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Technology

No more cookies: Japan sours on online tracking ads

Sapporo slashes budget while Panasonic explores alternative digital marketing

An advertisement for Sapporo Breweries in the Japanese city of Chitose. Digital ads have sparked extensive debate about data privacy.   © Reuters

TOKYO -- Big Japanese companies including Sapporo Breweries and Panasonic have begun to shift away from advertising based on online users' habits as governments and tech giants take new steps to ease rising privacy concerns.

Sapporo, which spends roughly 19 billion yen ($172.75 million) on advertising and promotions, has slashed its budget for targeted ads by about 70%. They now account for less than 10% of Sapporo's online ads, down from around 30%.

The beer company is not alone. Office supply seller Askul has cut its budget for targeted ads for its Lohaco online store by more than 90% over the last three years.

These moves reflect both policy and industry trends that have created headwinds for the long-running practice of mining data for consumer preferences.

"We won't be able to rely on targeted ads in the future," a Sapporo executive said.

Targeted advertising works by analyzing personal data, such as what a person buys or searches for online. This information is then used to deploy ads that are deemed likely to interest the viewer. Click-through rates for targeted ads can be double that of untargeted ads or more, industry watchers say.

Ad stakes run high. The global digital ad market is estimated to be worth over $350 billion. In Japan, digital ads are a 2.2 trillion yen, or roughly $20 billion, market accounting for more than 30% of all advertising, according to leading ad agency Dentsu. Targeted ads are estimated to account for over 1 trillion yen worth of online advertising.

But these ads have also drawn criticism that they violate consumer privacy, prompting governments around the world to push businesses to handle personal data with greater care. In Japan, an updated data protection law will take effect in April 2022, requiring companies to obtain user consent before sharing "pseudonymized" information --- data that can be used to identify an individual in combination with other information -- with a third party.

U.S. tech giants, which themselves have been collecting massive amounts of user information, are also signaling a shift in their strategy. Google announced it will phase out third-party cookies from its Chrome web browser in 2023.

Apple in April stopped iPhone apps from tracking and harvesting data without user consent. Just under half of global users had opted in to data tracking as of mid-July, according to marketing analytics company AppsFlyer. Ad spending on iOS apps has plunged 15% in three months, suggesting advertisers are cutting their budgets over concerns these ads may no longer be as effective.

"Questions remain regarding the ethics and convenience of targeted ads," Panasonic said.

Instead some companies are shifting gears to other, more effective types of digital ads. A common complaint surrounding targeted ads is that a user can continue receiving ads about the same products, like a car, even after purchasing one.

Panasonic is now trying its hand at contextual advertising, using artificial intelligence to analyze texts and images on a website to instantly display relevant ads. For example, a feature article on a rock band might be accompanied by an ad for high-end wireless earphones.

A key advantage of contextual advertising is that it responds to the user's interests in real time, rather than relying on browsing and search histories like targeted ads.

"They have higher click-through rates than regular targeted ads," said Naokazu Wakaguri, managing director for Japan at U.S.-based contextual ad provider GumGum.

But despite the growing popularity of alternatives, targeted ads are not expected to disappear anytime soon. Google has developed technology to tailor ads to users by the thousands instead of individually. Digital ads as a whole are only expected to grow, meaning privacy concerns will continue to loom large over the field.

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