Unraveling Apple’s Privacy Paradigm: Impact, Challenges, and Opportunities

It’s been over half a year since the rollout, revealing a clear trend: a majority of iPhone users have chosen to reject tracking by advertisers.

Tim Cook, the CEO of Apple Inc., addressed developers at the Apple Worldwide Developers Conference (WWDC) in San Jose, California, on June 4, 2018.

The repercussions of Apple’s privacy update in April are now visible on the bottom line of various companies, underscoring Apple’s significant sway over sectors beyond consumer electronics.

In April, Apple introduced a new iPhone update featuring a prompt asking users whether they consented to being targeted by ads from apps. Users could simply opt out by tapping a button labeled “Ask App Not to Track.”

Fast forward six months, and it’s evident that most iPhone users indeed opted out. This feature, known as App Tracking Transparency (ATT), is now posing challenges for companies like Snap, Facebook, and Peloton.

This privacy feature has disrupted the inner workings of many mobile ads, particularly those verifying purchases or downloads.

Meta, the parent company of Facebook, cautioned last month that the adoption of these features had reached “critical mass,” diminishing the effectiveness of its ads in targeting potential high-value customers. Facebook noted that its revenue would have shown sequential growth in the September quarter if not for the Apple ad changes, but instead, it remained stagnant.

Snap’s stock took a hit last month due to lower-than-expected sales, which the company attributed to Apple’s privacy changes. Snap’s CEO Evan Spiegel acknowledged the ongoing risks posed by the privacy feature to the company’s fourth-quarter earnings, projecting holiday-quarter sales to be around $1.18 billion—significantly lower than Wall Street’s expectations at the time.

Peloton, primarily an advertiser rather than a seller of ads, reported last month that Apple’s privacy feature had hindered user growth.

During a recent interview, Apple CEO Tim Cook refrained from commenting on the feature’s impact on other companies but emphasized that ATT was introduced to empower users with choice over their device’s activities.

“Our focus has always been on empowering users. We’re not making decisions for them; we’re simply prompting them to decide whether they want cross-app tracking. And, indeed, many of them are choosing not to,” Cook stated.

Cook suggested that if app developers establish trust with users, a larger percentage may consent to device ID tracking.

While these changes are marketed as a win for users, they’re also bolstering Apple’s advertising product, Apple Search Ads, which marketers are increasingly turning to for mobile app promotions.

“We’ve observed a significant surge in Apple search ads market share. They’ve become the new top player, surpassing Facebook, which previously dominated iOS,” remarked Shani Rosenfelder, head of content at AppsFlyer, an ad measurement firm.

62% of iPhone owners are opting out
It took a while before advertisers began witnessing the full impact of Apple’s changes as iPhone users updated their software.

The update segregated iPhone users into two groups: those who opt-in to device tracking for ads, and those who don’t.

According to an October report from AppsFlyer, 86% of iOS devices are running a recent enough version of the software to encounter ATT prompts. Of those prompted, 38% opt-in, while 62% opt-out.

Users who opt-in have become even more valuable to advertisers, as they provide data that can enhance campaign targeting for those who opted out, Rosenfelder explained.

“Media costs, especially for consenting users, are on the rise because of their heightened value,” Rosenfelder added.

Several companies have indicated through their earnings reports that the ATT change is affecting them. Nonetheless, they remain optimistic about building new attribution systems using Apple’s replacement or their first-party data, and refining targeting with existing data, such as purchase history or demographic information.

Facebook, Snap, and Peloton’s responses
Meta, Facebook’s parent company, has been vocal in its opposition to the feature, which has appeared to target the social networking giant. For instance, Cook explicitly mentioned Facebook in a tweet showcasing the privacy prompt.

In response, Facebook has developed its systems within its apps, such as the capability to directly purchase products through Facebook, reducing reliance on third-party tracking.

“As Apple’s changes make e-commerce and customer acquisition less effective on the web, solutions enabling big businesses to establish a presence within our apps will become increasingly appealing and crucial,” remarked Facebook CEO Mark Zuckerberg.

Snap CEO Evan Spiegel had previously lauded Apple’s approach in interviews, and the company has updated its ad products to align with Apple’s ATT replacement. However, Snap officials stated last month that Apple’s replacement for advertising measurement, SKAdNetwork, was unreliable.

“Over time, we noticed significant discrepancies between SKAdNetwork’s results and those observed on other first and third-party measurement solutions, rendering SKAdNetwork unreliable as a standalone measurement tool,” explained Jeremi Gorman, Snap’s chief business officer.

Snap is expediting the development of its first-party technology to aid its customers.

Peloton is an example of a company that can no longer acquire customers in the same manner as before, citing challenges stemming from Apple’s privacy change. Nonetheless, Peloton believes it can adapt and that its app business will remain a crucial channel for customer acquisition.

“Like many other direct-to-consumer marketers, we’re grappling with the disruptive impact as our teams adjust to the new data landscape,” remarked Peloton’s CFO, Jill Woodworth.

Apple’s gains
ATT has brought attention to Apple’s advertising business, particularly its focus on mobile app ads. Apple’s flagship ad product, Apple Search Ads, enables developers to purchase keywords on the Apple App Store to feature prominently in searches.

Though Apple doesn’t disclose search ad specifics in its financials, it forms a small part of its services business, which reported $68.43 billion in revenue in fiscal 2021—a 27% increase.

Bernstein analyst Toni Sacconaghi estimated in a recent note to clients that Apple’s search advertising generates $4 billion annually and commands 60% of the app search ad market share on iPhones.

Search ads constitute only a fraction of the entire mobile ad market, according to the Bernstein analyst. He approximates the global mobile ad market at $300 billion per year, with 20% dedicated to mobile apps, or roughly $60 billion, with iOS claiming half of that share.

Despite Apple’s considerable expansion in the advertising realm, it remains a minor revenue source for the tech giant, which reported over $83 billion in total sales last quarter.

Apple’s products may enjoy a competitive edge due to their access to targeting data unavailable to other ad companies. Apple’s ATT primarily focuses on limiting data sharing between third parties, a limitation that doesn’t apply to Apple’s first-party advertising.

“I believe our targeting may suffer compared to competitors like Apple, who possess direct user data,” remarked Facebook COO Sheryl Sandberg.

“We see numerous opportunities for Apple,” Sacconaghi wrote. “The company stands to gain from any shift in-app advertising spending from display to search as advertisers seek enhanced targeting metrics.”

Challenges are likely transient
For companies reliant on ad revenue, such as Facebook or Snap, ATT has complicated the attribution process, making it harder to link a purchase to a specific ad or

campaign—an aspect that allows these companies to command higher prices and instill confidence in advertisers regarding their budget allocations.

Other firms, like Peloton, leverage mobile ads to attract new customers, particularly for their apps or services, a process commonly known as user acquisition. Without the ability to attribute specific installs confidently, some are finding iPhone advertising more challenging and less predictable.

Many companies and advertisers affected by Apple’s privacy change remain optimistic that these challenges are temporary. Nonetheless, ad professionals are calling on Apple to enhance its replacement for device identifiers, known as SKAdNetwork, which Apple claims conducts attribution more privately but lacks some capabilities of the old device ID-based system.

“SKAdNetwork is akin to if you brought an extraterrestrial down to design an alternative to marketing attribution, labeling it as ‘evil,’ without any understanding of the domain,” remarked Alex Bauer, head of marketing at Branch, an app measurement firm.

While advertisers focus on various parameters to gauge ad effectiveness, SKAdNetwork “compels them to adhere to Apple’s predefined metrics for advertiser success,” noted Gorman, Snap’s CFO. “For instance, advertisers can no longer gauge the impact of their unique campaigns based on factors like the time between viewing an ad and taking action or ad viewing duration.”

Apple’s change represents the first step towards a more private era of mobile advertising, which relies less on individual user data and more on sophisticated analytics to infer ad campaign success, according to ad professionals.

“Perhaps we’re returning to a time when advertising is less science and more art,” mused Bauer.

An Apple spokesperson did not respond to a request for comment.