Why Facebook is so upset with Apple’s IDFA change: insiders are pouring

Over the past few weeks, Facebook has run an ad campaign in defense of personalized ads, arguing that targeted ads are key to small business success.

The catalyst for the campaign has been an ongoing battle between the social media company and Apple. The battle centers on a unique device identifier on each iPhone and iPad called IDFA. Facebook and others that sell mobile ads rely on this identifier to help target ads to users and estimate their effectiveness.

With an upcoming iOS 14 update, apps that want to use IDFA will have to ask users to opt in to tracking when the app is first launched. Disabling users will make these ads much less effective. Facebook has warned investors that these impending changes could hurt their advertising business as early as this quarter.

But while Facebook has been loud about how damaging this change will be, rivals like Twitter and Snap have said the change will be good for users ’privacy and could even benefit their businesses. Google, the leading advertiser on the web, hasn’t said much about the changes, while introducing its own privacy-related changes to its Chrome browser and pledging to stop tracking individual users completely.

CNBC spoke with a handful of former Facebook employees who have worked on the company’s products and advertising companies and explained why the social media giant is making a big fuss about Apple’s upcoming change.

The most critical at stake for Facebook is what is known as post-conversion conversions. This metric is used by advertising technology companies to measure how many users have seen an ad, not immediately clicked on it, but made a purchase related to that ad.

Think of post-impression conversions like this: take a look at your Instagram stories and see an ad from a Texan. Don’t touch the bottom of the ad for more information because you’re busy checking out what your friends are doing, but the jeans were cute. A few days later, go to Google, search for the jeans you saw on Instagram, and buy them.

Once the purchase is made, the retailer records the IDFA of 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. This shows the retailer that their Facebook ad has worked.

Losing this kind of measure could be a big blow to Facebook. If advertisers aren’t able to accurately measure the effectiveness of their Facebook and Instagram ads, they may be forced to shift more of their budget to other apps and services where they can see the exact return on investment for their ads. .

Facebook is the number two recipient of online advertising dollars, behind Google. One particular threat is that advertisers will invest more money in Google’s search ad business, which Facebook cannot duplicate, and which is targeted to users at the time of conversion.

As for specific companies, the IDFA change will especially hurt their network of audiences.

The Facebook Audience Network provides ads in non-Facebook applications and uses IDFA numbers to determine the best ads that can be shown to each user based on Facebook data. For example, a soft drink maker might decide to target 18- to 34-year-old players in the San Francisco Bay Area with a new promotion. The company could use Facebook’s audience network to run these ads to the right audience within mobile games; Facebook would share advertising revenue with game creators.

But if users disable IDFA tracking, all of that personalization that Facebook has created will become irrelevant outside of the company’s own apps. In August, Facebook acknowledged that Apple’s upcoming iOS 14 could mean a drop of more than 50% in its advertising network business.

Almost all of Facebook’s revenue comes from advertising, but Facebook’s Audience Network only contributes a small portion, well under 10% of the company’s net revenue, a person familiar with the numbers told CNBC.

In addition to post-conversion conversions, Facebook can lose valuable data about what its iPhone-based users do on their devices when they’re not in Facebook-owned apps. Facebook already collects a lot of data about its users from its apps, which includes Facebook, Instagram, Messenger, WhatsApp and others, but each additional data bowl makes their algorithms better at what they do, including ad targeting. .

While Apple allows users to decide if they want to opt for IDFA tracking, it will still allow app creators and advertisers to collect some data through its SKAdNetwork API without explicit user permission. But the shared information will be much less grainy: Facebook has warned in developer documents that it will not support breakdowns of activity in compartments such as region, age or gender, for example.

Facebook knows it won’t be able to convince Apple to change its mind about IDFA, but it has gone ahead with this campaign to support small businesses anyway. Because?

Reputation repair could be one of the reasons. Facebook’s reputation has been maintained since the Cambridge Analytica scandal in March 2018, in which a data company incorrectly accessed data from 87 million Facebook users and used it to target Donald ads. Trump in the 2016 presidential election.

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

By taking the moral high ground and claiming that it advocates for small businesses, the IDFA debate offers Facebook an opportunity to rebuild goodwill, even if it’s only with a part of the general public, a former Facebook employee said.

In addition, IDFA tracking will not go away; users will simply have to choose if they allow it. This means that Facebook and other app developers will have the opportunity to defend their case in front of all Apple users.

The Facebook marketing campaign is a key part of your case. The company wants users to associate device tracking with personalized ads and small business support. “Don’t opt ​​for Facebook, do it for the cafe you’re interested in,” is the essence of the message.

Within a small subset of its users, Facebook has begun displaying requests to ask them to opt for IDFA tracking. This is known as A / B testing. Among tech companies, A / B testing is a popular strategy for figuring out the most effective way to do something. In this case, Facebook can display different messages to different users to determine which application will be best for convincing most people to opt for IDFA tracking.

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

With less tracking data available, Facebook and all of its customers, including small businesses, will not be able to target their ads as effectively as before. Thus, in this sense, yes, small businesses will be affected.

However, for many small businesses, the change may not be noticeable at all.

If you’re a small coffee shop in Austin, Texas, for example, you may not need too much data to target your ads, said Henry Love, a former employee of Facebook’s small business team. A company like this usually limits its focus to fairly broad categories; for example, an age range and distance range for a specific zip code would allow them to target ads to nearby Facebook users. This is the type of data that Facebook would be able to collect from its own applications, without the need for IDFA to track a user’s activity elsewhere on their Apple devices.

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

Among the few “small business owners” who could feel the effects of the IDFA change are emerging venture capital-backed companies that have hired professionals with skills to target sniper-accurate users, Love said.

“The only people who target the mobile, web and Facebook audience network aren’t really small businesses,” he said. “They are sophisticated startups with VC support. They are not your typical SME.”

In addition, while the change is not expected to occur until early spring, Facebook has known this for a long time and has implemented several workarounds for businesses.

In 2020, above all, the social media company introduced Facebook Shops and Instagram Shops. These features allow brands to list their product catalogs directly in Facebook’s most popular apps and sell products directly to Facebook and Instagram. If a sale is made on Facebook walls, IDFA tracking will not be required.

You may have already found some brands that sell directly to Facebook and Instagram. Hope to see you later.

Megan Graham contributed to this report.