PAAPI: The Future of Privacy-Friendly Retargeting?
The digital advertising industry is facing seismic shifts as third-party cookies are gradually being phased out. To fill this gap, the UK’s Competition and Markets Authority (CMA) and Google launched a joint experiment to evaluate the Privacy Sandbox APIs (specifically, PAAPI) and its potential to provide an effective alternative for retargeting. The results? A mixed bag that offers both promise and challenges for advertisers and publishers alike.
Third-Party Cookies vs. PAAPI: Initial Results Removing third-party cookies outright had an expectedly dramatic effect on ad performance. The absence of third-party cookies resulted in an 88% drop in ad clicks and a nearly 90% reduction in ad-attributed conversions. However, when advertisers used PAAPI for retargeting, the decrease in performance was notably less severe, with a 47.4% drop in ad clicks and a 50.2% decline in conversions.
At first glance, these numbers might not look encouraging. But according to the lead study author Shunto Kobayashi from BU Questrom, PAAPI’s effectiveness should be viewed through a more nuanced lens, particularly when adjusted for ad spend. When normalizing for expenditure, PAAPI came close to achieving 86.4% of third-party cookies’ effectiveness for clicks and 81.8% for conversions per dollar.
Why Isn’t PAAPI Fully Effective? A primary reason PAAPI isn’t reaching its full potential is due to limited adoption across the ad tech ecosystem, especially on the supply side. The scarcity of PAAPI-enabled ad inventory means advertisers simply don’t have the same reach as they do with third-party cookie-based impressions. Low adoption rates dampen PAAPI's capacity to serve as a robust retargeting tool.
Additionally, PAAPI suffers from some practical limitations that affect its usability:
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The Role of ID Bridging: A Temporary Solution? As publishers explore alternatives, ID bridging—using first-party data to recreate identifiers for bidding—has become an attractive option to replace third-party cookies. ID bridging can help publishers make their inventory more valuable by restoring some targeting capabilities, though the approach has sparked debate regarding transparency. But the study showed a limitation to ID bridging: as first-party cookies are cleared by users, the recency of the data fades, diminishing its effectiveness over time.
What Lies Ahead for PAAPI and Retargeting Alternatives? The experiment suggests that PAAPI holds promise as a replacement for third-party cookies, but only if the industry adopts it more widely. A high adoption rate could mitigate some of the challenges, helping PAAPI function more like third-party cookies in terms of reach and effectiveness. This would also require improvements in PAAPI’s latency and user experience on mobile.
In the meantime, privacy-focused targeting methods like PAAPI present a viable direction for digital advertising, even if they haven’t reached the performance levels of third-party cookies yet. The gradual move towards these solutions will likely require ongoing adjustments in ad spend, data management, and tech adoption across the ecosystem.
Conclusion: Can PAAPI Become the New Standard for Retargeting? The study highlights that while PAAPI might not yet fully replace third-party cookies, it’s a significant step in that direction. The collaboration between regulators and tech companies in testing Privacy Sandbox solutions could be a model for developing privacy-friendly retargeting alternatives that work for both advertisers and consumers. The journey may be long, but with continued innovation, PAAPI and similar APIs might well become the backbone of privacy-first ad retargeting in a cookieless future.