Google’s first phase of shutting down cookies starts today, setting off a scramble within the ad industry to understand what comes next in programmatic advertising.

Google’s Chrome team started turning off cookies today on 1% of traffic coming through the browser, which means publishers, advertisers and their ad tech partners have to adopt new methods of running internet ad auctions by the end of the year, when Google is scheduled to reach 100% cookie-deprecation. Today’s 1% cookie closure is the first opportunity for real-world tests of the next-generation ad platform, which Google dubbed Privacy Sandbox. There is a sense of angst among publishers and advertisers, concerned about the effects on everything from page-loading times on websites to how advertisers manage campaigns.

“I would say [this is] one of the biggest changes that the programmatic and digital advertising industry has ever seen,” said Tony Katsur, CEO at IAB Tech Lab, the digital ad trade organization. On Thursday, IAB Tech Lab teamed up with Index Exchange, the supply-side platform that works with publishers, to launch a demo of Google’s Privacy Sandbox.

Privacy Sandbox is a series of APIs—application programming interfaces—that hide consumer data from the participants in ad markets while still enabling ad functions. Publishers need to test how fast the auctions work, if they lead to any latency in loading pages and how much money the new ad system generates. Advertisers need to measure if the ads worked and how effectively they can retarget customers across the web.

“Many in the industry don’t have a deep understanding of the Privacy Sandbox at this point,” Katsur said.

Related: A guide to Google’s post-cookie ad tech

Google is following Apple’s Safari browser and others that already shut down cookies to improve online privacy. Cookies have been powerful tools to track consumers as they navigate the web, and then serve them highly targeted ads. They also made it possible to collect vast amounts of personal information and allow bad actors in advertising to feed off that data. At the same time, the system enabled a robust programmatic ad market and funded the internet.

Google ditching cookies is a significant disruption because Chrome has more than 60% of browser market share. Google also is the leading internet ad company, managing ad tech services for publishers and advertisers, which will all be affected. As such, Google is being watched closely by regulators; the U.K.’s Competition and Markets Authority is overseeing the switch to Privacy Sandbox. The regulatory body wants to ensure that Google goes through with new privacy measures but does not unfairly hamper the internet economy.

Ready or not

“If we want this transition to be healthy for the whole ecosystem, we need to, for sure, put a lot of stress on the feedback loop,” said Lukasz Wlodarczyk, VP of programmatic ecosystem growth and Innovation at RTB House, a demand-side platform.

RTB House is among dozens of ad tech companies that have tinkered with Privacy Sandbox, and it has worked closely with Google to refine some of the systems. The “feedback loop” depends on publishers and advertisers playing with Privacy Sandbox, which will create more competition in the ad auctions and test how the APIs perform.

Also, RTB House is pushing for even more cookieless traffic. “You can’t reliably make assumptions based on the 1%,” Wlodarczyk said.

RTB House has suggested that Chrome ramp up to 10%, 20%, 50% and then 100% throughout the year. Google, so far, has only announced that it will shut down 1% starting today, and it will get to 100% in the second half of the year.

“It’s a horrible timeframe to release something like this to the industry,” Katsur said of the plan to fully implement Privacy Sandbox in the third quarter, as holiday shopping season nears. “The industry is not prepared.”

Testing 1, 2, 3

To get prepared, IAB is circulating Index Exchange’s new demo of Privacy Sandbox, which is a website that shows the mechanics of the APIs, especially the Protected Audience API, known as PAAPI. The demo runs a simplified ad auction, showing how it operates within Chrome. That’s the fundamental premise of Privacy Sandbox, that the ad auction takes place inside the browser never sending data outside a consumer’s device.

“You can add yourself to simulated interest groups and see how the auction runs end to end,” said Mike McNeeley, senior VP of product at Index Exchange, of the demo.

The Privacy Sandbox will lead to a “radical shift in programmatic auctions,” IAB Tech Lab said in a blog post on Thursday. Advertisers, just starting to look at it, will have to measure how it impacts common practices in the industry. The ecosystem will affect how advertisers manage frequency capping, which is how often they serve an ad to the same user; how they create audience segments for targeting; and video advertising, IAB Tech Lab said. 

Google remains 'confident'

Google has a lot riding on the cookie transition; the privacy moves will also affect advertising on Android devices. The company has also been under pressure from antitrust cases from the U.S. Department of Justice, which probed its search business and outsized position in programmatic advertising.

Google’s Chrome team is handling the move to Privacy Sandbox. Publishers and advertisers are applying other methods of powering online ads, too, including universal ID systems from third parties, which are seen as cookie replacements, and they are turning to more contextual advertising. There also is a move to first-party data, which publishers and advertisers collect from consumers after asking for their direct permission.

Google has been calling on more industry stakeholders to start implementing Privacy Sandbox, though, and it has been committed to shuttering cookies this year. The U.K.’s Competition and Markets Authority is the only potential roadblock.

“We are confident the industry can make the transition in 2024 based on all the tremendous progress we've seen from leading companies, who have indicated publicly they've either started testing or plan to do so in January,” a Google representative said by email. “These companies have leveraged their expertise, technical investment and our documentation to prepare.” 

“Of course, companies’ readiness will depend on when they start preparing so we encourage everyone to start now to be ready for the transition off third-party cookies,” Google’s rep said.