Google may have had little choice but to disrupt its own business. It helps that the company is doing so from a position of newfound strength.
The internet giant owned by Alphabet announced Wednesday that it will cease employing user-tracking technology for the purpose of selling advertising. The move seemed a long time in coming; Google announced a little over a year ago that it would phase out the use of third-party cookies in its Chrome browser, and has been signaling since then the potential for more actions aimed at enhancing user privacy. The announcement follows even more aggressive moves from rival
which is working to sharply reduce tracking with a new update to its mobile operating system that will require users to opt in to such tools.
Advertising is still Google’s lifeblood, accounting for 81% of its parent company’s revenue last year. The ad business saw a sharp rebound late in the year following a hit from the pandemic. Alphabet’s recent segment-reporting changes also showed the ad business effectively underwriting the company’s fast-growing but still money-losing cloud operation.
Alphabet’s share price closed down 2.6% Wednesday following the announcement. The company didn’t spell out an expected financial impact, but did concede that the move could leave it at a competitive disadvantage. “Other providers may offer a level of user identity for ad tracking across the web that we will not,” wrote David Temkin, Google’s director of product management, ads privacy and trust.
But other providers aren’t Google, which has steadily accounted for more than 90% of the world’s search activity going back at least to 2009, according to Statcounter. That gives the company a powerful position as the starting point for most internet activity. It also gives Google the unique ability to come up with alternatives that would still allow some targeting to advertisers while preserving individual privacy. These include methods to group users with others of similar interests for advertisers while keeping individual data private. Time will tell if these changes help or hurt Google’s ad business. But its position with a little over half the global market in digital advertising means its changes can’t be easily ignored.
The shift may not help the company’s case with regulators, though. The U.K. has already opened a probe into Google’s earlier move to drop third-party cookies, as competitors complained that it would actually strengthen its dominance.
—two companies that provide software and tracking tools to advertisers—saw their share prices fall 13% and 2%, respectively, Wednesday. Google can’t please everyone these days, but improving its image on user privacy should be worth the cost.
Write to Dan Gallagher at [email protected]
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