In this post we want to talk about Apple and some privacy measures it has recently taken with respect to apps published on its App Store. These measures, which became effective as of the end of April 2021, will affect the way in which companies track apps’ usage, thus creating a relevant impact on the mobile marketing industry (worth $80bn).
In June 2020, during its annual Worldwide Developers Conference, Apple announced that it would eliminate an important element of its in-app mobile advertising and measurement solution — the IDFA.
The IDFA (short for “Identifier for Advertisers”) works very similarly to cookies on a web browser, tracking users across third-party apps and websites.
From the app-developers’ perspective, the IDFA is used to identify iOS, iPadOS, and tvOS users across apps, so as to deliver personalized and targeted advertising, measure campaign performance, and attribute impressions and clicks to app installs. All such tools are essential to promote and monetize apps.
From the app-users’ perspective, so far the IDFA has been something very few knew about. While cookies can easily be blocked via an opt-in method (i.e. that annoying consent message appearing every time one visits a website for the first time), IDFA has been working with an opt-out method. That meant that only 30% of users turned it off.
However, Apple has recently introduced an opt-in method for the IDFA, whereby apps need to expressly ask users, at the moment of download, whether they agree to be tracked across third-party apps.
This means that, unless a user expressly opts-in, companies will have a tougher time collecting data about how users use third-party apps (still being able to track usage in their own apps), with serious consequences on ads’ and app developers’ businesses.
As part of these privacy-related measures, Apple also introduced:
- Privacy information: a new section on each product page on the App Store summarizing the privacy practices of the app;
- App tracking controls: in the “Settings” section, users are able to see which apps they have given permission to track them and to change this setting any time;
- Approximate location: users are able to choose to share only the approximate location, rather than the precise location, with an app;
- Limited photo library access: users are able to choose to share only selected items with a developer who asks for access to their photos;
- Recording indicator: iOS displays an indicator whenever an app is using the microphone or camera.
Initially, such measures were meant to be effective as of September 2020. However, in early September Apple announced that it would be delaying implementation of its new iOS 14 privacy measures until early 2021, to give mobile advertisers and mobile app publishers more time to adapt to the “new normal” practices.
Finally, the new policy came into force at the end of April 2021.
What’s all this fuss about?
All these measures are good news for users in terms of privacy.
Users are now able to choose whether to share information about how they interact with an app and across apps and websites owned by other companies. It is a good leap ahead towards the acclaimed “owning and managing your own data” concept.
At the same time, though, these measures may severely affect companies whose business models are based on marketing tactics such as retargeting or re-engagement campaigns. Facebook, Google, Snapchat, TikTok are just a few examples of platforms which might be negatively affected by these measures.
The main issue at stake, as an article on Forbes clearly states, is that “Advertisers who can’t track advertising effectiveness don’t remain advertisers for long”.
The same article goes on to highlight that acquisition spend on iOS hit $15 billion in Q1 2020, compared to $8.3 billion on Android, growing 5% year-over-year on both platforms. That means that iOS accounts for a very relevant share of that almost $80 billion in user acquisition spend globally on mobile ($400 billion is the global spend on digital marketing).
Experts say there exists a relevant risk for iOS ad spend figures to rapidly fall if no alternative is found in terms of re-targeting and re-engagement policies, with consequences both for Big Tech players (just think of the main business model – ads – of social networks) and, ultimately, for their clients.
Truth be told, Apple is offering an alternative tool, the SKAdNetwork: this allows advertisers know which ads resulted in desired actions without revealing which specific devices — or which specific people — took those desired actions.
This basically lets advertisers know if and when an ad converts, but it (apparently) does not provide user-level or device-level data, which is relevant in order for retargeting models to work.
The potential effects in the post-IDFA era
Having read quite a few articles on this topic lately, here below is a hypothesis of how things might evolve in the mobile marketing space, in the months ahead:
- Lower precision of ad campaigns: advertisers will experience less precision in reaching relevant audiences, thus Click-Through Rates (CTRs) and Install Rates (IRs) will decrease;
- Missing out on high-value users: the lack or lower personalization of ads will also make it tougher for companies to go after high-value users (i.e. the ones that spend the most) who, in turn, are essential in businesses which count on a small percentage of users spending large amounts of money on the app (i.e. gaming apps);
- Worsening unit economics: if CTRs and IRs degrade, and LTV decreases, unit economics of companies monetizing their apps through mobile ads (which are known to have thin margins) might easily turn negative, with all the consequences that this entails from a business and cash perspectives;
- Decreasing CPMs: given the degraded precision that will be experienced in reaching the relevant audience, it is reasonable to think that CPMs will also decrease (because of lower investment in ads). Such decrease will likely absorb only part of the reduced margins (indeed, such decrease would only compensate the reduced margins if it were higher than the sum of the effects of (i) a lower CTRs and IRs and (ii) a lower LTVs);
- Decreasing mobile app-spend: that will push down revenues of both advertisers and publishers, as well as of all external agencies that are involved in this ecosystem. That will inevitably spur layoffs, especially of user acquisition teams;
- Delays in App Reviews: Apple will be on the lookout for malicious apps (apps which might alter their behavior after passing through App Review); this will probably lead to longer waiting-time for new apps or new versions of them to go through the review process and be approved.
All in all then, it looks like what could seem a very user-friendly and to-most rather insignificant change of Apple’s privacy protocols could have pretty serious consequences for several stakeholders.
What does Facebook think about this?
Facebook has been the most critical (amongst Big Tech players) about Apple’s move with respect to the IDFA.
Indeed, Zuckerberg’s company has made targeted ads its main business model, which has led lots of small businesses to succeed online in the past decade.
Since Facebook’s marketing business relies on the IDFA to help target ads to users and estimate how effective they are, its inhibition will make ads less effective, thus creating relevant concerns for its clients and, ultimately, for its own top line.
In August 2020, Facebook declared that the upcoming iOS 14.5 could lead to a more than 50% drop in its Audience Network advertising business (which, however, represents less than 10% of its total net revenues).
Not surprisingly, in January 2021 Facebook released earning warnings related to the potential impact of Apple’s new privacy measures.
With the roll out of the post-IDFA policy in late April, Facebook has added a new element to its own iOS 14.5 prompts, which now employ a form of “scare tactic” to encourage users not to switch off data tracking, using the following sentence: “Help keep Facebook/Instagram free of charge”.
It is not clear what is going to happen next; what is sure, though, is that Facebook will still be looking to implement any option it can to keep that data flowing. Whether Facebook will need to start charging users for accessing the network remains one of the options, even though such a move would probably not be welcome (either by its users, or by its clients – the advertisers).
… and, what about Google?
After months of silence, at the beginning of 2021, Google shared a few thoughts on how the post-IDFA era could affect the ads market, saying that “publishers may see a palpable impact on their Google ad revenue on iOS, due to a reduced visibility into performance metrics and measurement”, once the new standards would be enforced.
Indeed, Google Ads is able to find new users for a mobile app based on a target return on ad spend – that is, in order to optimize acquisition (and ROI), Google Ads needs post-install data from users it has previously acquired.
Despite the fact that Google could potentially be taking a relevant hit too by the introduction of the new privacy measures, it has been much less critical compared to Facebook, and it actually showed interest in backing campaigns aimed at protecting users and their privacy.
However, according to experts, Google’s very little opposition to Apple’s new privacy policies does not come merely from an altruistic motivation, aimed at protecting the end-user privacy. Rather, there seem to exist business rationales for Google to back Apple’s battle.
In an interview by the Financial Times in early May 2021, Sheryl Sandberg (COO of Facebook) confirmed that “iOS changes will shift from a short-term headwind to potentially a tailwind”.
That is because, in data, “bigger is better”; Google’s reasoning, according to the FT article, is the following: “losing access to third-party data is damaging, but if all rivals lose that access, then the company with the most first-party data wins. And that’s Google”.
Indeed, the new rules hinder tracking users’ activity in third party apps; it does not affect tracking users’ activity on a company’s own app; therefore, companies such as Google, which count on several proprietary apps (e.g. Search, Maps, Gmail, YouTube), will keep on being able to gather relevant data and exploit it in their favor.
Since the end of April 2021, Google is no longer using information (such as IDFA) that falls under App Tracking Transparency (ATT) policy for the iOS apps.
In the meantime, it has started advising developers and advertisers to update the iOS version of their Google Mobile Ads SDKs for both AdMob and Ad Manager, and it launched a new feature on Google Analytics, which includes SKAdNetwork support for iOS campaign reporting.
Experts say that Google will most likely follow Apple’s suit in terms of privacy measures, introducing some kind of opt-in method to its GAID (Google Advertising ID) for Android in mobile app inventory bid requests.
… and the rest of the stakeholders?
In late April 2021, when the post-IDFA policy came into force, nine German industry associations, representing companies including Facebook and Axel Springer, filed a complaint with Germany’s competition regulator, claiming a 60% fall in advertising revenues for app developers, as the changes make it harder for third parties to gather the data they need to place ads.
At the same time, as reported by the Financial Times in March 2021, some of China’s biggest technology companies, including ByteDance (TikTok) and Tencent, are testing a tool (called CAID) to bypass Apple’s new privacy rules and continue tracking iPhone users without their consent to serve them targeted mobile advertisements.
It seems like ByteDance is suggesting app developers and advertisers to use the CAID as a substitute, if the user’s IDFA is unavailable.
Obviously, Apple is not pleased by such moves by Chinese players, but it has decided not to take any legal action (yet), since the Chinese government and public agencies seem to be also involved in the battle, and there is a relevant risk of this issue to translate into a political and diplomatic matter.
As to the iOS app market in general, developers have already tried creating post-IDFA walkarounds, and quite a few of them (having written such walkarounds in the SDKs) have already been spotted and blocked by Apple.
However, according to the FT, Apple has had a tough time detecting “Jekyll apps”, which can alter their behavior after passing through App Review (by making changes at the server level).
The (legal and illegal) battles have just started.
But most importantly, why is Apple doing this, after all?
While Apple is marketing this new policy as a move towards users’ privacy, in order to obtain a larger buy-in from current and potential clients, there are probably other underlying strategies at the root of the post-IDFA policy.
Here again, we go back to what Patrick McGee wrote in his FT article at the beginning of May 2021: currently, more than 80% of the apps on Apple Store are free, and developers pay nothing to Apple.
However, with the post-IDFA policy in force, app publishers which base their business models on ads will inevitably need to find other, more efficient revenue streams, the most obvious of which is charging consumers for in-app purchases and subscriptions.
If that proved to be true, then Apple would actually gain not only under a reputational perspective (i.e. privacy-friendly), but also and mostly under an economic perspective, given that its App Store charges a commission of between 15 and 30% on revenues made by apps.
Either way, chances are, Apple is not doing all this for merely altruistic purposes.
The aftermath of the first month of post-IDFA era
The “Post-IDFA Alliance”, a group of mobile marketing companies including Blackstone-backed Litoff and General Catalyst-backed Singular, found that 63.5% to 83.2% of users are opting out of being tracked (vs approx. a 30% of users opting-out in the pre-IDFA era).
As a consequence, traffic and CPM have dropped on apps affected by the new policy (i.e. iOS 14.5), together with a decrease in marketing spend on them (down by between 2.5% and 3.6%).
At the same time, marketing spend has increased by up to 21% on Android (the average marketing spend has historically been greater on iOS, given the supposedly-higher underlying value of its users), with experts saying that the net result could be an increase in overall ad spend across the industry.
Surprisingly though, the rate of adoption (i.e. download) of iOS 14.5 averaged around 13%, which is a relatively low figure if compared to past iOS updates.
Industry experts underline the fact that not even a month has passed by since the introduction of post-IDFA, and that it is still way too early to evaluate the aftermath of those new privacy policies.
They do agree, however, that “If you are an app with a brand, you’ll find that people trust you and will opt-in at a much higher rate than with a little-known app. We’ll see this evolve as more people adopt iOS 14.5.”
What is our view on this?
At Athos, we have been following the IDFA matter since it came out in the news in June 2020, and we have had several conversations with our portfolio companies on how this could affect their marketing strategies and spend and, ultimately, their top line.
We think (and it is probably quite clear to all readers, by now) that the entire digital industry will be affected by this new policy, with B2C businesses paying the highest bill for this.
Sector-wise, it’s clear that the media and gaming industries will be the ones hit the hardest, although DTC brands will probably also suffer to a relevant degree (due to a tougher and less precise targeting). Likewise, the Travel industry and EdTech solutions will also presumably suffer from this “new normal”.
Finally, we think that B2B businesses, especially those whose sales rely mainly on inbound strategies, will also be affected, to a certain extent.
What to do, then, if you are a start-up or a company operating in the digital space, especially in one of the mentioned sectors?
I’m afraid we do not have a silver bullet or magic recipe (yet), besides suggesting to be cautious with mobile marketing spend (on iOS), if not even to cut substantially (for the time being) marketing budgets on iOS apps, giving preference to those channels and strategies that are still unaffected by the post-IDFA policy.
However, what we are especially excited (and sure) about is that new marketing strategies and solutions will appear in the mid-term, in order to compensate the possible inefficiencies arising out of the post-IDFA era.
In particular, we think there are three trends which will develop in the mid-term:
- Companies will need to get better at delivering messages to their users, increasing the creativity of their ads so that they work better;
- Companies will need to find (or rather, create from scratch) additional acquisition channels which will decrease their dependency on mobile users’ tracking and, possibly, on paid channels;
- Companies will need to increasingly invest in strategies which will increase retention of existing customers.
For certain categories (e.g. gaming apps), adapting to this “new normal” won’t be an easy task. However, we think that this is a window of opportunity for companies to engineer new ways and channels for acquiring new clients, as well as to develop products which somehow create more stickiness (definitely, not an easy task).
To a certain extent, after the explosion of ads for mobile apps (strongly related to the rise of social networks) over the last 10-15 years, companies find themselves in a situation where they cannot just open the “cash-tap” in order to acquire clients on the “classic” digital channels, as they were used to up to recent times.
We actually think that not all bad comes to harm, and that the post-IDFA policy is a very good opportunity for the status quo of marketing to be challenged, and for companies to build innovative unfair competitive advantages, on the acquisition side.
Excited to see what new business models and solutions we are going to see next in order to get around those issues!