The new EU directive on web cookies came into force in the UK today. In case you weren’t aware, the law now requires any website which sets cookies, other than those strictly necessary for the functioning of the site, to gain the consent of the user before setting them.
Fortunately, the UK government has decided to give us all a year’s grace before it will actually enforce this rule, but sooner or later it will affect all of us.
The main impetus behind the directive has been lobbying from privacy groups who see usage tracking via cookies as a potential invasion of privacy. Now, there are some aspects of deep-tracking that I do think are a bad thing – the likes of Phorm, for example – but cookies are not in that category. It’s already easy for people to opt out of cookies if they want to, or to delete cookies which have already been set, and most browsers allow people to distinguish between site cookies and third-party cookies (which are the ones most commonly used for advertising). So this really is a non-problem. It boils down to the legislators thinking “people are too stupid to learn to use a browser or understand how cookies work, therefore we will do the thinking on their behalf”, and then concluding that most people, if they understood the issue, would want to opt out of cookies. And I don’t think that’s true at all.
As an advertiser, one of the most important things to know is the return on investment – the ROI. One of the huge advantages that web advertising has over traditional forms such as print and broadcasting is that it’s possible to track conversion rates much more accurately and hence target advertising to where it is most effective. That fact is crucial to web advertising being profitable.
Back in the early days of the web, advertising was pretty much just banners on sites that linked through to the advertiser’s site either directly or via an agency. Conversion tracking was minimal, advertising wasn’t very effective and the price paid for – and thus earned by – advertising was peanuts. It may seem strange to recall, but around the turn of the millennium all the smart money was on content-based sites earning their income through subscriptions, with micro-payments seen as the key – advertising was widely regarded as being incapable of delivering the necessary funds.
What happened to change that was the development of targetted and context-based advertising in the early 2000s. Google Adsense in particular almost single-handedly reinvented the web advertising business by delivering high-quality click traffic to advertisers that was both tracked and analysable. Other advertisers followed suit, and these days nearly all web-based advertising relies on detailed analytics delivered through cookie-based tracking.
I’m in the fortunate position of being able to see this from both sides. In my day job I work for an online retailer which relies heavily on web advertising. We use a number of networks, including Google, and the ROI on them is positive – overall, we earn more in revenue from advertising-generated sales than it costs us to place the adverts. But the only way we can maintain that is because of the detailed tracking available to us – if an advert isn’t generating the conversions, then it gets pulled. John Wanamaker, often credited as the father of modern advertising, is also quoted as saying “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” With web advertising, that is no longer true – we do know which is wasted and which isn’t. And that means we don’t waste it. If we had to go back to untracked, generic adverts then much of our advertising would no longer be economical. Our business would suffer, and the income of the sites that carry our advertising would suffer.
Equally, in my spare time, I write websites for the fun of it. These are all sustained by advertising. I’ve been doing this since the late 1990s, and, before Adsense came along, everything I did was done as cheaply as possible – piggy-backed on free webspace from my employer, or el-cheapo budget hosting from the bottom end of the market – because it simply had to be. I experimented with advertising, but it didn’t generate any noticeable income, and I wasn’t in the position to take subscription payments. But that is no longer true. I can now afford to run dedicated servers and have business-grade shared hosting for the sites, because the income from the advertising on them easily covers it. That in turn has allowed me to invest in the facilities necessary to run some pretty big websites, far bigger than anything I could ever have run on a cheap shared host, and that in turn generates extra income to reinvest. But it all depends on allowing my advertisers to set the necessary cookies in order to provide the tracking that their customers demand.
If people do start to block tracking cookies on a routine basis then that will significantly affect websites which rely on advertising. That will mean more media website operators following the example of News International and going down the subscription route. It will make it harder for small operators to compete with the big guys, since taking subscriptions requires a higher level of initial investment than carrying advertising. And it will affect the profitability of online retailers who use advertising to drive custom. I don’t think any of those outcomes are desirable. But I do think this law is utterly stupid.