Sept 9 (Reuters) - Smaller ad-tech firms are raising

competition concerns over Google's long-brewing

cookies alternative, Privacy Sandbox, at a time when the

internet giant's digital ads business is already under U.S. and

UK scrutiny.

The U.S. and UK regulators suspect that Privacy Sandbox,

which has been in the making for five years, could give Google

too much control over the digital advertising market, harming

competition.

Google's dominance through Chrome and Android platforms,

which command the lion's share of internet users, makes adapting

to Privacy Sandbox a critical necessity for ad-tech firms.

However, the investigations and potential technology

development delays are hurting smaller ad-tech firms, as the

burgeoning costs due to adoption delays for Privacy Sandbox will

put them at a disadvantage against well-heeled rivals.

At least 11 ad executives told Reuters that Privacy Sandbox

may create an uneven playing field that favors larger firms with

greater funding and technical prowess.

Privacy Sandbox is a set of technologies that aims to

enhance user privacy by anonymizing data, implementing stricter

access controls, and targeting groups of users rather than

individuals. It was developed to replace cookies, which are used

for tracking and targeting individual users.

Google's initial plan to phase out third-party cookies in

Chrome and replace them with the Privacy Sandbox met with

significant opposition from ad-tech companies and antitrust

regulators, compelling the search giant to backtrack.

"We've designed and implemented the Privacy Sandbox to

support a competitive and thriving marketplace," the internet

giant said, as the ad industry was looking to move away from

third-party cookies.

The company is now more involved with the industry forum IAB

Tech Lab's working group of ad executives, to evaluate and

redefine the nature of Privacy Sandbox, Devon DeBlasio, vice

president of product at Infosum said.

Some experts believe smaller companies that can adapt

quickly and develop effective solutions within the Privacy

Sandbox framework might gain a competitive edge.

AN UNEVEN PLAYING FIELD

"Smaller ad-tech companies simply do not have the

engineering teams or financial resources to effectively build

out functional Privacy Sandbox platforms that can be used at

scale - they are at a complete disadvantage," said Drew Stein,

CEO of ad-tech firm Audigent.

The firms face greater financial risk as Privacy Sandbox's

uncertain timeline extends development costs beyond the initial

$5 million to $10 million investment they had expected.

Stein said Audigent, which helps advertisers improve ad

targeting and publishers boost ad revenue, has invested "several

million dollars" into Privacy Sandbox over the past few years,

representing a substantial investment considering its annual

revenue of about $150 million.

Meanwhile, large firms such as Raptive and Index Exchange

have invested less than 3% of their revenue towards engineering

resources for Privacy Sandbox, according to sources familiar

with the matter.

"Having a whole developers' team, spending multiple years on

a project is a huge investment for a small-medium sized

company," said Luckey Harpley, staff product manager at Remerge.

Experts said while larger ad-tech firms such as Taboola and

Index Exchange might be less impacted by the introduction of the

new technologies, regulatory efforts to ensure fair competition

will be crucial in preventing Google from further consolidating

its dominant position.

"I don't think Google's going to wind up in the sort of

kingpin position that some people might say it will," said

Dennis Buchheim, CTO at ThinkMedium and former CEO of IAB Tech

Lab.

"Don't think it's going to be allowed."

(Reporting by Akash Sriram and Harshita Mary Varghese in

Bengaluru; Additional reporting by Kenrick Cai in San Francisco;

Editing by Shinjini Ganguli)