With Apple’s launch of their App Tracking Transparency (ATT) feature, as part of the iOS 14.5 update, many app developers have weighed in on how the new privacy update will impact the digital advertising industry. The most vocal of those developers, tech conglomerate Facebook, has already predicted that allowing users to opt out of third-party tracking will reduce advertising revenue by 50%, having the largest impact on small businesses.
Since the announcement, however, Apple has begun implementing measures to “even the playing field” by preventing any workarounds to this IDFA (Identifier for Advertisers). Facebook has also outlined a clear plan of action that will help support the small businesses who utilize their app for advertising purposes.
Zuckerberg Weighs In
In late April 2021’s Facebook earnings call, Facebook CEO Mark Zuckerberg detailed the company’s preparations for iOS 14.5, including their eCommerce strategy. Online shopping will play a large role in aiding Facebook to grow their advertising business, with the conglomerate relying heavily on selling their own products and services on their apps directly, thus hoping to lessen their reliance on Apple.
- Facebook Marketplace is their most popular eCommerce platform to date, enabling their over 1 billion monthly users to sell and purchase goods.
- Additionally, Facebook Shops and Instagram Shops, both introduced in 2020, enable brands to upload their full product catalogs and make sales directly on these social platforms.
- Creator Shops was also announced by Zuckerberg and will enable Creators on Instagram to include eCommerce within their profiles.
It’s still uncertain as to how iPhone users will respond to these new ad tracking changes, but Zuckerberg’s plans will enable them to be less dependent on “cross-site user tracking”. CNBC Writer, Salvador Rodriguez, breaks down how Facebook’s in-app promotions, selling, and purchasing would operate:
“An advertiser could pay to run an ad for a product, such as sneakers, to Instagram users who follow creators whose content is focused on sneakers. A user could click on the ad and be taken to the brand's Instagram Shop, where they could pay for the advertised sneakers directly within the Facebook-owned app. In this scenario, the advertiser reaches their intended target, the user buys the item directly on Instagram, and Facebook is able to continue to prove the effectiveness of its ads.”
Hoping to compete directly with major eCommerce sellers Amazon and Walmart, Facebook will be charging a 5% fee to cover taxes and payment processing. They are aiming to make a profit from advertisers selling their products, rather than the sale itself.
Although they’ve certainly shown their displeasure with these new privacy updates, Facebook CFO David Wehner shared that “the impact on our own business will be manageable”. They did accept these new changes and promised new advertiser experiences and measurement protocols. They admitted that the ways digital advertisers collect and use information need to ‘evolve’ to the one that will rely on ‘less data’. Investors seem to believe this as well, considering Facebook’s stock increased by 6% after the company “smashed expectations on revenue and earnings”.
Apple Is Running A Tight Ship
Governments and regulators are concerned about how much websites, apps, and social media companies are dominating the digital landscape, so these new privacy updates would help “ease the blow”. According to a report commissioned by Apple, “the average app includes six third-party trackers that are there solely to collect and share your online data”.
Other apps request more information from their users than is necessary, like TikTok who “is being sued by England’s former children’s commissioner for collecting large amounts of children’s data”. The UK’s Information Commissioner’s Office is investigating billions of targeted online advertisements that are launched daily. Not to mention, research consultants at Cracked Labs report that “any one data broker is estimated to have data on up to 700 million consumers”. It’s easy to see why Apple is implementing these new privacy issues, considering the amount of data these third parties have on consumers, which, for the most part, they’re not even aware of or know that they consented to.
Apple is also focused on blocking companies who try to work around this IDFA change, “including tech companies practicing fingerprinting, or collecting different data sets on an individual that add up to be a unique identifier”. The measurement company, Adjust, was found violating these privacy policies, so Apple has also denied any apps associated with this company. Chinese Tech Company, ByteDance, has been creating a technology called CAID, which would allow them to execute targeted ads, in lieu of Apple’s new policy.
“The App Store terms and guidelines apply equally to all developers around the world, including Apple,” Apple said to the Financial Times. “Apps that are found to disregard the user’s choice will be rejected.” Apple also shut down tracking via desktop and mobile Safari through ITP, their intelligent tracking prevention system.
In the winter of 2020, Apple first announced the new app privacy labels, which enticed Facebook to respond with print and TV campaigns that criticized ATT.
However, Facebook isn’t alone in their apprehension surrounding these new privacy updates. “Advertising companies and their adjuncts have broadly decried the update, and a marketing coalition in Germany has filed an antitrust complaint against Apple.”
Facebook’s Quarterly Earnings, however, showed the company shouldn’t have any problems generating revenue in the near future. They earned more than $26 Billion in revenue in Q1 of 2021 alone. Compared to the same period a year prior, their net income nearly doubled to $9.5 billion and they have $64 billion of “cash and equivalents on hand”. The reality is that even if every single iOS 14.5 user opts out of advertising, there will still be plenty of Android devices which will help Facebook generate profit.
Importantly, the tracking prevention won’t remove advertisements from social platforms entirely. If anything, they will become less relevant and valuable due to the less clicks they will be receiving. “We've seen estimates ranging from about a 2 percent to a 7 percent impairment of Facebook's ad revenues this year and that range seems plausible to us, especially at the low end," says Nicole Perrin, a Principal Analyst at eMarketer.
However, Facebook is expected to increase their ad revenue overall, due to the fact that they hold more first-party data. “For many other types of ads, based on user interest, users’ behavior on Facebook, etc., Facebook could continue to serve ads with the same effectiveness.” Facebook COO Sheryl Sandberg said, “we're still going to do better at [return on investment] than a lot of digital players. We're still going to do better at that than TV or radio.”
ATT’s Effect On Marketers
Adweek outlined early consumer feedback provided by a 300-app analysis across 2,000 devices from mobile Marketing company AppsFlyer. Here’s what they found:
The new privacy update has a median opt-in rate of 32%.
Apps who personally connect with their consumers saw higher opt in rates, near 40%.
There is an expected initial 50% decline of in-app CPMs.
10% of the 12 million ad opportunities per second available on Trade Desk’s (the largest independent DSP) platform are tied to an IDFA.
Facebook may see a revenue hit of 7%, according to projections from Eric Seufert, Analyst, and Author of Mobile Dev Memo.
Long-Term Forecast? Only Time will Tell
Mobile applications have been tracking your personal information and storing your browsing history for years, all so companies can send you targeted advertisements. Apple is now changing the name of the game by implementing additional permissions around collecting consumer information, however, this may gravely impact online marketers and big app developers like Facebook.
Only time will tell just how large the impact will be, but in the meantime, consumers can take comfort in having more control over the digital ads being served to them, and marketers can take comfort in knowing that online advertising isn’t going anywhere just yet.