What Google's decision to keep cookies means for the internet

Google on Monday announced a bold move that has some big implications for advertisers and the future of the internet.

The U.S. internet giant said late Monday it is reversing a long-planned move to ditch third-party cookies — the critical text files that track users' web activity for advertisers.

But what are cookies, exactly? And what does Google's decision mean for how you interact with the web moving forward — or, for that matter the advertising industry?

CNBC runs through what you need to know.

Cookies are small pieces of code that websites deliver to a visitor's browser. They remain as the person visits other sites.

These bits of code silently track our online activities, collecting information on what we're searching for and the kinds of products we tend to buy, for example. They have become a key way for advertisers to fine tune how they target people with ads online.

The practice of using third-party cookies to track web activity has helped fuel much of the digital advertising ecosystem and advertisers remain heavily reliant on cookies as a tool to gather data on their customers.

Roughly 40.9% of websites globally use cookies to gather data on users, according to data from W3Techs, a web technology research firm.

But cookies aren't only a method of tracking users' browsing habits. They also form a key part of how the modern web functions. They play a critical role in keeping a user signed in as they browse from one webpage to another.

One argument for keeping cookies live across the web is convenience. Put simply, they can make it more convenient for users navigating around the internet as the ads displayed on devices for shopping are more tailored to a user's interests.

They also help the web remain free to use — many publishers introduced paywalls and invested in sponsored content in response to the anticipated phase-out of cookies.

In some ways, cookies have also become annoying for many users.

Privacy regulation in Europe requires websites to display boxes requesting users what cookies they want stored on their devices. This results in the checkboxes we're now all too familiar with asking us to consent to cookies.

Initially, Google sought to introduce an alternative to cookies that was more privacy-focused.

The company launched its "Privacy Sandbox" initiative in 2019 to find a solution that protects user privacy while still allowing content to remain freely available on the open web.

One of the proposals included the so-called "Federated Learning of Cohorts," which would essentially place people into groups based on similar browsing behaviors, meaning only "cohort IDs" and not individual user IDs would be targeted.

Google previously said it was "extremely confident" with the progress of its proposals.

But the company has on multiple occasions pushed back the timeline for phasing out cookies, citing feedback from the advertising industry over the implementation of these changes, which would have potentially meant less effective ad campaigns.

This issue forms the main reason why Google has now decided to terminate its planned depreciation of third-party cookies.

"In essence, it boils down to Google's acknowledgement that the marketing industry was not ready for this change," Matthew Holman, partner at law firm Cripps, told CNBC.

"It also believes that it can develop a feature in its Chrome browser that will allow consumers greater choice."

Google says it now plans to keep cookies. Rather than depreciating them, the tech giant will "introduce a new experience in Chrome that lets people make an informed choice that applies across their web browsing," the tech giant said in a blog post.

"We're discussing this new path with regulators, and will engage with the industry as we roll this out," the firm said.

Google didn't provide specific details on what this new approach would look like, but said that it's discussing the "new path with regulators, and will engage with the industry as we roll this out."

For now, Google's move will probably mean the way you interact with the web will look more or less the same. Users will still see checkboxes at the top of a web page asking whether they want to accept all cookies, or just essential ones.

The implications will likely be bigger for advertisers as the valuable data that marketers get from being able to track users around the web will continue.

"The number one impact is the internet is going to remain free," Steve Silvers, executive vice president of global creative, media and ecosystem at Kantar, told CNBC in emailed comments Tuesday.

"Without third-party cookies, website owners were struggling to figure out how to monetise their audiences and this is one of the reasons there's been such an increase in gated or paywalled content in recent years."

Ironically, certain media publishers could even begin to drop content, paywalls, Silvers added.

On Tuesday, the U.K.'s Information Commissioner's Office said it was "disappointed" Google changed its plans.

The regulator — along with the Competition and Markets Authority — had worked closely with Google to ensure the alternative proposals to cookies sufficiently protected users' privacy, while also not being too damaging for businesses reliant on cookies for advertising.

The ICO said it will "monitor how the industry responds" to Google's decision and "consider regulatory action where systemic non-compliance is identified for all companies including Google."

Still, Google's move doesn't mean it will be "business as usual," according to Vasiliki Makou, a digital strategist at London-based marketing agency Axicom.

"While this may seem like a reprieve for some, businesses shouldn't mistake this decision for a return to business as usual," Makou told CNBC via email.

"The push for greater online privacy isn't going away," she added, referring to the impact of privacy laws such as the EU's General Data Protection Regulation.

- CNBC's Jennifer Elias contributed to this article