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| cookie_deprecation [2025/08/30 01:48] – created xiaoer | cookie_deprecation [2025/08/30 01:48] (current) – xiaoer |
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| ====== Cookie Deprecation ====== | ====== cookie_deprecation ====== |
| ===== The 30-Second Summary ===== | ===== The 30-Second Summary ===== |
| * **The Bottom Line:** **This is the end of the internet's old, invasive tracking system, creating a major business shake-up that will separate companies with genuine customer relationships from those that were merely renting an audience.** | * **The Bottom Line: **Cookie deprecation is the internet's shift away from third-party tracking, creating a powerful economic moat for companies rich in direct customer data and a significant threat to businesses that have long relied on the old advertising model.** |
| * **Key Takeaways:** | * **Key Takeaways:** |
| * **What it is:** A technology shift, led by Google, to phase out "third-party cookies"—the small files that track your activity //across// different websites for advertising purposes. | * **What it is:** The ongoing process, led by Apple and Google, of phasing out third-party cookies—the small files that have tracked your activity across different websites for decades. |
| * **Why it matters:** It fundamentally changes the economics of online advertising, potentially widening the [[economic_moat]] of data-rich giants while creating significant [[business_risk]] for companies reliant on the old methods. | * **Why it matters:** It fundamentally reshapes the ~$600 billion digital advertising industry, creating a clear divide between companies with direct customer relationships ([[first_party_data]]) and those who effectively "rent" audiences. This directly impacts a company's [[competitive_advantage|competitive moat]] and long-term profitability. |
| * **How to use it:** As an investor, you must now scrutinize how a company acquires its customers, prioritizing businesses that own their customer data over those dependent on third-party tracking. | * **How to use it:** Use this trend as a lens to analyze how a company acquires and retains customers, assessing the durability of its business model in a world that increasingly values privacy and direct engagement. |
| ===== What is Cookie Deprecation? A Plain English Definition ===== | ===== What is Cookie Deprecation? A Plain English Definition ===== |
| Imagine you walk into a coffee shop. The barista recognizes you and remembers your usual order. That's a **first-party cookie**. It's helpful, convenient, and happens directly between you and the business you're visiting. The coffee shop's website remembering your login is the digital equivalent. It enhances your experience. | Imagine for a moment that every time you walked into a mall, a freelance personal shopper started following you. Let's call him "Tracker Tom." Tom isn't employed by any single store. He silently follows you from the bookstore to the shoe shop, to the food court, and back. He jots down every item you look at, every purchase you make, and every sample you try. He then sells this detailed dossier to any company that will pay for it. The next time you're in the mall, you suddenly see ads for running shoes and sci-fi novels everywhere you look, because Tom sold your data. |
| Now, imagine a stranger in a trench coat follows you out of the coffee shop. He follows you to the bookstore, then to the grocery store, and finally to the bank, taking detailed notes on everything you look at. Later, when you're walking down the street, he pops out and shouts, "I noticed you were looking at mystery novels and whole wheat bread! Have you considered this new crime thriller about a baker?" | For the last two decades, **third-party cookies** have been the internet's version of Tracker Tom. These tiny bits of code, placed on your browser by companies you've never directly interacted with, have followed you from site to site, building a detailed profile of your interests, habits, and intentions. This profile was the fuel for the massive programmatic advertising engine, allowing brands to target you with seemingly hyper-relevant ads all over the web. |
| That creepy stranger is a **third-party cookie**. | **Cookie deprecation** is the business equivalent of malls banning all freelance "Tracker Toms." |
| For decades, this has been the hidden engine of much of the internet's advertising. Invisible tracking files, placed on your browser by companies you've never heard of, would build a detailed profile of your interests based on your browsing history across countless unrelated sites. This data was then sold to advertisers to show you "relevant" ads. | Led by privacy-conscious moves from Apple (with its Intelligent Tracking Prevention) and Google's plan to phase out third-party cookies in its Chrome browser, the industry is undergoing a seismic shift. |
| **Cookie deprecation** is the global movement, spearheaded by Google's decision to block these third-party cookies in its Chrome browser (which holds a dominant market share), to finally get rid of the stranger in the trench coat. This isn't just a small technical tweak; it's a seismic shift in the internet's infrastructure, driven by a growing global demand for user privacy, codified in regulations like Europe's GDPR and California's CCPA. | It's crucial to understand this isn't the end of //all// cookies. **First-party cookies** are still essential and are not going away. Think of a first-party cookie as the helpful employee //inside// a store you've chosen to enter. They remember what you put in your shopping cart, keep you logged into your account, and recall your language preferences. They enhance your experience on that specific website. They don't follow you out the door and into the next store. |
| For businesses, it's like the gold rush ending. The easy, cheap, and often invasive methods of finding customers are disappearing. They must now find new, more direct, and more honest ways to build relationships with people. | Cookie deprecation is specifically the death of the third-party cookie, the cross-site tracker. This forces a massive change in strategy. Companies can no longer easily buy a detailed profile of your entire web history. Instead, they must build a direct relationship with you to understand what you want. The power is shifting from data brokers and ad exchanges to the companies that you, the customer, choose to trust with your information. |
| > //"In business, I look for economic castles protected by unbreachable 'moats'." - Warren Buffett// | > //"The most important thing to do if you find yourself in a hole is to stop digging." - Warren Buffett. For years, many companies dug themselves deeper into a reliance on third-party data. Cookie deprecation is the moment the shovel breaks, forcing them to find a new, more sustainable way to grow.// |
| As we'll see, cookie deprecation is a major test of a company's moat. It will wash away the flimsy bridges some companies used to reach customers, while revealing the true strength of the deep, fortified moats built on trust and direct relationships. | |
| ===== Why It Matters to a Value Investor ===== | ===== Why It Matters to a Value Investor ===== |
| A value investor isn't interested in the fleeting trends of ad-tech. We are interested in the long-term, durable earning power of a business. Cookie deprecation matters immensely because it directly impacts this earning power, acting as a great filter that separates high-quality businesses from fragile ones. | For a value investor, cookie deprecation is not a trivial tech headline; it's a fundamental change in the competitive landscape that directly impacts the [[intrinsic_value]] of many businesses. It acts as a great "sorting hat," separating durable, high-quality businesses from fragile ones. Here's why you must pay attention: |
| Here’s why it’s a critical topic for your investment analysis: | * **It Widens Existing Moats:** This is the most critical takeaway. Companies that have spent years building direct relationships with their customers now find their [[economic_moat|economic moats]] widening into vast oceans. |
| * **It Widens the Moats of the Strongest Castles:** Companies with massive, logged-in user bases have a treasure trove of **first-party data**. Think about Google (your search history), Meta (your social graph), Amazon (your purchase history), and Apple (your app ecosystem). They don't need the "stranger in the trench coat" because their customers live inside their walled gardens. For them, cookie deprecation is a godsend; it makes their proprietary data even more valuable and cripples smaller competitors who relied on the open-web tracking system. Their [[economic_moat]] doesn't just hold; it widens and deepens. | * **The "Walled Gardens":** Giants like Google (your search history), Meta (your social connections), Amazon (your purchase history), and Apple (your app and hardware ecosystem) possess an incredible wealth of [[first_party_data]]. They don't need to track you across the web because you willingly live, shop, and search inside their ecosystems. Their ability to offer effective advertising is enhanced while others' is diminished. |
| * **It Exposes Hidden Fragility:** Many businesses, especially in e-commerce and digital media, looked successful but were built on a foundation of sand. They used cheap, cookie-based "retargeting" (when an ad for a product you viewed follows you around the internet) to drive sales. Their [[customer_acquisition_cost]] (CAC) was artificially low. As cookies disappear, their CAC is set to skyrocket. This will squeeze their [[profit_margin]] and threaten their very survival. As an investor, this is a major red flag and a form of [[business_risk]] that was previously hidden. | * **Strong Brands & Subscription Services:** Companies with strong brands that encourage customers to create accounts, sign up for newsletters, or subscribe to services (think Disney+, The New York Times, or even your favorite e-commerce brand with a loyalty program) are in a position of power. They own their customer data and the channel to communicate with them. |
| * **It's a Litmus Test for Brand Strength:** Does a company have a brand so strong that customers seek it out directly? Do people willingly type `nike.com` into their browser, or do they only find Nike products after being chased around the web by ads? Companies with powerful brands, loyalty programs, and essential services will be far less affected. They have a direct line to their customers. This shift forces you to ask: is this company a destination, or is it just a roadside billboard? | * **It Crumbles Weak Business Models:** Many businesses, particularly in digital media and ad-tech, were built entirely on the foundation of third-party data. They acted as middlemen, arbitraging user attention. With the data pipeline being shut off, their core value proposition is at risk. Their [[customer_acquisition_cost|customer acquisition costs]] may soar, and their revenue streams could evaporate. Investing in such a company without a clear and credible pivot strategy is speculation, not investing. |
| * **It Elevates the Importance of [[Management_Quality]]:** A great management team saw this coming years ago and started preparing. They invested in building their own customer databases, creating valuable content to attract direct traffic, and developing loyalty programs. A poor management team is now scrambling, complaining about the changes, and looking for a quick fix. How a company's leadership team discusses this issue in their annual reports and earnings calls is a powerful indicator of their foresight and competence. | * **It Tests Management Quality:** A key part of [[management_quality|assessing management quality]] is evaluating their foresight and capital allocation. How a company's leadership team is navigating the post-cookie world is a live stress test. Are they investing in building a better customer experience to earn first-party data? Are they developing a strong brand that people want to engage with directly? Or are they complaining about the changes and hoping for a technical workaround? The answer to these questions reveals a lot about their long-term strategic thinking. |
| Essentially, cookie deprecation is a stress test for a company's customer relationships. A value investor seeks businesses that have earned the trust and loyalty of their customers, not ones that had to rely on digital surveillance to get their attention. | * **It Impacts the Margin of Safety:** As a value investor, you seek a significant [[margin_of_safety]]. A business whose entire customer acquisition strategy is dependent on a technology that is being actively phased out by the world's largest tech companies has an inherently low margin of safety. The range of potential negative outcomes is wide, and the risk of permanent capital impairment is high. Conversely, a business that owns its customer relationships has a much more predictable future, offering a more reliable foundation for an investment thesis. |
| ===== How to Apply It in Practice ===== | ===== How to Apply It in Practice ===== |
| This isn't a number you can calculate, but a qualitative factor you must assess. It's a critical part of understanding a company's business model and competitive standing. Here is a practical method to incorporate this into your investment research. | Analyzing the impact of cookie deprecation isn't about becoming a software engineer. It's about asking the right business questions. Here is a practical framework to apply this concept when analyzing a potential investment. |
| === The Method: A 4-Step Checklist === | === The Method === |
| - **1. Analyze the Revenue and Marketing Model:** | - **Step 1: Identify the Role of Digital Advertising.** First, determine how central digital advertising is to the company's business model. Ask two key questions: |
| * **Question:** How does this company make money, and how does it find its customers? | * //Does the company EARN revenue from digital ads?// (e.g., a social media platform, a news publisher). |
| * **What to look for:** Dig into the company's annual report (10-K). Look for terms like "digital advertising," "customer acquisition," "programmatic," "top-of-funnel," and "performance marketing." If a significant portion of their revenue depends on advertising, or if their growth strategy is heavily reliant on paid digital ads, you need to dig deeper. Be especially wary of companies in the "ad-tech" space whose entire existence is predicated on orchestrating third-party data. | * //Does the company SPEND heavily on digital ads to acquire customers?// (e.g., a direct-to-consumer brand, an e-commerce marketplace). |
| - **2. Evaluate the First-Party Data Strategy:** | * If the answer to either is "yes," then cookie deprecation is a material factor you must investigate. |
| * **Question:** Does the company own its customer relationships, or is it renting them? | - **Step 2: Assess the Data Source.** This is the heart of the analysis. Dig into how the company understands its customers. |
| * **What to look for:** Look for evidence of strong first-party data collection. | * **Look for signs of First-Party Data Strength:** Does the company have a large base of logged-in users? A popular loyalty program? A high-value newsletter or mobile app? Do customers willingly share their information in exchange for a better service or product? |
| * Does it have a popular login-based app or service? | * **Look for signs of Third-Party Data Reliance:** Does the company's marketing language focus on "reaching audiences at scale" or "programmatic targeting"? Is their website cluttered with ads from generic ad networks? Do they have a weak direct-to-consumer channel? A lack of a clear value exchange for user data is a major red flag. |
| * Is there a robust loyalty or membership program (e.g., Starbucks Rewards, Costco Membership)? | - **Step 3: Analyze the "Walled Garden" Proximity.** Where does the company operate in the new landscape? |
| * Does it have a massive email newsletter list that people actually want to receive? | * **Inside the Walls:** Is it a platform like Meta or Google that benefits directly from the change? |
| * Is it a subscription-based business? | * **A Strong Independent Fort:** Is it a company like Netflix or a strong e-commerce player with a powerful brand and direct customer data, able to thrive on its own? |
| * A company that has convinced millions of people to willingly hand over their data in exchange for value is building a powerful, future-proof asset. | * **Outside in the Wilderness:** Is it a business that relies on the open web for traffic and monetization, and is now exposed to the storm? The risk is significantly higher here. |
| - **3. Scrutinize Management's Commentary:** | - **Step 4: Scrutinize Management's Commentary.** Read the last several quarterly earnings call transcripts and the latest annual report. Use "Ctrl+F" to search for terms like: |
| * **Question:** Is management prepared for this change, or are they in denial? | * "First-party data" |
| * **What to look for:** Use the search function on earnings call transcripts and investor presentations. Search for "cookie," "privacy," and "first-party data." | * "Cookie deprecation" / "Third-party cookies" |
| * **A prepared management team** will speak proactively about their investments in their data infrastructure, their focus on brand marketing, and their strategy for a "post-cookie world." They see it as an opportunity. | * "Customer data platform" / "CDP" |
| * **An unprepared management team** will either be silent on the issue or will talk about it as an uncontrollable external risk, blaming Google or Apple for their future problems. This is a major red flag. | * "Contextual advertising" |
| - **4. Assess the Competitive Landscape:** | * "Customer acquisition cost" / "CAC" |
| * **Question:** How is the company positioned relative to its direct competitors? | * A proactive, detailed strategy is a green flag. Evasive answers or a total lack of discussion is a bright red one. |
| * **What to look for:** Compare your target company to its peers on the first three points. If your company is heavily reliant on third-party ads while its main competitor has a massive loyalty program, that competitor is likely to gain market share and pricing power as the industry landscape shifts. | === Interpreting the Result === |
| | Your goal is to classify the company's position. A company with a strong brand, a growing database of first-party user information, and a management team that clearly articulates its data strategy is well-positioned to not only survive but thrive. They will likely see their competitive position strengthen and their marketing become more efficient over the long term. |
| | Conversely, a company with a weak brand, no direct customer relationship, and a management team that is silent on the issue is a high-risk proposition. Their growth may have been a function of cheap, cookie-based advertising, a well that is now running dry. |
| ===== A Practical Example ===== | ===== A Practical Example ===== |
| Let's compare two hypothetical companies to see this principle in action: **"LuxeLeather Goods"** and **"GadgetBargains.com"**. | Let's compare two hypothetical digital media companies to see this principle in action. |
| ^ **Analysis Point** ^ **LuxeLeather Goods (LLG)** ^ **GadgetBargains.com (GB)** ^ | * **Company A: "The Artisan Baker"** - A premium, subscription-based online publication for home baking enthusiasts. |
| | **Business Model** | Sells high-end, branded leather bags and accessories directly to consumers (DTC). | An e-commerce aggregator that sells unbranded electronics sourced from various overseas manufacturers. Relies on high volume, low margins. | | * **Company B: "GossipGrid.com"** - A free-to-read celebrity news aggregator with high traffic. |
| | **Customer Acquisition** | Focuses on brand building via high-end magazines, has a popular Instagram account, and a highly-regarded email newsletter with exclusive content. | Spends 90% of its marketing budget on programmatic advertising, heavily using retargeting and lookalike audiences based on third-party cookie data. | | ^ **Characteristic** ^ **The Artisan Baker (Strong Position)** ^ **GossipGrid.com (Weak Position)** ^ |
| | **First-Party Data** | Has a "Client List" for repeat customers, offering early access and free monogramming. Customers create accounts to track orders and wish lists. | No login required. The main data it collects is a shipping address. It has no real, ongoing relationship with its customers. | | | **Business Model** | 90% from premium subscriptions ($10/month), 10% from highly curated affiliate links (e.g., specific baking equipment). | 100% from programmatic display advertising placed by third-party ad networks. | |
| | **Management Tone** | CEO on last earnings call: //"Our direct relationship with our clientele is our most valuable asset. The changing digital landscape only reinforces our long-standing strategy of building a brand people seek out directly."// | CEO on last earnings call: //"We face significant headwinds from platform changes in the advertising ecosystem which could materially impact our customer acquisition costs in the coming quarters."// | | | **Customer Relationship** | Direct. Has 2 million paying subscribers who are logged in. Manages a popular weekly newsletter with a 60% open rate. | Anonymous. Users are transient and rarely return. No login or subscription function. | |
| | **Post-Cookie World** | **Resilient.** LLG's business is largely unaffected. Their marketing may become even //more// efficient as the cost of broad, untargeted advertising for competitors like GB goes up. Their moat is strong. | **Fragile.** GB's entire business model is at risk. Their primary method of finding customers is breaking. They will have to spend much more to acquire each customer, potentially erasing their already thin profit margins. Their moat was an illusion. | | | **Data Source** | Rich **first-party data**. Knows which recipes users save, which articles they read, and what products they click on. | Relies entirely on **third-party cookies** to understand users. Knows a visitor is "interested in fashion" because they visited a retail site earlier. | |
| A value investor would immediately recognize that LuxeLeather Goods is a far superior business. Its strength is not dependent on a temporary technological loophole. GadgetBargains.com, despite potentially high revenue growth in the past, is revealed to have a fatal flaw in its foundation. | | **Post-Cookie Impact** | Minimal negative impact. Can use its own data to promote its premium subscription more effectively. Can sell premium "contextual" ad slots (e.g., a KitchenAid ad on a stand mixer review page) directly to brands at a high price. Its moat widens. | Catastrophic impact. Ad networks can no longer effectively target users on the site. Ad rates (CPMs) plummet as ads become generic and irrelevant. Revenue is projected to fall by over 50%. | |
| | | **Value Investor Thesis** | This is a durable business with a strong brand, predictable recurring revenue, and a strengthening competitive position. It owns its future. | This is a fragile business model entirely dependent on a dying technology. It faces an existential crisis. Avoid. | |
| | This example clearly shows how cookie deprecation isn't just a technical detail—it's a force that brutally exposes the underlying quality of a business. |
| ===== Advantages and Limitations ===== | ===== Advantages and Limitations ===== |
| Analyzing a company through the lens of cookie deprecation offers clear benefits, but you must also be aware of the pitfalls. | Analyzing a company through the lens of cookie deprecation is a powerful tool, but it's important to understand its strengths and weaknesses. |
| ==== Strengths ==== | ==== Strengths ==== |
| * **Reveals True Moat Strength:** It's a powerful tool for stress-testing a company's competitive advantage. It separates businesses with real brand equity and customer loyalty from those that were simply good at exploiting the old system. | * **Focus on Durability:** This analysis forces you to prioritize what truly matters for long-term value: the strength of a company's relationship with its customers. It's a direct measure of business quality. |
| * **Uncovers Hidden Risks:** It allows you to identify [[business_risk]] that may not be obvious from looking at past financial statements alone. A company that looks profitable today could be on a collision course with a margin-crushing reality. | * **Early Warning System:** Understanding this trend allows you to spot vulnerabilities in business models long before they show up in quarterly earnings reports. It helps you avoid "value traps"—companies that look cheap but whose fundamentals are rapidly deteriorating. |
| * **Focuses on the Long Term:** This analysis forces you to think like a business owner, not a speculator. It prioritizes the durable asset of a direct customer relationship over short-term, ad-driven sales bumps. | * **Clarity on Moats:** It provides a crystal-clear, modern-day example of how [[economic_moat|economic moats]] are built and destroyed. In the 21st century, a proprietary, ethically-sourced data asset is one of the most powerful moats a company can have. |
| ==== Weaknesses & Common Pitfalls ==== | ==== Weaknesses & Common Pitfalls ==== |
| * **Uncertain Timeline and Outcome:** Google has delayed the full phase-out multiple times. The replacement technologies in its "Privacy Sandbox" are complex and their effectiveness is still unproven. You should analyze the risk, but avoid making precise predictions about timing. | * **Technical Complexity:** The world of ad-tech is filled with acronyms and complex proposed solutions (e.g., Google's Privacy Sandbox, Unified ID 2.0). It's easy to get lost in the technical jargon and miss the simple business reality. Remember to always focus on the business question: "Does the company own its customer relationships?" |
| * **Don't Underestimate Adaptability:** A well-managed company that is currently reliant on third-party cookies isn't necessarily doomed. A key part of your analysis is judging their ability to adapt. Look for evidence of a changing strategy, not just the starting point. | * **Timeline Uncertainty:** The final nail in the third-party cookie's coffin (specifically from Google Chrome) has been delayed multiple times. This can lull investors into a false sense of security. The trend is undeniable, even if the final date is fluid. Don't mistake a delay for a cancellation of the execution. |
| * **The Regulatory Counter-Risk:** While the "walled gardens" (Google, Meta, etc.) are clear initial winners, their growing power attracts intense scrutiny. Don't forget to factor in [[regulatory_risk]], as antitrust actions could limit their ability to fully capitalize on their data advantage. | * **Not a Monolithic Impact:** It's a mistake to assume every ad-supported business is doomed. Some will successfully pivot to contextual advertising (placing ads based on the page's content, not the user's history) or other innovative models. The analysis requires nuance and a company-by-company investigation, not a blanket judgment on an entire sector. |
| ===== Related Concepts ===== | ===== Related Concepts ===== |
| * [[economic_moat]] | * [[economic_moat]] |
| | * [[first_party_data]] |
| * [[customer_acquisition_cost]] | * [[customer_acquisition_cost]] |
| * [[business_risk]] | * [[switching_costs]] |
| * [[margin_of_safety]] | |
| * [[management_quality]] | |
| * [[network_effect]] | * [[network_effect]] |
| * [[regulatory_risk]] | * [[intrinsic_value]] |
| | * [[management_quality]] |