Why Facebook is so upset about Apple IDFA change: insiders spill

Over the past few weeks, Facebook has been conducting an advertising campaign in defense of personalized ads, arguing that targeted advertising is the key to small business success.

The catalyst for the campaign was an ongoing battle between the social media company and Apple. The battle focuses on a unique device identifier on each iPhone and iPad called IDFA. Facebook and others selling mobile ads rely on this ID to target ads to users and estimate how effective they are.

With an updated update of iOS 14, apps that want to use IDFA will have to ask users to track when the app is first launched. If users subscribe, these ads will be less effective. Facebook has warned investors that these looming changes could hurt its advertising businesses as quickly as this quarter.

But while Facebook has said out loud about how harmful this change will be, competitors like Twitter and Snap have said the change will be good for users’ privacy and may even benefit their businesses. Google, the leading Internet advertiser, did not say nearly as much about the changes, while at the same time introducing its own privacy changes to its Chrome browser and promising to stop tracking individual users.

CNBC spoke to a handful of former Facebook employees who worked on the company’s advertising products and businesses, explaining why the social media giant is making such a loud fuss about Apple’s upcoming change.

The most important factor on Facebook is the introduction of ‘view-through’ conversions. This measure is used by ad-tech companies to measure how many users saw an ad, did not immediately click on it, but later made a purchase related to the ad.

Think of view conversions like these: you type through your Instagram stories and you see an ad for a pair of jeans. You’re not typing at the bottom of the ad for more information, because you’re watching what your friends are doing, but the jeans were cute. A few days later you go to Google, search for the jeans you saw on Instagram and buy them.

After the purchase is made, the retailer picks up the IDFA from the user who purchased the jeans and shares it with Facebook, which can determine if the IDFA matches a user who saw an ad for the jeans. It shows the merchant that their Facebook ad has worked.

Losing that kind of measurement can be a big blow to Facebook. If advertisers cannot accurately measure the effectiveness of their Facebook and Instagram ads, they may feel compelled to shift more of their budgets to other programs and services, where they can see the exact return on their investments.

Facebook is the number two recipient of online advertising dollars behind Google. A specific threat is that advertisers will pour more money into Google’s search advertising business, which Facebook cannot duplicate, and which targets users during the conversion.

In terms of specific businesses, the IDFA change will be particularly detrimental to its hearing network.

The Facebook Audience Network offers ads in non-Facebook applications, and it uses IDFA numbers to determine the best ads that are displayed to each user based on Facebook’s data. A soft drink maker, for example, may decide to target 18- to 34-year-old gamers in the San Francisco Bay Area with a new promotion. The company can use the Facebook audience network to place the ads in mobile games in front of the right audience; Facebook will share the advertising revenue with the game makers.

But if users do not keep an eye on IDFA, all the personalizations that Facebook has built will not be made irrelevant outside of the company’s own applications. In August, Facebook acknowledged that Apple’s upcoming iOS 14 could lead to a more than 50% drop in its Audience Network advertising business.

Almost all of Facebook’s revenue comes from advertising, but Facebook’s Audience Network contributes only a small portion of it – less than 10% of the company’s net revenue, a person familiar with CNBC said.

In addition to conversions, Facebook could lose valuable data about what its iPhone-based users do on their devices if they are not in apps owned by Facebook. Facebook already collects a lot of data about its users from its apps, which include Facebook, Instagram, Messenger, WhatsApp and others, but every extra amount of data makes its algorithms better with what they do, which includes ad targeting.

Although Apple allows users to decide whether to opt for IDFA tracking, it will still allow app makers and advertisers to collect data through the SKAdNetwork API without the express consent of the user. But the information shared will be much less fine – Facebook has warned in developer documents that it will not support the breakdown of activities in buckets such as region, age or gender.

Facebook knows it will not be able to convince Apple to change from IDFA, but it has pushed forward with this campaign in support of small businesses anyway. Why?

Reputation can be a reason. Facebook’s reputation has been in the gutter since the March 2018 Cambridge Analytica scandal, in which a data company incorrectly accessed the data of 87 million Facebook users and used it to advertise for Donald Trump in the 2016 presidential election rig.

Since then, Facebook has endured numerous scandals, it has alienated Democrats and Republicans and it has waged an endless battle against misinformation about its services.

By accepting the moral high point and saying that it stands for small businesses, the IDFA debate provides an opportunity for Facebook to rebuild goodwill, even if it is only part of the general public, said one former Facebook employee said.

In addition, IDFA detection does not go away – users will simply have to choose to allow it. This means that Facebook and other app developers will have the opportunity to plead their case to every Apple user.

Facebook’s marketing campaign is an important part of the case. The company wants users to associate device tracking with personalized ads and small business support. “Do not opt ​​for Facebook, do it for the coffee shop you care about,” is the crux of the message.

Within a small portion of its users, Facebook has started showing directions asking them to tune in for the IDFA detection. This is what is known as A / B testing. Among technology companies, A / B testing is a popular strategy to find the most effective way to do something. In this case, Facebook can show different directions to different users to determine which direction would be best to convince most people to choose the IDFA detection.

Asked if the IDFA change would actually affect small businesses, as Facebook claims it will, the former employees gave mixed answers.

With less tracking data available, Facebook and all of its customers, including small businesses, will not be able to focus as effectively as ever before. So, in that sense, small businesses will be affected.

For many small businesses, however, the change may not be noticeable at all.

For example, if you run a small coffee shop in Austin, Texas, you may not need too much data to target your ads, said Henry Love, a former employee of Facebook’s small business team. A business like this usually limits its target to fairly broad categories – for example: an age range and a distance distance from a specific zip code can target ads to Facebook users in their vicinity. This is the kind of data that Facebook would be able to collect from its own apps, without the need for IDFA to track a user’s activity elsewhere on their Apple devices.

“If you talked to any restaurant owner anywhere and asked them what IDFA is, I don’t think any of them would know what it is,” Love said. “It affects Facebook on a large scale. Not the small business owners.”

Among the few “small business owners” who may feel the effects of the IDFA change are ventures backed by venture capitalists who have hired professionals with the skills to target users with a sharpshooter precision, Love said.

“The only people targeting on mobile, web and Facebook audience networks are not really small businesses,” he said. “These are sophisticated, VC-backed startups. They are not your typical SMEs.”

In addition, although the change will only take place in early spring, Facebook has known this for a long time and is introducing a number of alternative solutions for businesses.

Most importantly, the social media venture launched Facebook Shops and Instagram Shops in 2020. These features allow brands to list their product catalogs directly on Facebook’s most popular apps and sell goods directly on Facebook and Instagram. If a sale takes place within Facebook’s walls, IDFA tracking is not required.

You’ve come across a few brands that sell directly on Facebook and Instagram. Expect to move more forward.

Megan Graham contributed to this report.