These Stocks Have the Advantage in the Advertising Revolution

In this clip from "The Virtual Opportunities Show" on Motley Fool Live, recorded on May 24, Fool.com contributors Jose Najarro and Travis Hoium have an interesting discussion about what the digital advertising ecosystem of the future may look like and what companies will be in the best position to thrive.

Jose Najarro: A lot of these kinds of changes that is happening here in the advertising is causing some of these advertisers who slow down on how much they are willing to spend because they're not getting that same type of conversion they used to get before. But is there any companies that are really able to move with this change or will like everybody start seeing that reduction in metrics? Then companies are going to be like, well I guess this is the new normal. These are the new averages on metrics that we're getting. Maybe we can just restart spending the same amount of money we used to. We just got to accept that now. We're not getting the same type of pools that we used to before.

Travis Hoium: This gets into the law of unintended consequences because I don't think that this is what Apple (AAPL 0.11%) intended or regulators intend with these changes go into place. But what will end up happening is that companies are going to have to rely more and more on first-party data.

For example, if you are on Google Search, you're on an Alphabet (GOOG -2.33%) (GOOGL -2.10%) product. Now, Alphabet has the Play Store. Alphabet, the data that tie from where you click on a link to when you make a purchase. They also did a partnership with Shopify (SHOP -2.01%). That data can stay with Alphabet. It's not tracking you across the internet, it's tracking you across Alphabet's app ecosystem or tech ecosystem.

That's what we're going to see, is the data stay in one place, as opposed to Apple allowing you to track it across the internet. That's really the trend that's going to take place, and so it's going to be a matter of who can acquire or build enough of an ecosystem themselves or do the right partnerships have data signals that kind of peer into, Unity (U -2.93%) might be a good example of this. Do they have to work with a company to maybe the data is in Facebook's [a part of Meta Platforms (META -11.64%)] coffers, but they're able to peer into it the way that Shopify does with conversions?

That would be, I think the way to think about it is that there will be consolidation in certain areas that we're seeing this in the gaming space. I mean, Microsoft (MSFT -3.45%) acquiring Activision Blizzard (ATVI) is just another play toward this. Now, they're going to know everything that people do when they are playing their games. They're able to then serve ads in other parts of the market. That I think is going to be the response.

There will be other ways around that you can predict. You can build models to predict. What are the odds that Jose clicked on this link and then made a purchase? You're not tying it directly, but you're inferring. That is the response these companies are going to make. It's just going to probably take a while for that, for all of us to really play out.

This is why I say, I think Facebook is probably further along than others in building this out because they have not only a massive engineering staff, but the data to figure this out in the ecosystem. Companies like Snap (SNAP 0.06%) are going to be maybe a little bit more jarred from quarter to quarter because they're just not quite as advanced in those metrics and they have a little bit more of a brand advertising-focused business. So, that's going to be good in some quarters and bad in others. That's the way that I think about it.