When Apple introduced App Tracking Transparency (ATT) back in April 2021, forcing applications to request permission before monitoring user behaviour to deliver personalised advertising, it drastically decreased the accuracy of online targeting – disrupting the business models of many tech companies. Meta and Google have the technological and financial clout to fight back, but smaller players are clearly coming under pressure.
However much Apple insists that its motivation was purely altruistic, defending privacy as a basic human right, the truth of the matter is that the financial impact of its change in privacy settings has been huge. With most iPhone users preferring to opt out from tracking, advertisers suddenly found it much harder to generate a good bang for their buck. Their reaction: a sharp cut in spending on the big Snap, Facebook, Twitter and YouTube social media platforms (whose revenues are estimated to have suffered a USD 9.85 bn hit just for the second half of 2021), shifting their budgets instead to Android phone users and to Apple’s own advertising business. But with Google soon to offer most Android users that same ability to opt out of tracking, the going only promises to get tougher for ad revenue-dependent tech companies.
Meta’s response is twofold: build new tools that enable advertisers to regain a perspective on the efficiency of their campaigns and, further down the road, develop its own operating system for the metaverse – which it hails as the computing platform of the future. For controlling the operating system also provides control over the ad pop-ups that users see. As a recent Oxford university paper discussing the impact of ATT puts it, “the new changes by Apple have traded more privacy for more concentration of data collection with fewer tech companies”.
It is not surprising, then, that European antitrust authorities are keeping a close watch. Germany’s Federal Cartel Office just disclosed that it is undertaking an investigation of Apple’s ATT framework, worried that it is unduly self-preferencing or setting up unfair barriers to competition. And UK regulators are concerned that ATT may well ultimately hurt consumers by pushing up app prices and/or reducing their quality and variety.
In this new regime, having first-party access to high quality user data has become a magnet for advertisers. As such, one company certainly seems to be increasing its share of the pie. Last February, when reporting its full year 2021 results, Amazon released advertising sales figures for the first time: USD 31.2 bn, just under 7% of total revenues but an estimated triple of the level three years ago. Amazon’s attractivity for advertisers stems from its knowledge of users’ purchasing habits, a behavioural data set that may not be as broad as that of Meta but is much closer to actual transactions.
Meanwhile, Apple continues to push forward. Early June, at its annual software developer conference, it unveiled a set of new iPhone and Mac features, including notably a “buy-now-pay-later” option in the US – using its rich user data. A challenge this time for fintech companies, that are already facing a post-Covid slowdown in ecommerce and an inflation-driven upmove in interest rates…
Written by George Simmons, Senior Portfolio Manager for Discretionary Mandates