromising user privacy.

As the industry moves toward this future, it is crucial for companies across the advertising ecosystem to prepare for both the short-term transition and the long-term new reality. Advertisers and brands must envision a bridge that connects the current model of user targeting to the upcoming era of contextual targeting. This transition requires a shift in mindset, strategies, and technologies.

First, companies need to prioritize building trust with their audiences. Transparency and clear communication about data usage and privacy practices will be essential to gain users' consent to collect the relevant information that will enable a viable revenue model for publishers and advertisers.

By eliciting thorough consent to share details like email address and other relevant data through methods like registration walls and loyalty programs, players across the ecosystem can build a better understanding of their customers and audiences and drive value accordingly. Establishing a sense of trust will enable advertisers to continue accessing the necessary data for effective contextual targeting.

Further, players across the digital ad landscape must invest in technologies that can understand and interpret the context in real-time. This includes natural language processing and machine learning algorithms that can analyze vast amounts of data and make instant decisions about ad placements. By leveraging AI, advertisers can ensure that their ads align with the surrounding content and are highly relevant to the user's current context.

Advertisers, publishers, and technology providers must collaborate during this transition. Advertisers need to work closely with publishers to understand the nuances of their content and ensure that contextual targeting is optimized. Publishers, in turn, can provide valuable insights into the user experience and help refine the contextual targeting algorithms. Technology providers play a pivotal role in developing and refining the AI-powered tools that enable this new infrastructure to function.

As the ad-supported internet's traditional model faces challenges and regulatory scrutiny, advertisers and brands must adapt and embrace the shift towards contextual targeting. By building trust, investing in AI technologies, and fostering collaboration, companies can navigate the short-term transition and prepare for the new reality of a privacy-first internet. The greatest mistake a company can make is to do nothing and assume that the answer will somehow present itself. It's time to prepare.

The views and opinions expressed are solely those of the contributor and do not necessarily reflect the official position of the ANA or imply endorsement from the ANA.

Conrad Lisco is chief strategy officer at Fyllo.