Apple’s privacy change will hit Facebook’s main ad business. Here’s how.

The core of Facebook’s business, its flagship app and Instagram, would also be under pressure. Apple’s change will require mobile apps to seek users ’permission before tracking their activity, restricting the flow of data Facebook gets from apps to help create profiles for its users. These profiles allow Facebook advertisers to target their ads efficiently.

The change will also allow advertisers to measure the performance they get from ads they post on Facebook – how many people see these ads on mobile phones and take actions such as installing an app, for example.

“The market dynamics here will change a lot,” said Simon Poulton, vice president of digital intelligence for WPromote, a digital marketing agency. “If you’re marketing on Facebook and the results go down because the efficiency goes down, you’re going to go down.”

Facebook and Apple chief executives changed public beards this week for the change. Facebook has retreated aggressively against Apple’s plan. In a earnings call on Wednesday, Facebook CEO Mark Zuckerberg said, “Apple has every incentive to use its dominant position on the platform to interfere with the operation of our apps and other apps.”

Apple has defended its policy, saying it prioritizes user privacy. An Apple spokesman declined to comment further. Without directly naming Facebook, Apple CEO Tim Cook condemned the “conspiracy theories played by algorithms” and linked recent social unrest to the argument that application tracking tools turn consumers into products. advertising.

The extent of the potential financial impact on Facebook, which generated $ 86 billion in revenue last year, is unclear. The company said it expects revenue to be stable in the next two quarters. Over the past year, Facebook’s business has thrived despite the coronavirus pandemic and the boycott of several advertisers for hate speech on its platform.

Eric Seufert, a marketing strategy analyst and consultant who has studied Facebook’s business, said he expects the company to earn 7% of revenue in the second quarter as sellers spend less and ad prices fall as a result of Apple’s change.

The fight is taking place as Facebook and other tech giants are subjected to antitrust control over their domain. Companies that want to avoid the action of regulators in these situations often argue that they face substantial threats of competition in the market.

“As we’ve said repeatedly, we believe Apple is behaving anticompetitively by using its control of the App Store to benefit its results at the expense of app developers and small businesses,” a Facebook spokesman said.

Part of the power of Facebook’s business is how it collects data from mobile apps – what people do in apps, what they search for, what they buy, and more. More than 85,000 iOS apps had a Facebook code installed that relayed data to the company as of December, according to analytics firm MightySignal.

The data is often linked to an Apple unique identifier for the app user: a string of numbers and letters that helps Facebook identify people, allowing them to add that data to their profiles or to “ identity graphic ”. Application data accounts for approximately 15% of user profiles, according to WPromote’s Poulton calculation.

The change in privacy provided by Apple will mean that applications can not pass this identifier without the permission of users, thus limiting what Facebook can get.

Ad buyers say Facebook’s view on using apps is part of its value proposition. This data allows Facebook to better optimize ads to people most likely to become lucrative customers, saving advertisers money in the long run. For example, a mobile game that relies on in-app purchases can target ads to users with a history of significant spending on the game.

Many applications rely on highly targeted ads to generate downloads. The Bumble Dating App Inc. cited Apple’s upcoming change as a risk factor in its submissions for an initial public offering and predicted that 20% or less of its users would choose to track it.

Apple’s restrictions will also affect Facebook’s ability to show how its advertising works. Facebook provides metrics to advertisers, such as how many people who saw an ad last week bought the advertised product. The company relies on Apple’s ID to get this information on iOS mobile devices, which account for a significant portion of Facebook’s business: among U.S. smartphone users, 45.3% went use iPhones in 2020, according to Statista.

Madan Bharadwaj, chief technology officer and co-founder of Measured, a marketing measurement company, estimates that Facebook will only be able to claim credit for about 50% of the sales it currently makes as a result of the change.

“It’s going to have a huge impact on the total amount of revenue or conversions that Facebook can attribute to itself, which is basically the signal that all advertisers use to make investment decisions,” he said. “It will greatly eliminate your performance metrics.”

In August, when Facebook first warned of Apple’s upcoming change, it pointed to Facebook Audience Network, a small part of its business that makes it easier to place ads on websites and apps.

Apple’s move is part of a broader tightening of privacy rules in the digital advertising ecosystem, from government regulations in Europe and California to Google’s announced plans to get rid of “cookies” third-party, pieces of code that are used to track users of desktop browsers.

In the fall, Facebook warned its partners that “upcoming digital privacy initiatives affecting multiple browsers will limit the ability of companies to measure people’s interactions between domains and devices,” according to correspondence seen on Wall Street Journal.

Poulton said Facebook’s problem is that its competitors will also be harmed by Apple’s change, particularly those that engage in real-time automated or “programmatic” ads over the network. Marketers who want to put Facebook spending aside can scan the options landscape and say, “Facebook isn’t as good as it used to be, but it’s better than that,” Poulton said.

Write to Patience Haggin at [email protected], Keach Hagey at [email protected] and Sam Schechner at [email protected]