How AI will change AdTech and Data Privacy

Artificial Intelligence and Machine Learning models have impacted nearly every industry, and we can expect that it will make a noteworthy impact on the Ad Tech industry too. In fact, a report by Forrester found that in the US, more than 60% of advertising agencies are already using generative AI, while 31% are exploring use cases for the technology. Over the years we’ve seen that data privacy requirements have greatly affected Ad Tech and its processes. In the EU, for example, we’re seeing Apple and Meta facing heat for violating the Digital Marketers Act by forcing customers into a restrictive “pay or consent” model for ads on Instagram and Facebook.

Ad Tech companies now have to strike a balance between employing beneficial AI technologies and meeting data privacy compliance requirements. What does this balance look like? In this article, we take a close look at the changes we can expect AI to make on Ad Tech and how these changes might affect users’ data privacy.

How will Ad Tech benefit from AI?

At the first glance, we’re seeing AI change Ad Tech in these ways:

• AI can analyze vast datasets and automatically categorize users into specific groups based on their likes, interests, and online activities, allowing for high quality advertising.

• AI and ML can help forecast customer behavior by predicting which individuals might convert, unsubscribe, or engage with the advertisements.

• AI can be used for Programmatic Advertising, where in AI places targeted ads to the relevant audiences in real time after analyzing behavior and bidding on the most effective ad placements.

Overall, one of the biggest impacts that AI is expected to have on Ad Tech is Personalization, which is evolving from pulling insights from demographics to tailored individual interactions based on searches, preferences and context. Generative AI solutions can deliver hyper-personalized ad experiences at scale whether it’s email marketing or website interactions. Further, predictive analysis can anticipate customer needs and place content, offers and experiences accordingly.

But, while AI is increasing the effectiveness of personalized and targeted advertising, it will also have an impact on data privacy. So far however, we’re expecting AI’s influence on data privacy in the Ad Tech industry to be largely positive.

Will AI replace cookies?

AI will most likely replace cookies. One way in which this will happen is through contextual advertising where in ads are placed on websites based on the content of the webpages not on the activity of the users. Another way in which AI will replace cookies is through probabilistic and cohort-based modelling, which essentially means using AI to predict user behaviour.

However, with this approach data still needs to be fed into the AI and ML models. Where does this data come from? How do can we ensure that it is accurate? Have users consented to their data being used by AL and ML models? These concerns question the effectiveness of completely replacing cookies.

A new type of cookie

The good news is that AI can be used to power a new type of cookie. Agentic cookies act as intermediaries between users and websites. They observe how users act online, their data sharing preferences, their location sharing preferences, their interests, etc. These agentic cookies then act as a liaison between the user and the website, negotiating what data gets shared based on the user’s past behaviour. What differentiates agentic cookies from traditional ones is that these cookies continually learn users’ behaviours and preferences.  This also means that users won’t have to constantly deal with cookie banners that pop-up. The cookie, having learnt the user’s behaviour will make the choice on their behalf.

The cookie’s ability to constantly learn about the user’s behaviour helps it discriminate between normal activity and potential data privacy threats. For example, if a visitor visits a frequently used shopping website, the cookie will ensure the users gets signed in without hassle. However, if the user clicks on a link that hasn't been visited before, the cookie will allow that website’s consent preference banner to be shown to the user.

This type of cookie is beneficial to advertisers too because while advertisers will receive lesser data, the data that they do receive, being directly from the user itself (zero party data) will be far more usable than first or third-party data. Further, this data will be up to date. Advertisers won’t have to spend time combing through irrelevant data sets.

AI can also be used to follow competitor’s ad campaigns and pull insights from their processes. AI techniques can also predict which advertisement position would generate the best return per placement, thus saving the advertisers’ spending. Parameters such as performance of prior campaigns, current trends, and changes in supply and demand, which are key insights can be provided by AI.

Another interesting way in which AI is changing Ad Tech is using AI to test the creative effectiveness of ads. A creative testing company, DAIVID, uses their AI driven platform that has been trained using millions of human responses to ads that allow advertisers to understand the emotional impact of their ad and can then predict the business outcome of the ad.

Employing AI, of course, comes with its challenges. We are seeing that Ad Tech companies are collaborating to deal with the rising cost of tech innovation and privacy compliance, and the demand for integrated and compliant solutions.  The digital media and marketing ecosystem experienced a 13% annual increase in overall mergers and acquisitions compared to the previous year. For example, Trade Desk recently acquired Sincera, a data management company.

It has to be noted that given how effective and beneficial AI technologies will be, it will take a while before most of them are fully functional and ready to be used. In the meantime, companies need to focus on maintaining hygienic data collection, processing and selling practices. Cookie banners that are compliant with privacy regulations and free of dark patterns will have to be used. AI will undoubtedly revolutionize the Ad Tech industry; this means that lawmakers will be quick to ensure that data privacy is not compromised because of this. While companies are adopting newer, more efficient technologies, they also need to be adopting strong and sustainable privacy programs that ensure compliance.