Apple's privacy changes eat rivals' businesses
The latest earnings reports from Facebook and Snapchat show that Apple's mobile privacy measures are beginning to have a material impact on the ad businesses of some of its Big Tech competitors.
Why it matters: While experts don't think Apple's moves will do long-term damage to its rivals, they will force social media companies to invest heavily in new technology and products for the next few years — all while their ads business continues to experience significant headwinds.
Driving the news: Facebook on Monday blamed changes to Apple's "Identifier for Advertisers" (IDFA) user tracking feature for missing Wall Street expectations on revenue.
- Facebook's Sheryl Sandberg said that the company would've experienced quarter-over-quarter revenue growth, if not for Apple's changes.
- Snapchat's stock fell nearly 25% in after-hours trading last week after it conceded that its ad business "was disrupted" by Apple's update.
Be smart: Unlike Snapchat, Facebook warned investors last month about its expectation that changes to Apple’s privacy rules would weigh on its business. That warning helped the company dodge a big stock slide Monday.
Catch up quick: Apple began rolling out new privacy features for iOS devices this summer that limited advertisers' ability to use its IDFA user tracking feature to target users by interest and measure whether they clicked on an ad.
- Companies like Facebook and Snapchat that sell ads based on user interest data were uniquely exposed to those changes in ways that search ad rivals, like Google and Amazon, were not.
- For Facebook, "The damage is going to be pretty profound," said Eric Seufert, an independent analyst and owner of Mobile Dev Memo.
Yes, but: Analysts don't expect the IDFA changes to have a long-term impact on Big Tech giants, although they do concede it will require firms to invest upfront in costly new solutions.
"IDFA was at the center of the infrastructure for the way these companies did ad attribution and retargeting," Seufert said. "They can re-architect — it will just take time."
- Sandberg said she thinks that replacing the measurement capabilities afforded by Apple's IDFA feature will be done "this and next year," but "targeting is a longer term challenge."
What to watch: A report from The Financial Times last week found that Apple's in-house ads business is "now responsible for 58% of all iPhone app downloads that result from clicking on an advert" compared to 17% a year prior, citing data from mobile analytics company Branch (see chart above).
- On Monday, The Information reported that the Justice Department has accelerated its antitrust probe of Apple and it's "very likely" to sue the company.