One of the biggest stories this year has been the death of third-party cookies.
The digital tracking devices that follow you around the internet collecting your data to help advertisers target you will soon cease to exist. Google announced back in March that Chrome, the world's most popular web browser, would remove support for these cookies. The company, which had originally aimed to do this by 2022, now sees the move happening in 2023. In a blog post explaining the decision, Google cited surveys showing a clear majority of internet users prefer not to be tracked.
Apple also launched its own app-tracking transparency initiative this year, making it more difficult for advertisers to track users on iOS. Overall, the moves represent a sea change in how the internet and the $336 billion digital advertising industry behind it will work.
There are sure to be winners and losers in the fallout as advertisers scramble to find new ways to target customers and as ad budgets intended for things like retargeting get freed up.
Image source: Amplitude.
From marketing to products
One company that stands to benefit from this trend is Amplitude (AMPL 0.20%), a cloud software maker focused on digital optimization, or unlocking businesses' first-party data to drive product improvements. For many businesses, digital optimization is the next step after digital transformation (putting tech infrastructure in place).
Amplitude's software has helped companies like Peloton recognize the power of social engagement during a workout and helped Burger King execute its "Whopper detour" campaign, in which anyone who had downloaded the Burger King app received an offer for a Whopper for just one cent if they were near a McDonald's.
The difference between Amplitude and the approach of traditional marketing analysis platforms like Adobe Analytics and Google Analytics is that Amplitude focuses on products rather than marketing, and its software is intended for the chief product officer rather than the chief marketing officer.
In other words, the end of third-party cookies is an opportunity for Amplitude and other companies who work with first-party data as it will drive businesses to seek new ways of connecting with their customers and adding value for them.
In an interview with The Motley Fool, Amplitude CEO Spenser Skates predicted, "I think you're going to see a huge shift from third-party, because that industry is just totally dead, and now, all that money and jobs and people are going to go to first-party data." For Amplitude, there's a direct benefit to companies needing to go directly to the customer. Skates explained, "That's really exciting for us, frankly, because that's the core, that is the infrastructure of what we do. We do digital optimization, so it's all about taking in the signals from how someone's using your product and translating that into a better product."
The transition from a marketing-centric internet to a product-centric internet, as Skates put it, will affect some industries more than others. With online travel agencies, for example, nearly all revenue goes to digital marketing, with much of it going to Google. The end of third-party cookies will potentially free up billions in spending that can be redirected toward products. Skates also noted that industries like retail and insurance were ripe for a transition from marketing to products.
In a way, this shift seems overdue. By this point in the history of the internet, most of us are familiar with things like the major online travel agencies. And while every flight or hotel booking may be another opportunity for customer acquisition, such companies might see a better return on their investment if they invested those billions into product improvements with the aim of building customer loyalty and gaining customers through word of mouth, rather than simply paying to be at the top of Google searches or tracking you on third-party websites.
What it means for Amplitude
Amplitude went public through a direct listing at the end of September. The stock initially rallied but has since faded on the broader sell-off in growth stocks and now trades near the $50 mark where it first opened.
This company is unique on the market as the only pure-play software-as-a-service stock focused on digital optimization, an industry that is just starting to emerge, and the company is growing fast. Through the first three quarters of 2021, revenue is up 63% to $117.8 million, and remaining performance obligations, a proxy for backlog, jumped 79% to $152.0 million. Amplitude's future will be closely tied to the emergence of the product-centric internet and the growing importance of the chief product officer.
The fallout from the end of third-party cookies has been mostly ignored by the market this year as the situation is still evolving and will have a wide range of consequences. If you're looking for a way to invest in this underappreciated shift, Amplitude looks like a promising option.
