In the summer of 2020, Jeff Green, CEO of the largest independent adtech firm The Trade Desk, casually mentioned during a virtual event that his company would launch a replacement for third-party cookies.
“It will be ubiquitous just like a cookie,” he said, calling it Universal ID 2.0.
Cookies are bits of software code used to target and measure ads. With Google vowing to stop letting advertisers use them in its popular Chrome browser this year, adtech companies and digital publishers are scrambling to find an alternative.
So Green’s announcement was “a fun surprise,” said Andrew Casale, CEO of fellow adtech firm Index Exchange, who was moderating the event.
It was a surprise to many inside The Trade Desk, too. The company’s first ID product, called UID, was meant to work in conjunction with cookies, but since these are crumbling, UID 2.0 had to be created. Company staffers rushed to make this a reality after Green’s comments.
At the time, it “felt like just a concept on a napkin,” according to a former employee from The Trade Desk. “He was trying to throw down the gauntlet internally and externally.” This person, and several others who spoke to Business Insider for this story, asked not to be identified discussing private, sensitive matters.
The new mission
Developing and scaling this cookie replacement has become the new mission for The Trade Desk, one of adtech’s greatest independent success stories. After surging in its 2016 IPO, the company has skyrocketed to a $40 billion valuation, having reported quarter upon quarter of growth.
The Trade Desk offers an interface that makes digital ad buying easy, and most importantly, it can charge advertisers lucrative commissions of around 20% to place precisely-targeted digital ads at scale and quickly tweak those campaigns to improve performance. While many other adtech companies offered this service, The Trade Desk over the years proved it could do it better.
But now, with UID 2.0, The Trade Desk is trying to achieve something it has never done before: Engineer the future of digital advertising.
With cookies disappearing, The Trade Desk is approaching its first big test. If it fails to get UID 2.0 spread across the digital ecosystem over the next few years, its days of tremendous growth and juicy profit margins could be over, according to several former employees and ad experts who spoke with BI.
“If UID 2.0 isn’t mass-adopted, it’s going to be in the same bucket as the other players,” said one of the former staffers. “You can’t charge 20% for making the buying process easier. The only way to preserve the buying premium is with high-fidelity data.”
The Trade Desk’s market value of $40 billion reflects optimism about the company’s future plans, so any missteps or unexpected bumps in the road may be costly.
“There is an important industry-level debate about whether or not they can grow into their valuation,” industry analyst Brian Wieser said.
A mad rush for scale
The Trade Desk is in a mad rush to create as many UID 2.0 profiles, or “tokens,” as possible, trying to convince every publisher and adtech company it deals with to use UID 2.0, according to one of the people who spoke to BI.
UID 2.0 tokens are created when consumers use their email address or phone number to sign into publishers including Disney and The Washington Post. Their personal information is encrypted and turned into a token that is used by online ad-buying tools to send targeted ads to individuals and measure whether those ads were seen — just like cookies. But UID 2.0 is meant to go beyond that.
A UID 2.0 token is designed to be trafficked across cookie-less environments such as connected-TV and retail media. In theory, advertisers could use it to target people with ads across all of these places, which would have been impossible with just a cookie.
Post-cookie competition
The Trade Desk isn’t the only company building a cookie replacement, though. Several other tech firms, including LiveRamp, ID5, and Yahoo, are trying to proliferate their alternatives.
“The ecosystem needs tools off of which to operate, but there is not an intention to say that it needs to be UID 2.0 or nothing,” The Trade Desk Chief Strategy Officer Samantha Jacobs told BI.
Despite its grand scope, UID 2.0 isn’t yet the most-used cookie replacement, though that could change once Google finally ends support for cookies in Chrome, which is expected by the end of this year.
UID 2.0 was integrated by 45,587 publishers as of February 18, behind ID5, which was deployed by 79,149 publishers, according to advertising metadata company Sincera.
Ad industry experts have been dubious about the numbers The Trade Desk has released about UID 2.0 so far.
In 2021, The Trade Desk told The Wall Street Journal that UID 2.0 had amassed 50 million profiles. It hasn’t publicly submitted an updated number since, and several former employees and industry sources said that even if The Trade Desk had 50 million profiles, the number of those that could actually be used to target ads was much smaller.
Those profiles also didn’t reflect the number of consumers who actively signed up to be a part of UID 2.0, according to a former employee of The Trade Desk. The company worked with data providers who already had consumer consent to use emails for targeting, and it was able to create UID 2.0 tokens from those profiles, this person explained.
“We were in dangerous territory quoting those numbers,” said the former employee.
The value of ad inventory without cookies
There’s also the question of whether UID 2.0 can ultimately support The Trade Desk’s healthy profit margins.
Even as The Trade Desk moves toward cookieless inventory, it is unlikely to command the same 20% take rates that it gets from powering online display ads. That’s because sellers of connected TV and retail media ads have more bargaining power, said Tom Triscari of digital ad consultancy Lemonade Projects.
CTV companies have access to premium inventory like sports, and popular drama series. Retail media sellers can serve ads right at the point of purchase on an e-commerce site. This inventory is both limited and in high demand, and the companies that own it don’t have to give The Trade Desk a massive cut and could place limits on how much data they share.
Also, most CTV ad inventory is sold directly by broadcasters as part of big annual deals called the Upfronts, an event in May where TV networks such as NBCU and CBS pitch ad buyers on their ad offerings. These deals are typically cut with major advertising agency holding companies and don’t usually include adtech platforms like The Trade Desk.
“While they’re right that cookies may not be a huge loss for targeting and transacting, the media they’re shifting toward isn’t green pastures the way they pretend it is,” said an ad buyer source familiar with The Trade Desk.
Technical difficulties
UID 2.0 also suffers from complexity, according to one of the former employees and a separate industry observer. The former employee said that if brands don’t already have a lot of data about their customers, creating email-based profiles is tedious, and onboarding them requires a significant amount of technical expertise.
“The juice doesn’t become worth the squeeze,” this person said.
The Trade Desk tried to make this process easier last year, via a tool called Galileo.
It’s also unclear whether UID 2.0 will comply with privacy concerns internationally, one of the main reasons Google has chosen to stop using the cookie in Chrome in favor of its Privacy Sandbox tools.
Some former employees of The Trade Desk and industry experts say they are uncertain if UID 2.0 satisfies regulators’ privacy concerns that personal information cannot be used for ad targeting.
The Trade Desk said that a person opting in by providing their email address doesn’t compromise privacy. However, a February research note from analysts at Arete Research warned that many alternative IDs like that of The Trade Desk’s are “not likely to pass muster under new privacy legislation,” as consumers would have to explicitly consent to having their data used for ad targeting and measurement purposes.
How hard will the cookie-pocalypse really hit?
Only when cookies go away later this year will companies like The Trade Desk really see if they’re prepared.
Right now, there’s optimism. Overcoming recent quarters of volatility, The Trade Desk’s stock is flying high. The company recently reported a 23% lift in revenue, outpacing the wider digital ad industry’s 10.7% spending growth, according to Insider Intelligence estimates.
“Jeff is always like, ‘We set ourselves up to weather conditions like these. It’s set up for the long term’,” a former employee said. “The board has total faith in him.” Green had a pay package worth over $800 million in 2021.
But even companies that have performed well in recent quarters warn the cookie-pocalypse will hit their businesses. Criteo recently posted positive growth, but CEO Megan Clarken conceded that the adtech firm expects to lose $30 to $40 million in revenue in the second half of 2024 if cookies go away as expected, and that it could experience a greater hit in 2025.
Some analysts believe The Trade Desk will breeze through this storm. New Street Research partner Dan Salmon predicts The Trade Desk’s revenue will drop by only the mid-single digits at worst because only 15% of its gross spend will take place on Chrome this year, according to a February research note.
“I believe we are uniquely positioned to grow and gain market share not only in 2024, but well into the future, regardless of some of the pressures that our industry is facing, whether it’s cookie deprecation, growing regulatory focus on walled gardens, or the rapidly changing TV landscape,” CEO Green said during the company’s February earnings call.
Not everyone is so optimistic. One of the former employee sees The Trade Desk entering a “new chapter that they’ve never been in,” due to headwinds with third-party cookies.
“These next 12 months for The Trade Desk are going to be difficult and not the experience that you’re used to,” this person said.
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