What Are Cookies and How Do They Affect Your Online Business?

Cookies are used to remember everything you do on the internet. Whether interacting with a website on your computer or revisiting the same website on your phone, cookies are integral to your internet experience. Websites use cookies to store your information; without them, you'd have to configure your preferences every time you visit a website manually. In this article, I'll cover what cookies are, what cookie syncing is, and why it's essential to your online business.

What are cookies?

Cookies are bit-sized text files your browser creates and stores on your device when you browse the web. Each website you visit works with your browser and uses your interaction, i.e., logins, passwords, saved items, language preferences, etc., to develop corresponding cookies.

Some unknown parties can access your information depending on the type of cookie used.

• First-party cookies are created by the website you're visiting. They're used to store users' information to improve user experience. For example, when you visit entrepreneur.com, your cookie will be stored on entrepreneur.com.
• Third-party cookies are created by websites other than those you visit. These cookies are mostly called trackers or tracking codes because they monitor your activity across the web and use your information primarily for ad-serving and retargeting. For example, you visit entrepeneur.com, but your cookie is stored on adtarget.xyz.com.

Cookies face a matching and syncing challenge, making sharing information among authorized websites and ad partners difficult. In addition, since cookies are domain-specific, only website owners can access your preferences. Cookie syncing was introduced to solve this problem.

Related: The Demise of Third-Party Cookies: Retaining the Sweet Spot

What Is cookie syncing and how does it work?

Cookie syncing (also known as cookie matching) is sharing user data among ad exchanges, supply-side platforms, demand-side platforms, and data-management platforms to have a synchronized user profile on all platforms.

Cookie syncing works by assigning user IDs to specific user cookies across all shared platforms.

Here's a breakdown of the process:

• User visits a website containing a third-party cookie tag or advertisement
• The browser sends an ad request to the demand-side platform
• The demand-side platform creates a unique user ID
• The demand-side platform redirects ad requests to data-management platforms
• The data-management platforms read the request if it already exists or creates a new cookie
• The data-management platforms save and update the demand-side platform's user ID with new details
• The data-management platform returns user ID to the demand-side platform
• The demand-side platform saves its user ID and, along with the other platform's user ID

This may seem complicated, but cookie syncing allows ad platforms to share cookies. This process is the same for all ad platforms to have uniform information for each user. This way, platforms can exchange user data across several authorized platforms and serve relevant ads to their target audiences.

Importance of cookie syncing

• Audience targeting

Programmatic advertising relies on data, which is made possible with cookie syncing. Without it, advertisers would send ads to the wrong audience and quickly burn through their budget. With the help of cookie syncing, advertisers can drop cookies into a user's browser and track their activity while on their website. With this process, advertisers create unique identification of their target users and serve the right ad.

• Exclusion of converted users

Serving ads to users who have already bought your product or service is pointless and a waste of your ad budget. This is why cookie syncing is vital in helping you identify already converted users. This way, you can exclusively target unconverted users.

• Better audience segmentation

Running ads using the same data point is ineffective and leads to poor conversion. A better option is segmenting your ads based on specific preferences. For example, with cookie syncing, you can serve ads to users based on their location, interest, age, device, etc. This also helps in retargeting your ads for better conversions.

Related: Data in 4 Flavors, and the Demise of the Cookie

Disadvantages of Cookie Syncing

• High latency

Synchronizing IDs across all ad platforms is no easy task. Even with machines, it takes time. It helps advertisers serve better ads to their target audience, but it leads to poor page performance due to the high number of pixels running in the background. This process also ruins the user experience by blocking the browser's main thread, making it difficult for the server to respond to the user's request while browsing.

• Poor data security

Sharing your personal information with a website only to discover it's being shared with hundreds of other platforms is cause for concern. In cases of cyberattacks or data leakage, this data can be weaponized against users, leading to severe consequences.

• Increased chances of data leakage

The process of cookie syncing is known only to the website owner and not the user. Without proper security, criminals can run ads on the publisher's website to steal the user's information.

Ideally, cookies have no drawbacks, especially first-party cookies. However, many users dislike third-party cookies because they violate their privacy.

This shift in cookie syncing will undoubtedly affect the online advertising industry, especially businesses that rely solely on cookies to run ads. Using first-party cookies to your advantage is the best course of action. Your ads will run effectively without relying on third-party data if done correctly. Most importantly, you won't have to share your data with hundreds of other platforms to target the same audience.

Related: What Businesses Need to Know about the Google Ad Changes for Data Privacy and Enhanced Conversions