Google LLC's decision to stop tracking individual web browsing activity in its products and services marks a notable shift for the digital advertising market, but analysts said the move aligns with a broader push by consumers and regulators for more data privacy.

Tracking third-party web activity has also become less necessary for Google's business over time. Although the Alphabet Inc. unit derives most of its revenue from advertising (81.2%), the vast reach of its search and other services means the company can collect data on its customers directly; it does not need to monitor activity on third-party websites.

Many small and medium-sized businesses do not have that option, noted Sheryl Kingstone, head of customer experience and commerce research at 451 Research, part of S&P Global Market Intelligence. That puts them in a more difficult position when Google, the dominant search engine, stops supporting technologies that track people's web browsing for the purpose of selling more targeted ads.

"It is significantly impacting businesses' ability to identify consumers for personalization and retargeting ... ultimately impacting how they deliver digital experiences and recognize revenue," Kingstone said.

But the push for more anonymous web browsing is clearly coming from consumers, not Google, she said.

In a recent survey by 451 Research, nearly 70% of respondents said they were "somewhat to very uncomfortable" with companies using their data to send personalized communications online, and more than half said they would be more loyal customers to a business that offered more transparency regarding how their personal data is used.

Google noted consumers' growing concern with how their data is being used in a recent blog post announcing that it would not develop alternative identifiers once it stopped supporting third-party cookies, which are used to track users' web activity. The company in January 2020 announced its intent to phase out support of third-party cookies in its Google Chrome web browser over a two-year period.

While conceding in its recent blog post that other internet providers may continue using more targeted tracking methods, Google said advances in data aggregation, anonymization and on-device processing offer an alternative to individual identifiers.

"This points to a future where there is no need to sacrifice relevant advertising and monetization in order to deliver a private and secure experience," said David Temkin, Google's director of product management, ads privacy and trust, in the blog post.

Data-tracking technologies using individual identifiers have been attracting more scrutiny from regulators at a time when Google and other big tech companies were already in the regulatory hot seat.

Google in December 2020 was hit with a multistate antitrust lawsuit alleging anti-competitive conduct related to its online-display advertising business. Google has called the suit meritless. In October 2020, the company was served a separate antitrust lawsuit from the U.S. Department of Justice that alleged it unlawfully maintained monopolies in the general search, search advertising and general search text advertising markets through anti-competitive and exclusionary practices.

Alphabet CEO Sundar Pichai has testified on Capitol Hill several times over the past year regarding his company's business practices. At a congressional hearing last summer, Pichai stressed that the company's work in emerging technologies like artificial intelligence and autonomous driving has advanced America's technological leadership.

Anders Bylund, a technology and consumer goods specialist at financial advisory firm The Motley Fool, said in an interview that Google's latest privacy-focused ad update indicates the company is trying to keep pace with growing calls from lawmakers and regulators to tighten internet privacy requirements.

"Google isn't dragging its feet here. It's pushing ahead with changes that are coming before they're even required by regulators," Bylund said.