Technology

Apple’s privacy changes show the power Apple has over other industries

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Tim Cook, CEO of Apple Inc., speaks during the Apple Worldwide Developers Conference (WWDC) in San Jose, California, the United States, on Monday, June 4, 2018.

David Paul Morris | Bloomberg | Getty Images

The impact of Apple’s April privacy change is starting to show on other companies’ balance sheets, showing the tremendous power Apple wields over non-consumer electronics industries.

In April, Apple released an update for iPhones with a new popup asking users if they want to allow apps on their phones to target the user for ads. IPhone owners can easily log out by tapping a button labeled “Don’t track app ask”.

More than six months later, it’s clear that most iPhone users have signed out, and the feature called App Tracking Transparency (ATT) is now challenging businesses from Snap to Facebook to Peloton.

The privacy feature has turned the mechanics behind the scenes of many mobile ads on its head, especially those that confirm whether a purchase or a download has been made.

Meta, the parent company of Facebook, warned last month that its rollout had reached “critical mass” and that their ads were less effective at targeting lucrative potential customers. Facebook said its revenue would have increased sequentially in the September quarter had it not been for the Apple ad changes. Instead, it stayed flat.

Snap’s stock was badly hit last month after the sales hit, which the company attributed to Apple’s privacy changes. Evan Spiegel, Snap’s CEO, said the privacy function continued to pose risks to the company’s earnings in the fourth quarter, and the company said sales for the Christmas quarter would be around $ 1.18 billion – significantly lower than the 1st quarter , $ 36 billion in revenue Wall Street was expecting by the end of the year.

Peloton, a not-selling advertiser, said last month that Apple’s privacy feature had slowed user growth.

Earlier this week, Apple CEO Tim Cook declined to comment on the feature’s impact on other companies during an interview, but said ATT was released to give users a choice of what happens on their devices.

“We have always wanted to give the user power. We don’t make the decision, we just ask him to be asked if he wants to be tracked across apps or not. And of course a lot of them choose no, “Cook said.

Cook said that if app developers were trusted by users, a larger percentage of them could allow device IDs to be tracked.

While the changes have been marketed as a win for users, they’re also benefiting from Apple’s Apple Search Ads promotional product, which mobile ad marketers are turning to to drive app installs.

“We really saw a huge surge in the market share of Apple search ads,” said Shani Rosenfelder, head of content at AppsFlyer, an ad measurement company. “They have become the new number one, overtaking Facebook, which in the past dominated iOS.”

62% of iPhone owners opt out

It took advertisers a few months to see the full impact of Apple’s changes when iPhone owners updated their software.

The update divided iPhone users into two categories: those who choose to have device tracking for ads and those who don’t.

According to an October report by AppsFlyer, 86% of iOS devices are using a sufficiently recent version of the software to display with ATT prompts. Of the people who see the pop-up, 38% are active and 62% are against it.

Unsubscribing users have become even more valuable to advertisers, who can use the data they receive to tune campaigns for the users who have unsubscribed, Rosenfelder said.

“We see that the costs for media are increasing, especially for the users who have agreed to the tracking because they are really valuable,” said Rosenfelder.

Several companies have signaled through their earnings that the ATT change will affect them, but they remain optimistic that they are building new attribution systems with the replacement of Apple or their own first-party data and targeting with data they have such as purchase history or similar, can vote demographics.

Facebook, Snap and Peloton respond

Sheryl Sandberg, Facebook Chief Operating Officer, speaks on stage during the Facebook session at the 2019 Cannes Lions: Day Three on June 19, 2019 in Cannes, France.

Richard Bord | Getty Images

Meta, the parent company of Facebook, has spoken out loudly against the feature, which at times appeared to target the social networking company. For example, Cook explicitly mentioned Facebook in a tweet showing a picture of the privacy notice.

Facebook has responded by developing its own systems in the apps it has created, such as the ability to purchase products directly from Facebook, which reduces the need for third-party tracking.

“Since the changes from Apple make e-commerce and customer acquisition on the web less effective, solutions that enable large companies to set up shops directly in our apps are becoming more and more attractive and important for them,” said Facebook CEO Mark Zuckerberg.

Snap CEO Evan Spiegel had previously praised Apple’s approach in interviews, and the company has updated its promotional products to work with Apple’s ATT replacement. But last month Snap officials said Apple’s ad metering replacement, SKAdNetwork, was unreliable.

“Over time we’ve seen [SKAdNetwork] The measurement results are very different from what we’ve seen with other first- and third-party measurement solutions, which makes Scan unreliable for a stand-alone measurement solution, “said Jeremi Gorman, Snap’s chief business officer.

Snap is accelerating the development of its own first-party technology to help its customers, the company said.

An example of a company that can no longer attract customers the same way it was before the change, Peloton cites challenges related to Apple’s privacy change. However, Peloton also said it can adapt and that its app business will remain an important avenue for customer acquisition.

“Like many other direct marketers, we are seeing some disruptive effects as our teams adapt to the new data landscape,” said Jill Woodworth, CFO of Peloton, earlier this month.

This is how Apple benefits

ATT drew attention to Apple’s advertising business, which is specifically focused on mobile ads for apps. Apple’s best-known advertising product is Apple Search Ads. It allows developers to purchase keywords from the Apple App Store that appear at the top of the search.

Apple doesn’t publish search ads in its financial results, but it’s a small portion of its services business, which had revenue of $ 68.43 billion in fiscal 2021, an increase of 27%.

Bernstein analyst Toni Sacconaghi estimated in a customer note last week that Apple’s search advertising generates $ 4 billion annually and has 60% of the market share of app search ads on iPhones.

Search ads make up only a fraction of the total mobile ad market, wrote the Bernstein analyst. He estimates that the total mobile ad market is worth $ 300 billion a year, and 20% of those ads are for mobile apps, or about $ 60 billion, with iOS making up half of that pie.

In the past quarter, Apple reported total sales of over $ 83 billion. Even if Apple were to massively expand its advertising business, it would still not be an important source of income for the iPhone maker.

Apple’s products may be more competitive because they can access targeting data that other advertising companies don’t have. Apple’s ATT is focused on limiting data transfer between third parties, which is not the case with Apple’s first-party advertising.

“I think our targeting may suffer compared to others like Apple who have the direct data themselves,” said Sheryl Sandberg, Facebook COO, in October.

“We see several opportunities for Apple,” Sacconaghi wrote. “The company will benefit directly from any move of app advertising from display to search as advertisers look for better targeting metrics.”

Challenges can only be temporary

For some companies that make money selling ads, like Facebook or Snap, ATT has made it harder to attribute a purchase to a specific ad or campaign, allowing these companies to charge more and giving advertisers the peace of mind that their budgets are not going to be wasted.

Other companies like Peloton use mobile ads to find new customers, especially for their apps or services, in a process often referred to as user acquisition. Without trust that these companies or their advertising partners can associate specific installs, some are finding that promoting their user base on iPhones is becoming more difficult and less predictable.

Many companies and advertisers affected by Apple’s privacy change are confident that the challenges will only be temporary. But advertisers want Apple to improve its device identifier replacement called SKAdNetwork, which Apple says makes attribution in a more private way. But it also lacks some of the capabilities of the old device ID based system.

“SKadNetwork is like the system when you take an alien out of space and they say we have this thing called marketing attribution, but it’s evil and we have to replace it. Can you design something else without knowing anything about it? Domain room? “Said Alex Bauer, director of marketing at Branch, an app metrology company.

While each advertiser can use different parameters to measure advertising effectiveness, SKAdNetwork requires them to use Apple’s firm definitions for advertiser success, said Gorman, Snap’s CFO. “For example, advertisers can no longer understand the impact of their unique campaigns based on factors such as the time between showing an ad and taking an action or the time they spend displaying an ad.”

Apple’s shift is just the first step in a new, more private era of mobile advertising that relies less on individual user data and instead uses advanced statistics to infer the success of advertising campaigns, advertising professionals say.

“Perhaps we are now returning to the world in which advertising is less of a science and more of an art,” said Bauer.

An Apple spokesman did not respond to a request for comment.

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