Facade with sign at headquarters of AI driven analytics firm Quantcast in the South of Market (SoMA) … [+]
Changes in the use of the lowly cookie — a bit of software dropped into a browser that advertisers and publishers use to gather data on users’ web activity and target ads — are having a tidal-wave like effect on the $150 billion digital advertising market.
That’s because earlier this month Google announced that it would phase out the use of individual third party cookies to help target ads — and deploy a system based on groups of customers with common interests — according to the Wall Street Journal.
Google’s announcement has wiped over $8 billion off the market capitalization of Ventura, Calif.-based Trade Desk — a Google digital advertising rival — that depends on cookies for its business.
Meanwhile, a much smaller rival — San Francisco-based Quantcast (which told me Forbes is a client) — says it’s winning business from Trade Desk thanks to its use of “real-time data from over 100 million web and mobile destinations” while it says that Trade Desk uses “static” third-party data.
Trade Desk is not worried about Google’s phasing out of third-party cookies — it intends to innovate around the change, according to its Q4 2020 Earnings Call Transcript — or losing customers to Quantcast.
How so? A spokesperson for Trade Desk tole me March 18, “We don’t comment on competitors, but…Gartner’s Magic Quadrant for Advertising Technology names The Trade Desk a Leader, placed on the upper right (Quantcast didn’t make it on the quadrant). We’re also named Gartner Peer Insights Customers’ Choice for Ad Tech.”
Gartner Peer Insights has only two customer reviews of Quantcast. One dated March 17 wrote, “Overall, Quantcast is a great platform. Their pixel-based audiences consistently have very high performance in terms of driving conversions. Their audience insights are also in-depth and useful in a way that I haven’t seen in other DSPs.”
Google’s move is good for investors, Trade Desk’s future hinges on how well it adapts to Google’s change, and Quantcast strikes me as one to watch — I wonder if it could go public via SPAC — especially if it benefits from what it says is Trade Desk’s competitive disadvantage.
Google Saying Goodbye to Cookies
Google announced March 3 that it will stop deploying user-tracking technology to sell advertising which accounts for 81% of parent company Alphabet’s revenue.
In 2020, Google said it would phase out third party cookies from its Chrome browser as it follows Apple’s more aggressive lead “to sharply reduce tracking with a new update to its mobile operating system that will require users to opt in to such tools,” according to the Journal.
Google — which accounts for 90% of Internet searches — may replace individual cookies with an approach that provides advertisers information about groups of individuals with common interests, noted the Journal.
Rather than reducing Google’s dominance of the global digital advertising market — of which it controls a bit more than 50%, according to the Journal — its move to abandon third-party cookies would “actually strengthen its dominance.” That’s the claim of companies like Trade Desk and Criteo that provide software and tracking tools to advertisers.
Trade Desk’s Financial Performance
Trade Desk — which enables thousands of agencies and brands to place display, video, audio, in-app, native and social advertising via its programmatic advertising services — went public in September 2016 and as of March 18 its shares had grown at a 102% compound annual rate to a market capitalization of $34.8 billion.
The company — which in 2020 enjoyed a 26% revenue increase to $836 million — is growing faster on a quarterly basis. However, Trade Desk expects slower top-line growth in the current quarter.
How so? According to CFO Blake Grayson, the company’s fourth quarter revenue popped 48% to $320 million while it anticipates “Q1 revenue to be between $214 million and $217 million, which would represent growth of between 33% to 35%…, a modest acceleration from our Q1 results in 2020,” noted its Q4 earnings call transcript.
How Google’s Move Affects Trade Desk
Trade Desk is one of very few ad-tech companies that have gained market share against Google — specifically in the market for buying ads across publishers’ sites, according to the Wall Street Journal.
Google — which controls about 40% of this ad-buying niche to Trade Desk’s nearly 8%, according to Jounce Media — has been giving up market share because Trade Desk has invested where Google has not — in audio and streaming TV online advertising which Google has not, according to the Journal.
Trade Desk CEO Jeff Green told the Journal that Google’s move to stop tracking individual web behavior will tap its strengths to the detriment of rivals. That’s because Green says Google will use its vastly superior pool of consumer data to target advertising based on cohorts — thus impeding Trade Desk’s business.
Google disputed this claim — arguing that its use of “’first party data that companies collect on their customers [will] become even more vital in a privacy-first world,” noted the Journal.
Sadly for Trade Desk investors, Google’s decision to stop tracking individuals’ web behavior via cookies has cost them. In the month ending March 18, Trade Desk shares have lost 19% of their value.
Trade Desk will not go down without a fight. Green told the Journal that Trade Desk “has an opportunity to build an alternative targeting technology that can be the main rival to the approach Google is laying out.”
Trade Desk’s replacement for the loss of cookies is a new user identifier dubbed Unified ID — a scrambled version of an individual’s email address produced to which publishers and ad-tech companies would add data. The Journal reports that Trade Desk has created Unified ID profiles for 50 million people.
Google warned against Trade Desk’s approach. According to CNBC, a Google blog post “[warned against solutions like] PII graphs based on people’s email addresses [casting doubt on the future of Unified ID 2.0, which The Trade Desk has backed].”
Green’s response was to paint Google as a threat to the Open Internet. As he wrote in a blog post, “Google is doubling down on its own properties, such as search and YouTube and adding bricks to the walls around those properties,” according to CNBC.
Why Quantcast Says It Wins Against The Trade Desk
While not the chief worry of Green, Quantcast’s approach makes me wonder whether it could enjoy a significant competitive advantage over Trade Desk as Google phases out third-party cookies.
Founded in 2006, Quantcast boasts “thousands of customers who use the platform daily, including large public companies like Equifax
Konrad Feldman, Quantcast’s CEO, told me in a March 16 interview that he started the company in an effort to “make sense of how Internet data was used in advertising.” He interviewed all the experts he could find to figure out why advertising was not more relevant to consumers.
He concluded that sample-based analysis — such as panels of radio and TV viewers — did not work for the Internet. He thought, “What if we could instrument Internet transmission? It is theoretically possible to understand the audience and make it useful for business. What if you could Quantcast instead of broadcast?”
Feldman saw that $150 billion was being spent on advertising and thought he could pull this off by working with a large number of publishers, securely pool their data, and use machine learnings to understand attributes — such as interests and demographics to help better target advertising.
Quantcast — which has 650 employees, declined to reveal its revenues, and says it has not needed to raise capital for a decade — says its approach enables it to win customers from Trade Desk.
How so? The company said, “The Trade Desk relies on third-party data, which is, by nature, static and out-of-date. This means brands are working with unreliable data from the get-go. In contrast, the Quantcast Platform is fed by real-time data from over 100 million web and mobile destinations. This data combined with AI and machine learning allows them to identify real-time intent signals which lets customers score impressions based on live consumer intent.”
Equifax is a satisfied customer. As Joella Duncan, Director of Media Strategy for Equifax Global Consumer Solutions, told me in a March 16 interview, “We gave Quantcast six weeks to get its service up an running — they did it in two to three weeks. They have enabled us to generate more revenue for the same amount of ad spend and to do so at scale. They have outperformed my initial expectations three to four-fold.”
Could Quantcast go public? If I assume that it has the same revenue per employee ratio as Trade Desk — about $541,000 ($836 million in 2020 revenue/1,545 employees) — I would not be surprised if Quantcast’s revenues exceed $300 million.
Were Quantcast’s revenues growing fast — say north of 20% or 30% a year, it could easily fit the financial profile needed for an IPO or SPAC merger.
