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The measured impact of the EU cookie insanity

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8 July 2011
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Earlier this year, the EU announced a new law, which will force websites to get a user’s explicit permission if they’re going to track the user by means of cookies.
(I’ll get in-depth about what exactly cookies are a bit later)
EU Cookie Law

Almost immediately, the entire tech industry was up in arms, explaining how this would kill any chance European tech startups have to succeed, compared to the rest of the world.

Few people got the point, really.

Since the directive has been announced, dust settled over the matter, and life went back to normal, to the frustration of online tech companies.

Now, finally, some case-in-point results came back from the first site to implement the cookie law requirements (see the message on top of the page). Ironically, it is the website of the Information Commissioner’s Office, responsible for overseeing the implementation of the law.

They are seeing a 90% drop in traffic due to the implementation of the cookie law.

Now, carefully sit back … don’t panic .. and consider this. Think it over carefully, and consider it’s meaning.
OK, now you may panic.

What are Cookies?

A cookie is:

  1. A small sweet cake, typically round, flat, and crisp.
  2. A small file stored on your computer when you visit a website, containing information that the website can retrieve when you visit the website again.

Why do websites need this? Let’s look at human behaviour.

Walking in a busy street in a big city, almost everyone you encounter is a stranger to you. You can’t provide them any personal experience, like greeting them by name, so they just walk along, treating you like you’re treating them – as complete strangers.

When you see someone you do know – the situation changes completely. You greet the person, possibly by name (depending on how well you know them), and if you’re both so inclined, you buy each other coffee, catch up, and this serendipitous meeting possibly leads to a joint business opportunity, friendship; some kind of deeper relationship for both of you.

How did this happen? Positive indentification. You received information fed into your brain by your eyes, enabling you to know who the person is, and unlocking a wealth of stored information about the other person.

Websites can not (at least not easily, yet) identify a person by looking at their face. So, they do this by storing a small piece of information on the user’s computer, that they can later easily identify, and link to other information they have stored on the user. Cookies allow you to not have to log into gmail every time you open it in your browser. They also allow you to not have to log into every page you’re visiting on a website. Without them, you would have to log in on Amazon after every link you click on.

Cookies as Currency

One amazing aspect of the modern tech world is the ability to give things away for free, and still have a valid business model.

How on Earth does this work?

Online companies deal in a different currency than money. They deal in users. Users can generate money by being advertised to, or by buying premium features at a later point, if they like the service enough that they don’t mind paying for it. Thus, investors give companies start up capital to build and improve their service based on the amount of users that are using the service. Thus, they “buy” users from tech startups with real money.

Now … how do we know how many users or visitors an online service or website has? That’s right. Cookies.

Thus, the ability to store cookies in online business is like a cash register in a shop. If you don’t have a cash register, people can browse the products you display, and they can love it. They can come back day after day to look at it and admire it, but they cannot buy it. Your shop will close soon, unless your landlord also operates without a cash register.

What’s the EU’s problem with cookies then?

Cookies are mostly used as explained above, but as with all technology, innovation lies in creative application.

Online advertisement networks have started using third-party cookies to innovate advertising. These are cookies set by websites, not to be used by the same website again, but by the advertising network, on different websites.

What are these used for?

Say you use the online property site Zoopla.co.uk. After a short while of browsing different properties, Zoopla knows more or less what you’re looking for, and start showing you suggestions based on what you have looked at in the past. They can do this, because they can identify you by the cookie they have stored on your computer.

But, Zoopla also advertises on other websites. By allowing the advertising network to read their cookies, the advertisements on other websites knows who you are, and can advertise properties that Zoopla knows you are interested in. This turns useless ads into targeted, useful ads.

This behaviour have proved to have one of two effects on users:

  1. Profound amazement and joy, as if experiencing magic
  2. Uncertainty and fear, as if experiencing magic

This is determined by the extent to which the user understands the mechanism involved, combined with the user’s level of latent paranoia. Unfortunately, the paranoia aspect causes even well-informed people to also fear this innovation.

The EU sees it as their first obligation, as usual, to make everyone feel safe and secure, and secondly to strive towards economic health. In this case, the two are mutually exclusive, and the strive for economic health has to be sacrificed.

What to do now?

Well, if you are a tech startup or web publisher, it seems the options are few, with no easy options:

  1. Stop using cookies, and start charging for your service up front. Your service will have to be absolutely indispensable, though, or no-one will pay for it
  2. Start using cookies, prompt for users’ consent, and deal with the 90% traffic drop by charging 10 times more for you premium features. This is not guaranteed to work though, because the premium business model only starts working after a certain tipping point in user numbers, which you may never meet.
  3. Move your business out of the EU. This seems to be the most feasible option of the three. Feasible, but not easy.

If you are a user, be prepared to start paying for free services you’re completely taking for granted, and be prepared to go back to non-targeted, useless online ads, rather than ads that are actually tailored to suit your needs.

Online distopia? Probably, yes.

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1 Comment

  • Posted by kam
    July 11, 2011 at 9:37 pm | Permalink

    That was very interesting. We had a legal team breathing down our necks for the new Ben Sherman site we launched. It was an innocent welcome message. We launched in the end but what a pain…

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