The impact of Apple's privacy change in April is beginning to show up on the balance sheets of other companies, and it shows the huge power Apple wields over industries unrelated to consumer electronics.
In April, Apple released an update for iPhones with a new popup that asked users if they wanted to allow apps on their phones to target the user for ads. IPhone owners could easily opt-out by tapping a button labeled "Ask App Not to Track."
Over six months later, it's clear most iPhone users did opt-out, and the feature, called App Tracking Transparency (ATT), is now presenting challenges to companies ranging from Snap to Facebook to Peloton.
The privacy feature has upended the behind-the-scenes mechanics of many mobile ads, especially those that confirm whether a purchase or download was made.
Meta, Facebook's parent company, warned last month that adoptions of the features had hit "critical mass" and made its ads less effective at targeting lucrative potential customers. Facebook said its revenue would have grown sequentially in the September quarter if not for the Apple ad changes. Instead, it stayed flat.
Snap's stock got hammered last month after it came in light on sales, which the company blamed on Apple's privacy changes. Snap CEO Evan Spiegel said that the privacy feature continued to pose risks to the company's fourth-quarter earnings, and the company said that holiday-quarter sales would be around $1.18 billion — significantly lower than the $1.36 billion in sales Wall Street was expecting at the time.
Peloton, which is an advertiser and doesn't sell ads, said last month that Apple's privacy feature hurt user growth.
Earlier this week during an interview, Apple CEO Tim Cook declined to comment on the feature's impact on other companies but said ATT was released to give users the choice of what happens on their devices.
"What we've been all about is putting the power with the user. We're not making the decision, we're just simply prompting them to be asked if they want to be tracked across apps or not. And, of course, many of them are deciding no," Cook said.
Cook said that if app developers have trust from users, a larger percentage of them may allow device ID tracking.
While the changes have been marketed as a win for users, they're also benefitting Apple's advertising product, Apple Search Ads, which marketers are turning to for mobile ads that drive app installations.
"We've really seen a huge increase in Apple search ads market share," said Shani Rosenfelder, head of content for AppsFlyer, an ad measurement firm. "They've become the new number one player, and they passed Facebook, which dominated iOS in the past."
62% of iPhone owners are opting out
It took a few months before advertisers started seeing the full effects of Apple's changes as iPhone owners update their software.
The update divided iPhone users into two categories: Those who opt-in to device tracking for ads, and those who don't.
86% of iOS devices are running a recent enough version of the software to be presented with ATT prompts, according to an October report from AppsFlyer. Of the people who see the pop-up, 38% are opting-in, and 62% are opting-out.
Users who opt-in have become even more valuable to advertisers, who can use the data they get from them to fine-tune campaigns for the users who opted-out, said Rosenfelder.
"We see that the cost of media is increasing, especially for the users who have consented to tracking, because they're really valuable," Rosenfelder said.
Several companies have signaled through their earnings that the ATT change is affecting them, but they remain optimistic that they can build new attribution systems using Apple's replacement or their own first-party data, and tune targeting with data they have, like purchase history or similar demographics.
Facebook, Snap and Peloton react
Meta, the parent company of Facebook, has been vocal about its opposition to the feature, which at times has seemed targeted at the social networking company. For example, Cook specifically mentioned Facebook in a tweet showing a picture of the privacy prompt.
Facebook has reacted by constructing its own systems inside the apps it builds, like the ability to buy products directly from Facebook, which reduces the need for third-party tracking.
"As Apple changes make e-commerce and customer acquisition less effective on the web, solutions that allow big businesses to set up shop right inside our apps will become increasingly attractive and important to them," Facebook CEO Mark Zuckerberg said.
Snap CEO Evan Spiegel had previously praised Apple's approach in interviews, and the company has updated its ad products to work with Apple's ATT replacement. But last month, Snap officials said Apple's replacement for advertising measurement, SKAdNetwork, was unreliable.
"Over time, we saw [SKAdNetwork] measurement results diverge meaningfully from the results we observed on other first and third-party measurement solutions, making Scan unreliable at a stand-alone measurement solution," Snap chief business officer Jeremi Gorman said.
Snap is speeding up the development of its own first-party technology to help its customers, the company said.
Peloton is one example of a company that can no longer acquire customers in the same way it did before the change, citing challenges related to Apple's privacy change. But Peloton also said that it believes it can adapt and that its app business will remain an important way to acquire customers.
"Like many other direct-to-consumer marketers, we're seeing some disruptive impact as our teams adjust to the new data landscape," Peloton's CFO, Jill Woodworth, said earlier this month.
How Apple benefits
ATT has attracted attention to Apple's advertising business, which focuses specifically on mobile ads for apps. Apple's most notable ad product is Apple Search Ads. It allows developers to buy keywords on the Apple App Store to appear at the top of searches.
Apple doesn't break out search ads in its financial results, but it is a small part of its services business, which reported $68.43 billion in revenue in the company's fiscal 2021, an increase of 27%.
Bernstein analyst Toni Sacconaghi estimated in a note to clients last week that Apple's search advertising generates $4 billion annually and has 60% of the app search ad market share on iPhones.
Search ads are only a fraction of the entire mobile ad market, the Bernstein analyst wrote. He estimates that the mobile ad market as a whole is worth $300 billion per year, and 20% of those ads are for mobile apps, or about $60 billion, with iOS accounting for half of that pie.
Last quarter, Apple reported over $83 billion in total sales, so even if Apple massively expanded its advertising business, it still wouldn't be a major revenue source for the iPhone maker.
Apple's products may be more competitive because they can access targeting data that other ad companies can't. Apple's ATT focuses on limiting data transfer between third parties, which doesn't apply to Apple's first-party advertising.
"I think our targeting can suffer compared to others like Apple who have the direct data themselves," Facebook COO Sheryl Sandberg said in October.
"We see several opportunities for Apple," Sacconaghi wrote. "The company will directly benefit from any shift of app advertising dollars from display to search as advertisers seek out better targeting metrics."
Challenges may just be temporary
For some companies that make money through selling ads, like Facebook or Snap, ATT has made it more difficult to "attribute" a purchase to a specific ad or campaign, which allows those companies to charge more and gives advertisers confidence their budgets aren't being wasted.
Other companies, like Peloton, use mobile ads to find new customers, especially for their apps or services, in a process often called user acquisition. Without confidence that these companies or their ad partners can attribute specific installs, some are finding that advertising to increase their user base on iPhones is becoming more difficult and less predictable.
Many companies and advertisers affected by Apple's privacy change are confident that the challenges will only be temporary. But ad professionals want Apple to improve its replacement for device identifiers, called SKAdNetwork, which Apple says does attribution in a more private way. But it also lacks some of the capabilities of the old device ID-based system.
"SKadNetwork is like the system if you brought an alien down from space, and you're told that we have this thing called marketing attribution, but it's evil, and we need to replace it, can you design something else without knowing anything about the domain space?" said Alex Bauer, the head of marketing at Branch, an app measurement firm.
While each advertiser may pay attention to different parameters to measure advertising effectiveness, SKAdNetwork "requires them to use Apple's fixed definitions of advertisers success," Gorman, the Snap CFO said. "For example, advertisers are no longer able to understand the impact of their unique campaigns based on things like time between viewing an ad and taking an action or the time spent viewing an ad."
Apple's change is only the first step towards a new, more private era of mobile advertising which relies less on data on individual users, and instead uses advanced statistics to infer the success of ad campaigns, ad professionals say.
"Maybe now we're going back into the world where advertising is less of a science, and now it has to be more of an art," Bauer said.
An Apple spokesperson didn't respond to a request for comment.
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