Why Facebook Is So Upset Over Apple’s IDFA Change: Insiders Spill

In recent weeks, Facebook has been running an ad campaign in defense of personalized ads, arguing that targeted ads are key to small business success.

The catalyst for the campaign was an ongoing battle between the social media company and Apple. The fight centers on a unique device ID on each iPhone and iPad, the IDFA. Facebook and others who sell mobile ads rely on this ID to target ads to users and estimate how effective they are.

With an upcoming update to iOS 14, apps that want to use IDFA will have to ask users to sign up for tracking when the app is first launched. When users opt out, these ads become a lot less effective. Facebook has warned investors that these impending changes could hurt its advertising business as early as this quarter.

But while Facebook has been vociferous 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 largest advertiser on the web, hasn’t said nearly as much about the changes, while at the same time introducing its own privacy-related changes to its Chrome browser and pledging to stop tracking individual users completely.

CNBC spoke to a handful of former Facebook employees who have worked on the company’s advertising products and businesses, explaining why the social media giant is making so much of a fuss about Apple’s impending change.

The most critical point for Facebook is what’s known as view-through conversions. This metric is used by advertising companies to measure how many users saw an ad, didn’t click on it immediately, but later made a purchase related to that ad.

Think of view-through conversions like this: you tap through your Instagram stories and you see an ad for jeans. You don’t tap the bottom of the ad for more information because you’re busy checking out what your friends are up to, but the jeans were cute. A few days later, you go on Google, find the jeans you saw on Instagram and buy them.

After the purchase is made, the retailer registers 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 worked.

Losing that type of measurement can be a major blow to Facebook. If advertisers can’t accurately measure the effectiveness of their Facebook and Instagram ads, they may feel compelled 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 put more money into Google’s search ads, something Facebook cannot duplicate and targets users at the point of conversion.

In terms of specific companies, the IDFA change will mainly harm its Audience Network.

The Facebook Audience Network provides ads in non-Facebook apps and uses IDFA numbers to determine the best ads to show to each user based on Facebook’s data. For example, a soft drink company might decide to target 18- to 34-year-old gamers in the San Francisco Bay Area with a new promotion. The company could use the Facebook Audience network to deliver those ads to the right audience within mobile games; Facebook would share the ad revenue with the game makers.

But if users opt out of IDFA tracking, all that personalization Facebook has built becomes irrelevant outside of the company’s own apps. In August, Facebook acknowledged that Apple’s upcoming iOS 14 could lead to a more than 50% drop in its Audience Network advertising business.

Almost all of Facebook’s revenue comes from advertising, but Facebook’s Audience Network contributes only a small fraction of that – less than 10% of the company’s net revenue, a person familiar with the numbers told CNBC .

In addition to view-through conversions, Facebook can lose valuable data about what its iPhone users are doing on their devices when they are not in Facebook’s apps. Facebook already collects a lot of data about its users from its apps, including Facebook, Instagram, Messenger, WhatsApp and others, but every extra bit of data makes its algorithms better at what they do, including ad targeting.

Although Apple lets users decide whether to opt for IDFA tracking, app makers and advertisers can still collect data through the SKAdNetwork API without explicit user consent. But the information shared will be much less detailed – Facebook has warned in developer documents that it will not support breakdowns of activity into buckets such as region, age, or gender.

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

Reputation recovery can be one of the reasons. Facebook’s reputation has been in the gutter since the March 2018 Cambridge Analytica scandal, in which a data firm improperly accessed the data of 87 million Facebook users and used it to target ads for Donald Trump during the 2016 presidential election .

Since then, Facebook has endured numerous scandals, alienated Democrats and Republicans, and waged a never-ending battle against misinformation about its services.

By taking the moral high ground and saying it stands up for small businesses, the IDFA debate provides an opportunity for Facebook to rebuild goodwill, even if only in part of the general public, a former Facebook said -collaborator.

Plus, IDFA tracking isn’t going away – users will just have to choose to allow it. This means that Facebook and other app developers will have the opportunity to make their case to any Apple user.

Facebook’s marketing campaign is an important part of his business. The company wants users to associate device tracking with personalized ads and small business support. “Don’t choose Facebook, choose the coffee shop you care about” is the essence of the message.

Within a small subset of its users, Facebook has started showing prompts asking them to sign up for IDFA tracking. This is what is known as A / B testing. A / B testing is a popular strategy among technology companies to find the most effective way to do something. In this case, Facebook can show different prompts to different users to determine which prompt is best to convince most people to choose IDFA tracking.

When asked whether the IDFA change will actually affect small businesses, as Facebook claims, the former employees gave mixed answers.

With less tracking data at its disposal, Facebook and all of its customers, including small businesses, will not be able to target ads as effectively as before. So in that sense, yes, small businesses will be affected.

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

For example, if you’re a small coffee shop in Austin, Texas, you might not need too much data to target your ads, said Henry Love, a former employee on Facebook’s small business team. Such a company typically limits its targeting to fairly broad categories – an age range and a distance to a specific zip code, for example, would allow them to target ads to nearby Facebook users. That’s the kind of data Facebook could collect from its own apps, without IDFA having to track a user’s activity elsewhere on its Apple devices.

“If you were to talk to a restaurant owner somewhere and ask them what IDFA is, I don’t think any of them would know what that is,” said Love. “It affects Facebook widely. Not small business owners.”

Among the few “small business owners” who can feel the effects of the IDFA change are start-ups backed by venture capital money that have hired professionals with the skills to target users with sniper precision, Love said.

“The only people targeting mobile, web and Facebook Audience Network aren’t really small businesses,” he said. “They are advanced VC-backed startups. They are not your typical SMB.”

Additionally, while the change isn’t scheduled for early this spring, Facebook has long been aware of it and has rolled out a number of alternative solutions for businesses.

Notably, the social media company introduced Facebook Shops and Instagram Shops in 2020. These features allow brands to list their product catalogs directly on Facebook’s most popular apps and sell goods directly on Facebook and Instagram. If a sale takes place within the walls of Facebook, IDFA tracking is not necessary.

You may have already come across a few brands selling directly on Facebook and Instagram. Expect to see more ahead.

Megan Graham contributed to this report.