The cookie won't crumble no matter how hard Google tries

It's easy to be cynical about Google's motives in abandoning its plan to phase out third-party cookies. After all, the little text files that track users' habits are vital to those in the business of selling online advertising, none of which makes more money from the practice than Google. 

However, the failure to come up with a workable alternative to the cookie is a problem, not just for the wider digital advertising business but for Google, too. The Cookie Apocalypse may have been put on indefinite hold, but it's been clear for some time that the cookie's days are numbered. The inability to design a suitable replacement that satisfies all stakeholders — regulators especially — means there is still pain and uncertainty ahead for the ad-funded parts of the internet.

Google first signaled in 2020 its intent to follow the likes of Apple Inc. and Mozilla Corp. and deprecate third-party cookie support within its browser. This was a fine aim: Third-party cookies are responsible for sucking up behavioral data that is sold to data brokers to be used for all sorts of purposes, not all of them consumer friendly.

But Google had to balance the needs of its users — who deserve privacy — and its customers, the advertisers that "need" user data to make their ads more targeted (and therefore lucrative). While the advertising industry winced at cookie deprecation in other browsers, it was the prospect of the end of cookies in Chrome, which controls 65% of the global market, that absolutely terrified them.

Google has its own business to protect, too — in the first half of this year, 76% of Google's $165 billion in revenue came from advertising. Cookies form a large part of the diet feeding the money-printing machine.

The last time I wrote about this, in February, Google had committed to going full steam ahead with cookie deprecation later this year. It had just moved 1% of its Chrome user base into a pilot program. For this group, cookies were disabled, and instead, tools from Google's new Privacy Sandbox would serve targeted ads. The Sandbox seeks to replace the third-party cookie's function with some workarounds built directly into the browser itself. Simply, users might visit a website with ads, and Chrome would tell it, "This person likes football and cheese." Relevant ads could then be loaded without each site knowing much more about the user. (Football and cheese just about covers it for me, anyway.)

Privacy Sandbox limits the ability to triangulate data about a user, which is people's primary data privacy concern with third-party cookies because it makes anonymity almost impossible. That would be a positive development. However, if it becomes the standard in the world's most popular browser, the Privacy Sandbox would also give Google even greater control over the mechanics of online advertising than it already has.

Thus, marketers dreaded the idea from the start. They dreaded it even more when the data started rolling in. Criteo, a web advertising firm, said its tests showed publishers that use online advertising to make money would see "an average of 60% of their revenue" disappear under Google's new system compared with traditional third-party cookie-powered targeted ads. Google's own data, gathered and published as part of an investigation into the plans from the UK's Competition and Markets Authority (CMA), showed significant drops in impressions and revenue across many stakeholders, like publishers. 

Opponents of Google's plan speculate that the CMA's investigation is likely behind Google's announcement that it was tearing up its cookie deprecation plan. Better to say it yourself than have a regulator do it for you: Cookies must stay put — for now. 

Google has said there will now be a "new path." But where might it lead? In a blog post, Google said it would work to allow Chrome users to "make an informed choice that applies across their web browsing, and they'd be able to adjust that choice at any time." That sounds a lot like what Apple came up with with its "Ask App Not to Track" prompt, a change that, initially at least, wiped billions of dollars in value from big ad-supported businesses, most notably Meta Platforms Inc.  According to AppsFlyer, around 50% of iOS users opt in to allow tracking when faced with this choice.

The problem lies in what a similar prompting system might look like for Google. Any overly encouraging nudge in any direction (i.e., toward Google's preferred Privacy Sandbox system) or a prompt that uses "dark patterns" to coerce consent will be swiftly rejected by data protection regulators. Too far in the other direction, and Google will be accused of harming competition by making it more difficult for companies other than Google to make money from advertising online. 

If I haven't made it obvious, this is an incredibly difficult problem to solve, with just one certainty: It surely won't be possible for all interested parties to come away happy. 

Dave Lee is Bloomberg Opinion's US technology columnist.

Disclaimer: This article first appeared on Bloomberg and is published by a special syndication arrangement.