Apple’s privacy change will hit Facebook’s core advertising. Here’s how.

The core of Facebook, the flagship app and Instagram, would also come under pressure. The Apple change requires mobile apps to ask users’ consent before tracking their activity, limiting the flow of data Facebook gets from apps to build profiles of its users. Those profiles allow Facebook advertisers to target their ads efficiently.

The change also makes it more difficult for advertisers to measure the return they are getting from the ads they show on Facebook: how many people see those ads on mobile phones and take actions such as installing an app.

“Market dynamics will shift sharply here,” said Simon Poulton, vice president of digital intelligence at WPromote, a digital marketing agency. “If you post marketing on Facebook and the results drop because the efficiency decreases, you are going to reject that.”

Facebook and Apple’s chief executives traded public barbs on the change this week. Facebook has aggressively pushed back against Apple’s plan. On a earnings call Wednesday, Facebook CEO Mark Zuckerberg said, “Apple has every reason to use their dominant platform position to interfere with the way our apps and other apps work.”

Apple has defended its policy and says it prioritizes user privacy. An Apple spokesman declined to comment further. Without directly naming Facebook, Apple CEO Tim Cook condemned “algorithm-fueled conspiracy theories” and linked the recent social turmoil to the argument that app tracking tools are turning consumers into ad products.

The magnitude of the potential financial impact on Facebook, which generated $ 86 billion in revenue last year, is not clear. The company said it expects revenues to be stable over the next two quarters. In the past year, Facebook’s business has thrived despite the coronavirus pandemic and a boycott by several advertisers over hate speech on its platform.

Eric Seufert, an analyst and marketing strategy consultant who has studied Facebook’s business, said he expects the company to see a 7% increase in sales in the second quarter as marketers spend less and ad prices fall due to Apple’s change.

The battle is on as Facebook and other tech giants are under antitrust scrutiny for their dominance. Companies seeking to avoid regulatory action in such situations often claim that they are facing significant competitive threats in the marketplace.

“As we’ve said repeatedly, we believe Apple is acting anti-competitive by using their control over the App Store to benefit their bottom line at the expense of app developers and small businesses,” said a Facebook spokesperson .

Part of the strength of Facebook’s business is how it collects data from mobile apps: what people do in the apps, what they search for, what they buy, and more. According to analytics firm MightySignal, more than 85,000 iOS apps had Facebook code installed that sends data back to the company as of December.

The data is often associated with a unique Apple ID for the app user – a series of numbers and letters that Facebook can use to identify individuals so that it can add that data to their profiles or ‘identity chart’. App data makes up about 15% of user profiles, WPromote’s Mr. Poulton.

Apple’s planned privacy change means apps cannot pass that identification without users’ consent, limiting the information Facebook can retrieve.

Ad buyers say Facebook’s insight into app usage is part of the value proposition. With that data, Facebook can better optimize ads for the people who are most likely to become lucrative customers, saving advertisers money in the long run. For example, a mobile game that relies on in-app purchases could target ads to users with a history of heavy in-game spending.

Many apps rely on highly targeted ads to drive downloads. Dating app Bumble Inc. cited the upcoming Apple change as a risk factor in its IPO filings and predicted that 20% or less of its users would choose to be tracked.

Apple’s restrictions will also affect Facebook’s ability to show how well its ads work. Facebook provides advertisers with statistics, such as how many people who viewed an ad in the past week bought the advertised product. The company relies on Apple’s ID to obtain this information on iOS mobile devices, which account for a significant portion of Facebook activity: 45.3% of US smartphone users used iPhones in 2020, according to Statista.

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

“It will have a huge impact on the total amount of revenue, or conversions, that Facebook can attribute to itself, which is basically the signal all advertisers are using to make investment decisions,” he said. “It will dramatically lower their performance statistics.”

When Facebook first warned of the upcoming Apple change in August, it pointed to Facebook Audience Network, a small part of its business that enables the posting of 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 third-party “ cookies, ” bits of code used to inform users. on desktop browsers.

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

The silver lining for Facebook, said Mr. Poulton is that its competitors will also be affected by Apple’s change, especially those engaged in delivering automated or “programmatic” ads in real time on the web. Marketers looking to shift their spending from Facebook can scan the landscape of options and say, “‘Facebook – it’s not as good as it once was, but it’s better than this,” said Mr Poulton.

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