Cookies & Cream
Say a business sold, I don't know, ice cream cookie sandwiches. Customers loved them. The business was successful. Then, suddenly, bakeries decided cookies weren't good for people's health. They wouldn't make them anymore. This would be bad for the ice cream cookie sandwich business, obviously.
This is, with a few differences, what happened to a digital advertiser, Criteo.
Baked Fresh
Criteo deals in the digital cookie business. The company grew up using browser cookies to target online advertisements. When you shop for a Lego set for a birthday present and then see an ad for that same Lego set on The Economist website, that’s Criteo.
It developed solutions to help merchants identify customers who viewed and were likely shopping for specific items. This is a handy thing to know for merchants because it doesn't do them much good to pay for advertising to someone who isn't actually going to buy anything. Like when I look up the island of Java on Wikipedia and all of a sudden get advertisements for Starbucks. It's not the same.
So for most of Criteo's time, it solved this specific problem for merchants.
Stale Cookies
Then, not so suddenly, it became passe for browsers to have cookies - they left people's individual browsing details unsecure and not-so-private. Apple and Firefox were the first to jettison cookies. Google has dragged its feet a bit, but will get there sooner rather than later, probably in the next year.
This has been bad for Criteo's cookie business.
This all happened during a pandemic induced bullwhip in the digital advertising market. It boomed as pandemic dollars parachuted into people's bank accounts then busted as people moved on and has continued to bust as inflation has dampened animal spirits.
Investors feel similarly glum and have taken a dim view of the overall digital advertising universe.
The cookie business will go away — it may go away in a flurry. Criteo's business has been disrupted by the bakeries, er, browser companies. Investors familiar with Criteo see its legacy ads business melting away without cookies there to hold it together.
New Recipe
At the same time, though, merchant's desire to reach people who want to buy things hasn't gone away. Criteo has been working on solutions to address this without using cookies. It has products already that function in Safari (Apple) and Firefox today, sans cookies. And it's working with Google on its "privacy sandbox" to continue to reach people looking to buy things.
Its new slate of products is more effective at reaching shoppers and a harder nut to crack for new entrants without the crutch of cookies. The new solutions rely on a wider variety of data sources and crucially rely on Criteo's existing advertising partner network all while preserving anonymity for shoppers.
This new business has been growing rapidly, but it started from scratch just a few years ago. Today, its just over half of the company's activity. If the new business proves to be as durable as it appears, this will carry the company for years to come. For now, little of this is priced into the company’s shares. The market expects the company to melt away, setting up a nice opportunity to investors to benefit from the company’s efforts.