Back in June, appeal (NASDAQ: AAPL) announced that it requires users to opt-in to ad tracking for each app in iOS 14. The announcement immediately raised complaints from advertisers who want to monitor the performance of ads, and from publishers who claim that the change significantly increases their advertising revenue would decrease.
In response, Apple postponed the launch of the feature when it launched iOS 14 in September. However, it is still planning to add the feature somewhere next year – and giant online ads like Facebook (NASDAQ: FB) and Alphabetsay (NASDAQ: GOOG) (NASDAQ: GOOGL) Google should be concerned.
Apple’s escalating war against Facebook and Google
Apple CEO Tim Cook has repeatedly criticized Facebook and Google over their data collection practices in recent times. Apple has also replaced some of Google’s services, such as Maps, with its own competing services.
Image source: Apple.
In 2015, Apple began developing third-party extensions for Safari on iOS on Safari, and then launched several advertising campaigns to offer the privacy-oriented features of the iPhone. The addition of opt-in requirements for targeted ads in iOS 14 is an extension of the strategy.
Apple is challenging Facebook, Google and other targeted advertisers for three main reasons. First, Apple does not generate significant revenue from advertising, so it can afford to promote iOS as a privacy-oriented operating system. It’s good PR too, especially since Facebook and Google are repeatedly insulted for their privacy, fake news and hate speech issues.
Second, Google is Apple’s biggest competitor in the smartphone market. Google’s Android operating system works on 85% of the world’s smartphones, according to IDC, while iOS controls the remaining 15%. Therefore, it is logical that Apple prevents Google from extending its data collection ecosystem to its iOS devices.
Lastly, Apple’s greatest strength is its walled garden. iOS only works on iPhones and iPads, and those devices are firmly tied to its App Store and subscription services. Facebook and Google are both competing against Apple in other markets, such as streaming media, virtual assistants and smart devices, and they both earn by displaying targeted ads to iOS users. Reducing profits would be a smart strategic step.
How badly can the update harm Facebook and Google?
Facebook generates nearly 99% of its revenue from online advertising. These ads are displayed primarily on its core Facebook platform, Instagram, and its Audience Network, which displays ads on third-party websites and apps.
Image source: Apple.
Facebook claims that the revenue of its Audience Network publishers dropped more than 50% through internal testing “when personalization was removed from ad-serving mobile application campaigns.” It also warns that the impact ‘could be much more’ and that he is still working on short- and long-term solutions to counter the blow.
This statement, along with Facebook’s recent full – page newspaper ads claiming that they ‘stand against Apple for small businesses everywhere’, strongly suggests that the social media giant is concerned.
In the first nine months of 2020, Alphabet generated 80% of its revenue from Google’s advertising business. The expansive business includes its search ads, display ads on websites and programs, and YouTube ads.
Unlike Facebook, Google has offered no internal projections on how badly the iOS 14 update could affect its core advertising business. It also did not buy full-page newspaper ads and Apple did not declare war.
Instead, Google seems to be countering Apple’s criticism with stricter privacy controls for Android devices. These updates may satisfy Android users, but they do not resolve the potential impact of the iOS 14 update.
In addition, 56% of marketers in a recent AppsFlyer survey believed that they would be negatively affected by the iOS 14 update. A third of respondents also planned to reduce their marketing spending – presumably on affected advertising platforms such as Facebook and Google – in response to these changes.
Facebook and Google should be concerned
Apple controls only 15% of the global smartphone market, but its market share is much higher in most developed countries. It controls almost half of the market in the US and Japan, and almost a third of the market in Europe.
Those higher-income markets generate much higher average revenue per user for Facebook and Google than emerging and emerging markets. However, this revenue may decline if Apple allows users not to target ad campaigns.
The revenue growth of Facebook and Google has already slowed down during the COVID-19 crisis as marketers bought fewer ads. Most analysts expect their advertising sales to accelerate after the pandemic is over – but Apple’s upcoming iOS 14 changes could yield unpredictable headwinds next year.
Apple is unlikely to push Facebook and Google off a cliff, as both companies can still display non-targeted ads on iOS, but it could certainly hurt the two tech giants. Looking ahead, investors from Facebook and Google need to closely monitor these upcoming changes to assess the damage.