From Cookies to Commerce: Rethinking Social Media Monetization & AdTech

A friend recently sent me an old tweet from ~2019. While the person who posted it would have been relentlessly trolled (their X account no longer exists), the tweet highlights an advertising trend that may not be as impactful today — user cookies.

A quick primer on cookies

The concept of cookies was introduced around 1994 by Lou Montulli at Netscape Communications. A cookie is a small piece of data stored on a user’s device, containing a unique identifier and other relevant information. In the early days, websites used cookies to recognize users and remember their past activities and preferences.

Originally designed to enhance the user experience in online shopping, cookies soon found much wider applications:

1. User authentication
2. Session management
3. Personalization
4. Tracking and analytics

As their use expanded, particularly in the realm of advertising and user tracking, cookies became a subject of privacy concerns. This led to the development of various types of cookies, including session cookies, persistent cookies, first-party cookies, and third-party cookies. Here’s a chart that can help understand the usage of cookies with some examples

User data for ads is collected by third party cookies (eg: IRCTC relying on google’s ad cookies to first identify users & then show them the ads)

What has changed about cookies?

You might wonder why cookies aren't as powerful anymore. This is largely due to changes like the EU's regulations on explicit cookie consent, Apple's App Tracking Transparency, and Google's Privacy Sandbox. Here's Perplexity explaining the implications of these changes in simple terms:

Apple's App Tracking Transparency and Google's Privacy Sandbox are like asking for permission before sharing your toys.

Before, apps could share information about what you do on your phone without asking. Now, Apple makes apps ask if it's okay to share. Most people say no, which makes it harder for apps to show you specific ads.

Google is working on something similar for Android phones. They want to find a way to show relevant ads without sharing as much of your information.

These changes make it harder for companies to track what you do online, which is good for privacy but can make some apps and websites less money from ads.

Session and persistent cookies are less affected by these changes. However, for third-party cookies and services that track users across platforms, this is almost a death sentence—especially for those who opt out of tracking. For example, LinkedIn uses Adobe Audience Manager, which likely functions as a cross-tracking tool to monitor user activity across websites:

Who stands to get impacted the most?

The implications of these changes come on the following categories in near future:

1. Any new social media network?
2. Any new advertising platform

Before I dive deeper into ways in which a company can win in the above 2 segments, let me first share a small note on why it does not impact the existing social media and advertising platforms in the near future.

Why the legacy platforms are safe (for now)

Legacy platforms have been collecting user activity data for over a decade. Even if users opt out of data sharing now, these platforms still have enough historical data to build accurate user profiles and continue showing highly targeted ads.

It’s not just users—advertisers, too, have long relied on Meta and Google cookies embedded in their websites and apps. While apps don't use cookies in the traditional sense, they still assign unique device IDs for tracking. Here’s an example of the cookies stored by Swiggy:

This isn’t an exhaustive list of cookies, but you get the idea—it’s mostly cookies from Google, DoubleClick (owned by Google), Swiggy’s first-party cookies, and Facebook (Meta).

That said, even these platforms will face challenges with new users, like a 12-year-old today who has little exposure to social media. When they turn 13 and create an account but decline to share cookie data, tracking becomes more difficult.

So, how can this be mitigated? Let me explain my thoughts on potential directions that social media platforms and AdTech platforms can take.

An alternate approach to social media platforms

The success or failure of major social media platforms often hinges on how effectively they leverage advertising. Here are some insights from Perplexity, highlighting the top 10 social media platforms and their monetization models:

You get the point - the primary way of monetization for all of these social media networks (except for whatsapp) is via advertising! But as you see, there are a few other themes that are popping up:

1. TikTok / IG / Pinterest are promoting their shop feature which gives them first party data on ecommerce behaviour
2. A few apps are getting some revenue via subscriptions
3. YouTube / Reddit etc have also started taking commissions on creator memberships

Here’s the 3 broad buckets of monetization from how I see things. Picking up one of these bucket is very important as any product’s monetization strategy shapes the product development strategy

1. Relying on First-Party Data for Ads: This is particularly useful for social media platforms that focus on commerce for monetization. While it can be challenging to secure enough supply for effective monetization, one approach could be integrating with ONDC. This would bring in a large supply, allowing the platform to then approach partners for advertising opportunities.

2. Subscriptions: Many may not know that WhatsApp was originally a paid subscription service before its acquisition by Facebook. It charged users $0.99 per year in developed economies and even tested a ?99/year subscription in India. A subscription model can be a strong monetization strategy if the social media platform has a highly engaging and long-lasting user experience.

3. Microtransactions: This model has been adopted by many newer Indian social media platforms. Users can purchase stickers, avatar skins, super chats, and more to enhance their experience or stand out. These features are popular in platforms designed to combat loneliness (which I might explore in a later note) and in gaming.

While monetization models may evolve and it’s possible to use multiple strategies, it's often best to start with one of these and expand based on user behavior.

But if social media platforms choose to monetize through superior, proprietary products, what happens to AdTech platforms?

An alternate approach to AdTech platforms

This sector is ripe for disruption, particularly in the realms of content and commerce.

One of my favourite business models in AdTech is exemplified by AppLovin, which has gained significant traction through strategic acquisitions. Please read this assuming that I have some hindsight bias. AppLovin offers a comprehensive suite of tools: in addition to running an ad platform, it publishes its own apps and features its own attribution tool, Adjust. The company began by providing mobile app developers with tools for marketing, monetization, analytics, and user acquisition. This approach served as a Trojan horse, allowing them to generate increased revenue from developers.

A similar Trojan horse strategy could be employed by other platforms to collect valuable first-party data, enabling more effective targeting. According to the GoKwik website, they utilize data from the GoKwik Network to predict which users are more likely to initiate a Return To Origin (RTO) on their orders.?????

A similar strategy can be employed to gather 'Network Data,' enhancing first-party data and insights into user behavior for more effective targeting. Several Indian publishers own multiple utility apps, and there are tools like GoKwik that integrate seamlessly into website workflows, particularly during the checkout process. Additionally, platforms like CRED have access to valuable proprietary information regarding credit behavior. Not to forget, Google gives an email sign up option, which it can then use to make really good predictive models on user behaviour.

One approach that comes to mind is building a suite of tools that can integrate with the native workflows of other services, leveraging that data to improve user targeting.

TL;Dr

Legacy social media platforms and ad networks have traditionally relied on third-party cookies to create more effective user profiles for targeted advertising. As the absence of third-party cookies complicates advertising efforts, both social media and AdTech must be reimagined.

Social media platforms can explore first-party monetization, subscriptions, and microtransactions. Meanwhile, AdTech platforms could implement features that act as a Trojan horse, gathering valuable insights to enhance advertisers' targeting capabilities.

If you have any feedback on this or are building in any of these spaces, feel free to reach out to me at [email protected] ; Thanks to Jeevesh Saxena , Himanshu Kakrania & Rohit Ganapathi for reading an early draft and giving me inputs