The Post-ATT World
The Evolution of Performance Marketing in ECommerce
There is a silver lining to the challenges wrought by the passage of Apple’s App Tracking Transparency. This new, probabilistic world has created opportunity for startups like Treat, which just announced its $8.5 million seed round led by Greylock. The company uses generative AI to create personalized product photos for commerce brands.
We’re also seeing startups like Fermat, which provides the tooling and network to enable distributed commerce. Founded in 2021, Fermat saw that user-generated content was drawing the most engagement to brands, so it built the mechanism for companies to embed shopping experiences within influencer content. Greylock led the company’s seed round in 2022.
Treat CEO and co-founder Matt Osman, Fermat CEO and co-founder Rishabh Jain, and analyst and investor Eric Seufert joined me on the Greymatter podcast to discuss the post-ATT world and what it means for commerce brands and the companies building tooling to support them. You can listen to the conversation at the link below or wherever you get your podcasts.
EPISODE TRANSCRIPT
Mike Duboe:
Hi everyone, welcome to Greymatter, the podcast from Greylock where we share stories from company builders and business leaders.
I’m Mike Duboe, a partner here. Today I’m excited to welcome Matt Osman, Rishabh Jain and Eric Seufert.
Guys, I’ve been really excited for this conversation. I think for those of us who have worked in growth marketing or e-commerce the past couple of years it’s certainly challenged our assumptions and our learnings along the way.
For some advertisers, this has unfortunately meant that growing a business is no longer viable and has been catastrophic to some. For other marketing friends, we say things have been getting fun again.
And so the goal for this conversation is really to help illuminate what is exactly happening in the world of performance marketing with a specific lens around e-commerce. Ideally, founders and other builders in this space will walk away with an actionable set of lessons.
Our guests today come at this problem from a different set of vantage points. I’ll do quick intros and we’ll ask you guys to do the same.
Eric’s an independent analyst, consultant, and investor at Heracles Capital. He’s really become the go-to follow on all things ad tech. We had the pleasure of meeting back in the day when I was at Stitch Fix and he was at Network working on mobile advertising and programmatic.
Matt Osman is the CEO and co-founder at Treat, a Greylock portfolio company using AI to generate, personalize, and deploy creative for large e-com merchants.
Rishabh Jain is the CEO and co-founder of Fermat, another Greylock company building a distributed commerce network, helping brands drive conversion at the point of discovery.
So guys, thank you again for joining. Before jumping in the conversation, could each of you take a minute to share your background and maybe what led you to dedicate this chapter of your lives to this set of problems? We’ll start with you, Matt.
Matt Osman:
Yeah, so this is my second company. My first company was a natural language processing company and sort of the first wave of AI, but specifically in biotech and biotech document processing. So I kind of got to know the AI lens of this through that. And then I got particularly fascinated in the ways that language becomes, basically, a summoning technology with LLMs and diffusion models.
And there were some very interesting applications in customer acquisition post-ATT. So it’s almost a continuation from the last company from a technological perspective. And yeah, it does feel like building in the age of miracles. I would like there to be one week where there isn’t an industry-changing release or announcement because I need a break, and it’s starting to get quite exhausting.
MD:
All right, Rishabh.
Rishabh Jain:
Yeah, so in addition to the current company, I would say that the lens that I come at this with is from a company called LiveRamp. So I was there for six and a half years and it was basically the largest provider of digital identity. And so for better or for worse, we knew everything there is to know about online tracking.
And so when Apple first made its announcement, we were sitting at LiveRamp saying like, “Holy smokes, Eric Seufert is right.” At the time I didn’t know him. And basically, the writing was so clearly on the wall for me, starting in the summer of 2020. And then for sure, by that December, and I’m sure we’ll go through the history, but that’s when I basically decided to leave LiveRamp. This is like a change that is gonna affect the entire consumer internet, but the first place in today’s topic is gonna be e-commerce, right? And so, yeah, it was just that vantage point of building technology for tracking in the open web.
MD:
And Eric?
Eric Seufert:
Yeah, so first, I appreciate the invite. It’s great to be speaking with such an accomplished and impressive panel today.
I come at this as an operator. So I spent my career in performance marketing for mobile apps, mostly games, kind of grew up in the sort of primordial soup of the app store and kind of got that front row view of the evolution of Facebook and games, Google and all of these powerful technologies that were brought to bear in the service of distribution – distributing apps, getting products, physical goods into people’s hands.
And so I was concerned and troubled when ATT was announced, although I think just in terms of the impact and the preparedness of companies to adapt to that.
In contrast to Rashab’s journey, when that light bulb moment happened for me, I didn’t start a company. I started a venture fund to invest in the brilliant founders, building the tools that would sort of enable companies to adapt to that like, which I’m very pleased to be an investor in.
MD:
So let’s rewind back to around 2016. You know, Facebook ads were hitting their stride for many of us who were starting to deploy them at scale in e-commerce. Shopify was on its rapid ascent kind of on the heels of this. I remember at the time, like the OCPM algorithm and Facebook targeting became so darn good that merchants could really hit scale with very few people in house.
And a few years later, this all kind of just blew up. Many point to Apple’s privacy efforts in catalyzing this wave of change. Eric, you just referenced ATT. Maybe take a step back. Can you explain to us what happened here?
ES:
Yeah, well, so maybe it’s the best place to start here is 2017. So it’s ITP, right? So Apple introduced intelligent tracking prevention in 2017. That’s a Safari browser feature that did a couple of things, but the most prominent sort of privacy safeguard was blocking third-party cookies. So Apple rolls this out and this game of whack-a-mole ensues.
So Facebook, the Facebook Pixel – which is the component, I think, that allowed Shopify to grow so precipitously and allow e-commerce to grow so precipitously – the Facebook pixel was a third-party cookie. That just means it was signed by Facebook, but you had embedded it in your own website. It wasn’t of the same domain as the website.
And what that did was that it just served as a transmission mechanism for conversion artifacts for data about these conversions to flow back. And so when that was blocked in Safari, Facebook said, “Just reimagine the pixel or reposition it as a first-party pixel. So, developers – here, you just have to sign it with your domain. It’s going to have the same sort of functional purpose, but it’s going to be signed as your domain.” So it’s first-party and not blocked by ITP.
So then what Apple did was a, “OK, we see what you did there.”
And so they limited the amount of time that a first-party cookie could send data back to the true owner for. So it just limited that timeline. And so my sense is, what Apple took away from this sort of back and forth exchange was that there is no way to fully prevent this behavior through policy. The way to fully prevent this behavior – which Apple calls tracking, which is kind of mixing the third-party and the first-party context, it’s commingling that data – is to just starve these companies of the data. There’s no way to sort of ask them to abide by this policy unless you remove the data from that sort of transactional frame where it will be used
MD:
Yeah. So, I guess following on that, Rishabh, why did most people not see this coming? You were in the ad tech space at the time. What was going on in the background there?
RJ:
Yeah, so I think that the way that Eric was describing people’s behavior to ITP is actually a pretty good indicator of what happened with ATT.
So essentially what happened was that people were basically saying, “Hey, we’re going to do all these steps to get around this action that you have taken.”
And so the same thing happened with ATT between July and December of 2020, so there was this progression basically in that six month time horizon where we went from people believing that actually, what was happening was the specific identifier called IDFA was being turned off. Then, a clarification was issued saying, “Hey, it’s any identifier,” then an additional clarification was issued that it’s actually a policy statement. And finally, Facebook said, “Hey, you know what, we’re actually going to abide by this” – because for a brief period, they said we’re not even going to abide by this. And then it was pretty clear that they needed to abide by it. And so in December of 2020, that’s when clarity sort of emerged.
However, the big thing that all of adtech recognized at that moment – and it was sort of a strange gentleman’s agreement that if we admit that there’s no solution to this for the next six months, our stock price is going to tank. That’s just true. And I wish there was another sort of collegial way of saying this, but this is actually what was true.
Criteo, the company that I worked at at that time, TradeDev – there are so many companies who have a dependence on this that basically everybody was issuing statements saying,”Hey, we have a solution, or we are working on a solution.” And so that led the agencies to saying, “Hey, don’t worry about it. Our tech partners have a solution.” And that led the brands to saying, “Hey, we’re not worried about it. Our agencies, Facebook, they’re all working on a solution.”
And when you get that comfort that, OK, the people who know what they’re doing are working on a solution, you basically assume that that’s true.
So what was happening is that in the early part of 2021, everybody assumed that, “Hey, we’re working on some magic solution.” Also, we didn’t actually know when implementation was going to happen. I should clarify that. So in January, we actually did not know when implementation was going to happen. And then Apple said, “OK, in 14.5, that’s when implementation is going to happen.”
And that was in the summer. But Apple does this thing that every update doesn’t necessarily get pushed. So 14.5 was not a push update. 14.6 was a push update. So there was another head fake where 14.5, again, people thought, “OK, it’s not as bad as we thought, because 14.5 has happened.”
But actually, most cell phones didn’t update. 14.6 was the push. And then finally, through the end of the year, then it happened. And so it caught people by surprise, because first there was industry storytelling. Then there was this notion of, “Hey, when is the actual impact going to happen? Is it 14.5, 14.6?” And then the last step is there’s a 90-day look-back window issue. So there’s a look-back issue on when the actual measurement is going to happen based on the identifier that’s coming in and the impact you’re targeting. And so that had yet another 90-day delay.
And so by the end of 2021, then it became like all of a sudden people were just like, “Wait a second. This thing is like absolutely demolishing our campaigns.”
The reason you can tell that people did not expect it is there was a precipitous drop in stock prices of publicly-traded companies. And you’re just like, “Wait a second – shouldn’t have this been known?” But, I guess you know, there was a series of events that actually prevented people from fully appreciating what impact was actually going to be felt over what was basically a year.
One of the most interesting things to watch happen over the course of 2021 is just how it played out in the industry.
MD:
Yeah, I mean, for those of us who were sitting on the marketing side of the table, it seems like the response of the ad networks was just to take control away from us. Why was that the case?
MO:
I can give what I think the reason is. So the risk of simplifying too much, what ATT and the things that led up to it really have done is it moved us from a deterministic world to a probabilistic one.
By deterministic, I mean that the post-back link that Eric described gives you as close to perfect mapping as you can get on the consumer internet, where you’re seeing kind of convergence data that are happening on the brand side, and you compare that with performance on the ad network side. And that gives you this great flywheel, and allowed Facebook (now Meta) to be kind of this engine.
Now, because that’s severed functionally, and you know, there’s been this kind of game of whack-a-mole leading up to this, we’ve moved to a probabilistic world where honestly, I think the ad networks have made the call that the only people who can really measure correctly or solve attribution or even attempt to are those with very, very large machine learning staffs who understand this space exceptionally well.
And so I think what you see on the product side is that the move, in-house, a lot of marketing activities. So like Advantage Plus, which is Metas rebranded automation suite, PMAX on the Google side, is an attempt, as you identified, Mike, to take control away from the market to a degree because the ad networks have the resources. And, let’s face it, the economic pain that they need to solve in order to keep their stock prices high. So they are highly motivated and with the resources to do it.
So at a very high level, I think that shift from the kind of world that we’re in, is leading to the product decisions that we see from the networks.