(This Sept. 9 story has been corrected to say that Dennis Buchheim is the CEO of ThinkMedium, not CTO, in paragraph 17)

By Akash Sriram and Harshita Mary Varghese

(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. The internet giant had earlier said it will let users make an "informed choice" on how they are tracked across websites.

Google said it has provided funding for several ad-tech firms developing and testing solutions based on Privacy Sandbox. It added the technologies were being designed to ensure a competitive marketplace, in collaboration with regulators and other stakeholders.

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 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, sources told Reuters.

"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, CEO at ThinkMedium and former CEO of IAB Tech Lab.

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