Google's Privacy Sandbox adoption burdens small ad tech firms, industry says By Reuters

By Akash Sriram and Harshita Mary Varghese

(Reuters) – Smaller ad tech companies are raising concerns about competition for Google's (NASDAQ:GOOGL) cookie alternative, Privacy Sandbox, at a time when the internet giant's digital ad business is already under scrutiny from the United States and Britain.

Regulators in the United States and the United Kingdom suspect that Privacy Sandbox, which has been in development for five years, could give Google too much control over the digital advertising market, harming competition.

Google’s dominance across the Chrome and Android platforms, which control the majority of Internet users, makes Privacy Sandbox adaptation a critical necessity for ad tech companies.

However, the investigations and potential delays in developing the technology are hurting smaller ad tech companies, as rising costs due to delays in adopting Privacy Sandbox will put them at a disadvantage to their deeper-pocketed rivals.

At least 11 advertising executives told Reuters that Privacy Sandbox could create an uneven playing field that favors larger companies with greater funding and technical prowess.

Privacy Sandbox is a set of technologies that aims to improve user privacy by anonymizing data, implementing stricter access controls, and targeting groups of users rather than individuals. It was developed to replace cookies, which are used to track and target individual users.

Google's initial plan to phase out third-party cookies in Chrome and replace them with Privacy Sandbox was met with significant opposition from ad tech companies and antitrust regulators, forcing the search giant to backtrack. The internet giant had previously said it would allow users to make an “informed choice” about how they are tracked across websites.

Google said it has provided funding to several ad tech companies developing and testing solutions based on Privacy Sandbox. It added that the technologies are being designed to ensure a competitive market, in collaboration with regulators and other stakeholders.

The company is now more involved with the IAB tech Lab industry forum's working group of advertising executives to evaluate and refine the nature of the Privacy Sandbox, said Devon DeBlasio, Infosum's vice president of product.

Some experts believe that smaller companies that can adapt quickly and develop effective solutions within the Privacy Sandbox framework could gain a competitive advantage.

AN UNEVEN PLAYING FIELD

“Smaller ad tech companies simply don't have the engineering teams or financial resources to effectively develop functional privacy sandbox platforms that can be used at scale; they are at a complete disadvantage,” said Drew Stein, CEO of ad tech company Audigent.

Companies face increased financial risk as Privacy Sandbox’s uncertain timeline stretches development costs beyond the initial $5 million to $10 million investment they had hoped for.

Stein said Audigent has invested “several million dollars” in Privacy Sandbox over the past few years, which represents a substantial investment considering its annual revenue of about $150 million.

Meanwhile, large companies such as Raptive and Index Exchange have invested less than 3% of their revenue in engineering resources for Privacy Sandbox, sources told Reuters.

“Having a full team of developers and spending several years on a project is a big investment for a small or midsize company,” said Luckey Harpley, staff product manager at Remerge.

Experts said that while larger ad tech companies like Taboola and Index Exchange might be less affected by the introduction of the new technologies, regulatory efforts to ensure fair competition will be crucial to prevent Google from further consolidating its dominant position.

“I don't think Google is going to end up in the leading position that some people might say it will,” said Dennis Buchheim, CTO of ThinkMedium and former CEO of IAB tech Lab.

“I don't think they'll allow it.”