McKinsey & Company agrees that the time is up for the current model of online advertising: here’s what it thinks comes next

Posted on May 7, 2021 by Glyn Moody

Highly-paid management consultants are generally regarded with a certain suspicion and perhaps envy by many people. A popular joke has it that a management consultant is someone who borrows your watch to tell you the time, and then keeps your watch. Whatever your views on management consultants, there is no denying their influence on businesses. McKinsey & Company is arguably the most influential of all companies in the consulting world, so its views are worth noting, if only because many people in business will take them seriously. That makes a new article from McKinsey entitled “The demise of third-party cookies and identifiers” particularly noteworthy. The basic thesis is something this blog has been writing about for years:

A profound and abrupt shift is coming for everyone who uses the internet. By 2022, regulations designed to protect consumer privacy – particularly the California Consumer Privacy Act – and major technology companies will require users’ explicit permission to share and use data generated from digital interactions. Because users are generally unaware of how their data is used and are unlikely to consent to sharing their data, the $152 billion US digital advertising industry will lose access to most third-party data, which has powered programmatic advertising (advertising purchased and sold using software).

Although there’s no major insight there, the fact that McKinsey is saying it will probably convince many companies finally to accept the fact that the current use of micro-targeted ads purchased through real-time bidding is definitively on the way out. That’s great news for privacy, since this form of surveillance advertising is antithetical to the protection of personal data. However, the demise of advertising based on massive databases of personal data poses something of a challenge to advertisers, publishers, and the platforms that support them. What makes the new McKinsey article of interest is that it goes further than simply identifying the by-now obvious problem, and offers practical solutions for moving forward based in part on research it has carried out in the real world. For example, it notes that advertisers that already enjoy a strong consumer engagement will find it easier to gather data from customers on a voluntary basis, because the companies are trusted, and there is value in providing this information:

The most prepared advertisers we studied are designing consumer experiences in which consumers actively consent to sharing data (for instance, transparency on data collected, visibility into value exchange, data collection seamlessly embedded into user experience). Indeed, experiences that are valuable to consumers tend to generate data as a byproduct.

For publishers who currently depend on creating intrusive profiles of their readers using cookies and trackers, McKinsey recommends a move to offering both free and what it calls “authenticated” content that requires registration or a subscription to access. The idea here is once more offering something of value in return for personal data, rather than taking it through often intransparent means such as tracking pixels. There is already a noticeable swing to paid-for content, and away from purely ad-funded material. Once people start paying – either directly in the form of subscriptions, or indirectly through providing personal data – the justification for unremitting surveillance of the kind that is routine today disappears.

Less welcome is McKinsey’s suggestion that publishers should form multiple partnerships focused on “identity resolution”, which means matching identifiers across devices and channels to build a “holistic profile” of a consumer. Aggregating personal data in this way is a major part of the problem with current advertising systems: too much intimate information is gathered, collated and analyzed. What McKinsey proposes is simply advertising surveillance by different means.

Finally, McKinsey has some thoughts for the platform providers – the companies that gather huge quantities of personal data from a variety of sources, and then use it to the create profiles that can be used by advertisers when they are choosing where to place their ads. There is the suggestion that “Data platforms, which access and manage data across consumer devices and media types, can also help advertisers combine publishers’ ID maps to create consistent segment definitions.”

That looks like an attempt to resist, at least in part, the massive change sweeping through the online advertising industry that McKinsey itself identifies. It won’t work, because the broader context has changed. As this blog has documented, both micro-targeted ads and real-time bidding are likely to face legal challenges in the EU under the GDPR. If, as seems quite likely, the EU’s 450 million citizens are removed from the surveillance advertising industry’s audience, there will be important ramifications around the world, as has already happened with the GDPR in other spheres.

Although the McKinsey article is specifically about the US digital advertising industry, it is surprising that the GDPR is not mentioned explicitly even once. It may be an EU law, but the online world is manifestly global in nature. This absence at the heart of an otherwise clear-eyed analysis is probably a consequence of a crucial but unspoken aspect of the service that management consultants offer. It’s well-known that they provide in-depth studies of business issues, and strategy recommendations that flow from them. But they also offer reassurance to their clients that despite operating in a challenging, even chaotic business environment, there is a way forward, and one that is not too frighteningly different from the path companies are already taking. That is, a management consultant is someone who borrows your watch to tell you the time, but refrains from mentioning that it has stopped and may be broken.

Featured image by Lenora Cagle.