Facebook ad business struggles after Apple’s iOS changes

Facebook ad business struggles after Apple's iOS changes

Facebook has built one of the most incredible slot machines the world has ever seen. Then Apple came along and threw a wrench in the gears.

That’s one of the stories that emerged from the news last week, when Facebook’s parent company Meta presented an alarming earnings report on Wall Street that quickly slashed $250 billion from the value. of the company in a single day, a drop of 26%. And there were a lot of stories.

For a large group of Facebook critics, the stock market crash was a chance to reaffirm your track record: If you thought Facebook was getting money for creating a toxic product that’s making the world worse, you could report its first-ever loss of users. . If you thought Mark Zuckerberg’s pivot to a metaverse that doesn’t yet exist is a fantasy, you could cite the $10 billion the company said it invested in the effort last year. And if you thought TikTok was eating Facebook’s lunch, you could quote Mark Zuckerberg himself, who admitted on the company’s earnings call that the video app was already “so big as a competitor, and also continues to grow at a fairly rapid rate from a very broad base.”

And all of these stories have a degree of truth. But the idea that Apple has harmed Facebook’s revenue in a direct and significant way seems most true: Facebook claims that Apple’s changes affect how ads work on iOS apps, namely that it is now much more difficult for app makers and advertisers to track user behavior. — will cost him $10 billion in revenue this year.

For context: Facebook still makes huge amounts of money from advertising – analyst Michael Nathanson estimates the company will generate $129 billion in advertising revenue in 2022. But that would mean its advertising business will only grow by about 12% this year, compared to a 36% increase over the previous year. Wall Street loved Facebook for its ability to grow at lightning speed, and now that rocket may be sputtering.

What can Facebook do about it?

The background: The seeds of last week’s news were sown months ago. In June 2020, Apple announced changes to its mobile operating system that would give iPhone users the ability to tell app makers not to track them on the internet. This tracking system is the backbone of the Internet’s advertising infrastructure, and you know it even if you never think about it: that’s why, for example, you see ads for shoes you already have. viewed on Zappos when you are visiting other sites. And in Facebook’s case, it’s crucial for finding the people advertisers want to reach and, more importantly, telling them what happens after those people have seen or interacted with their ads.

A month later, Facebook began warning investors that the changes would hurt their ad business. The fight between the two companies then escalated, with both sides launching public attacks on each other.

While there were plenty of signs that Apple’s change was actually hurting Facebook’s ad sales, people inside and outside the company also assumed that Facebook would figure out how to handle it. , because Facebook is a giant company full of money and brilliant engineers. And while Facebook continued to warn investors in its quarterly updates that Apple’s moves would be a problem, it used generic terms like “headwinds” when it did. More cynical observers have questioned whether Facebook is exaggerating the issue in order to gain sympathy from regulators seeking to curb Facebook’s power — or to get them to focus their attention on Apple, which is also under antitrust scrutiny. .

Now, Facebook is saying, in public, that Apple’s ad changes were very important, after all. The short version, as COO Sheryl Sandberg told investors last week: Facebook’s ad targeting has become less precise because it now knows less about its users. Which means Facebook advertisers have to spend more money hoping to reach people on iPhones — and Facebook advertisers, who used to measure the effectiveness of their campaigns down to the penny, have to now make much less educated guesses about whether their ad dollars are working

In other words, via Alex Austin, the CEO of Plugged, a company that helps advertisers understand how their campaigns work: After Apple introduced its anti-tracking changes in the spring of 2021, advertisers who used Branch’s services to measure paid ads on iOS dropped 20 %. Instead, Branch customers spent more time using the company’s services that track “organic” marketing campaigns using tools like email, and on services for advertisers. who used Google’s Android phones – where such anti-tracking measures do not exist. “It is clear that the market is still trying to manage [Apple’s new rules] on iOS, and focusing on Android and organic channels on iOS,” he told Recode.

Facebook says it’s working on a fix to make things better for advertisers in the short term via a “aggregate measurement of eventsworkaround. Which in plain English means that while it won’t be able to tell advertisers which individual users clicked on a link or downloaded an app after seeing an advertisement, it can tell them what an largest group of users did.

Depending on your perspective, this is either a big improvement for user privacy, or a big step backwards for advertisers accustomed to pinpoint accuracy on the Internet. But Google and Snap have both rolled out similar products and told investors they work well; Facebook executives admit their version is not yet; they think it will take months to get there.

Again: Facebook is an advertising giant that isn’t going away anytime soon. And it’s perfectly reasonable to assume he’ll manage, largely because he’s so big. If you’re an advertiser, “there are very few other places to go,” Nathanson told Recode.

But you can also see Facebook tacitly conceding that even when their tools improve, they’ll never be as effective on iOS as before. This is one of the reasons why the company is redoubling its efforts sell products on their own apps – not just the Facebook Marketplace platform, but true digital storefronts on Instagram and Facebook. It’s a plan that Zuckerberg laid out publicly last spring, and not coincidentally with the coming into effect of Apple’s privacy changes.

The revenue Facebook could generate from these sales is great, but the data Facebook can legally collect on user behavior, without interference from Apple, could be invaluable. Facebook can’t tell a shoe store if someone saw their ad on the app and then clicked on the store’s site or app and bought something – but it does. can tell them if a Facebook user saw the ad on Facebook and then bought the shoes on Facebook.

Other recent Facebook moves reveal how Apple’s iOS changes have permanently affected its existing advertising business. For example, Facebook is relaunching Reels, the TikTok copycat product it promotes on Instagram and the traditional Facebook app, even though it barely runs ads on Reels, for now.

The hope is to expand usage and calculate revenue later. It’s a long-standing tech tactic, and one that worked well for Facebook when it copied Snapchat “stories” to Instagram, creating a new ad revenue stream and helping to slow the Snapchat growth.

And you can also see Facebook’s Apple problem as another impetus for its metaverse push: it will take many years for Facebook’s alternate reality future to materialize – and it may never happen. But if so, Zuckerberg will have built a hardware and software platform for his company where he can interact directly with his users – and his advertisers too – without interference from Apple or anyone else.

Which brings us back to Apple, which has always insisted that it made privacy changes because it values ​​privacy, not because it would hurt Facebook. And to be clear: Apple doesn’t want Facebook to go away because Apple users love Facebook. For hundreds of millions of people, an iPhone that doesn’t have Facebook, Instagram, or WhatsApp isn’t a very useful iPhone.

But Apple has also made clear its contempt for Facebook’s core business. A year ago, for example, Apple CEO Tim Cook, without naming the company specifically, publicly criticized companies that “prioritized conspiracy theories and incitement to violence simply because of their high rate of engagement” “not only condone, but reward content that undermines public trust in lifesaving vaccinations” ‘ and ‘sees thousands of users joining extremist groups, and then perpetuating an algorithm that recommends even more.

“If a company is built on misleading users, on mining data, on choices that aren’t choices at all, then it doesn’t deserve our praise,” Cook said in his speech at a conference. international privacy policy. “It deserves reform.”

Is it possible that Apple cares deeply about user privacy and sees an advantage in clipping the wings of one of its main rivals (when, by the way, start your own advertising business)? Absoutely.

But instead of wondering what Apple’s motives are, maybe we should spend some time thinking about how powerful Apple is. As regulators around the world scramble to limit Facebook’s power and influence, Apple has put its rival on the back foot with a simple tweak to its phones’ software. You can applaud this change – and still worry about what else Apple might want to change down the line.