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How Companies are Reacting to Upcoming Privacy Change In Apple iOS 14
An article by • Published Mar 9, 2021

How Companies are Reacting to Upcoming Privacy Changes in Apple iOS 14

There's been lots of talk recently about Apple's (ticker $AAPL) iOS 14 privacy changes, and its effect on the online advertising industry. Facebook (ticker: $FB) has been the loudest in protesting against these changes, but the new rules also affect companies across the the app ecosystem that either rely on performance marketing strategies for user acquisition, or utilize in-app ads to monetize their apps.
In this article, we will give you a brief overview of Apple's App Tracking Transparency (ATT) privacy changes, and then highlight comments from various different companies on how the change will impact their business.
TLDR Summary
Apple is changing its policy to require app developers to explicitly ask users to opt-in to being tracked across apps. Previously, users were opted in by default and had to opt-out if they wanted to turn off tracking.
Industry analysts expect the majority of users to opt out of tracking once these changes are enforced. This will make it difficult for advertisers to serve targeted ads and measure the performance of their campaigns. For app publishers, this may lead to lower ad pricing and revenue.
While Facebook has been the loudest in rallying against Apple's moves, other companies have kept quiet and are more optimistic.

Apple IDFA - What's all the fuss?

Apple's identifier for advertisers (IDFA) is a random string of numbers and letters assigned to Apple devices that acts as a unique device identifier, allowing advertisers to track users across apps and websites to deliver personalized and targeted advertising.
Up until iOS 14, Apple users could "opt out" of this by by enabling the "Limit Ad Tracking" option in device settings. This meant that users were opted in by default.
Apple gave users the option to opt out

Starting with iOS 14.5, which is expected to be released later this quarter, Apple will require developers to explicitly ask their users to "opt in" to allow tracking them across apps and websites or obtaining their device identifier by showing users an App Tracking Transparency (ATT) prompt to request user permission.
Sample ATT prompt asking users' permission to allow tracking.

For users who do not consent to being tracked, advertisers will not be able to effectively follow them across the internet to track meaningful actions such as making a purchase, installing an app, or fill up a custom form.
What this effectively means is that advertisers' ability to serve targeted ads to such users and measure the effectiveness of their performance marketing campaigns would be severely hampered.

How many users will opt in?

Opt-in rates will vary by app, and while it is impossible to know in advance what the opt-in rates would look like, industry estimates vary.
We reviewed filings by public companies to try to get a sense of expected opt in rates, and were able to find a couple of companies commenting on this:
Online dating app Bumble (ticker: $BMBL) that IPO'd recently and relies in-part on targeted advertising for user acquisition mentioned in their
S-1 filing
that they expect opt-in rate between 0-20%.
We expect that app users’ opt-in rate to grant IDFA access will ultimately be approximately 0 to 20%.
Mobile games publisher Glu Mobile (ticker: $GLUU), which recently
agreed to be acquired
by Electronic Arts (ticker: $EA) in a deal worth
$2.4 billion
, said in their latest
10-K filing
that they expect only a minority of their users to consent to IDFA access.
We expect only a minority of users will consent to us accessing their IDFA
Facebook said on its most recent earnings call that they expect opt-out rates to be high, but did not provide more details.
And we do expect there to be high opt-out rates related to that, and that's factored into our outlook.
Facebook is currently testing a pre-ATT prompt to get more users to opt-in to allow tracking.
It is estimated that around 20-30% of iOS users in the US enabled the "Limit ad tracking" setting on their devices to prevent all apps from accessing their IDFA. Of the remaining 70%, even the most optimistic industry analysts do not expect the opt-in rate to exceed 50%.

Who will be affected?

While Facebook has been the most outspoken critic of the proposed privacy changes by Apple, it is not the only business expected to be affected by the change; the impact of IDFA deprecation will reverberate throughout the advertising industry, affecting businesses both large and small that are involved in buying or selling ads.
Businesses that rely on targeted and personalized ads to get new customers may see their customer acquisition costs increase if they are not able to target ads to the right segment of users and are not able to measure the effectiveness of their advertising campaigns at the user level.
Examples include DTC e-commerce brands and mobile game publishers.
App developers and publishers who sell advertising inventory may see a hit to their advertising revenues as ad pricing (eCPM) for impressions that can not be targeted is expected to be lower than that for IDFA-enabled ads.
This includes all kinds of apps that rely on in-app advertising for revenue, including giants such as Facebook as well as small, indie game developers that you've never heard of.
Adtech companies who act as advertising networks that connect ad buyers with app publishers who sell ad inventory are also likely to take a hit. Examples include Unity's ($U)
Operate Solutions
segment, as well as Facebook's Audience Network.

What are they saying?

In this section, we will discuss how some of the public companies are reacting to the changes based on a review of their recent SEC filings and event transcripts.
On its 4Q20 earnings call, Mark Zuckerberg
singled out
Apple as one of Facebook's biggest competitors, and
that Apple was using user privacy as cover to use its dominant platform to change rules in a way that benefits them and hurts competitors.
we increasingly see Apple as one of our biggest competitors. iMessage is a key linchpin of their ecosystem. It comes pre-installed on every iPhone, and they preferenced it with private APIs and permissions, which is why iMessage is the most used messaging service in the U.S. And now we are also seeing Apple's business depend more and more on gaining share in apps and services against us and other developers. So Apple has every incentive to use their dominant platform position to interfere with how our apps and other apps work, which they regularly do to preference their own.
Facebook has long argued that personalized ads are a cost-effective way for small businesses to reach audiences, and management re-emphasized that the IDFA privacy changes would hurt small businesses.
small businesses are very reliant on personalized ads, the ability to use data in a very privacy-safe way to get the customers who are interested in their products and services. And that makes sense. Big businesses, we can buy an ad to the whole country. We can buy an ad to a whole region. Small businesses can't. They have to find the precise audiences they want.
If all personalized ads went away, small businesses would see a 60% cut in website sales.
In response to a question on what they are doing to mitigate the impact of these changes, management said that one area they are focusing on is providing businesses with more in-app conversion opportunities with initiatives like Shops.
over time, we hope to help businesses by providing more on-site conversion opportunities through initiatives like shops and also click-to-messaging ads.
There wasn't too much emphasis from either the management or the analysts on the impact from IDFA changes, which is not surprising given that Twitter (ticker: $TWTR) relies mostly on brand marketing for advertising revenue, and has only just recently relaunched their Mobile App Promotion (MAP) offering.
On its recent analyst day event, Jack Dorsey said that it was too early to tell how Apple's upcoming changes would affect Twitter or the industry.
As we continue to develop MAP, we're mindful of the potential impact that Apple's upcoming changes to IDFA, or identified for advertisers, could have on our performance roadmap. We're innovating quickly around IDFA. And it's still too early to tell exactly how this will impact the industry, but it will be felt by the entire industry.
In response to a question the subject, Dorsey said that Twitter could leverage signals from topics, lists, search etc. to serve personalized ads
we have a ton of signals that we can leverage topics, lists, search. And from those, we can build interest targeting segments, et cetera. So too early to talk about the impact that it's going to have on us.'
Twitter also
added Apple's IDFA changes as a potential risk factor
for its advertising revenue in its latest 10-K filing.
In sharp contrast to Facebook's fierce criticism of Apple's upcoming privacy changes, Snap (ticker: $SNAP) management said on its 4Q20 earnings call that they believe that Apple is making the right decision for their customers, and that they're working with Apple to build solutions that use aggregated campaign level data to measure ad effectiveness in a privacy-safe manner.
The reality is we admire Apple, and we believe that they are trying to do the right thing for their customers. They're focus on protecting privacy is aligned with our values and the way that we've built our business from the very beginning. So the change here that we're really focused on has less to do with IDFA for which Apple has long offered an opt-out. And instead on a much more broad policy change that requires Snapchatters to opt into tracking with other personal identifiers such as their e-mail address, which would make it harder for us than the overall digital ad ecosystem to match advertising outcomes.
But we've been working really closely with Apple to implement SKAdNetwork, which is their privacy protective solution as well as building our own solutions that use aggregated data to protect privacy.
Similar to Facebook, Snapchat said that one of the ways they hope to mitigate the impact of these changes is to provide more on-platform conversion opportunities.
And then longer term, we're investing in using first-party data from our platform and providing more opportunities for on platform conversion, which will really help.
Snapchat said that they expect the ATT changes to be implemented at the
end of the first quarter
, and that they expect a short disruption to advertising demand as those changes are implemented, which they factored into their 1Q21 guidance.
We anticipate that the iOS platform policy changes to be implemented later this quarter will present another risk of interruption to demand in the period immediately after they are implemented.
In a similar vein to Twitter, Snapchat also said that it was too early to asses the long-term impact of Apple's privacy changes on its business.
It is not clear yet what the longer-term impact of those changes may be for the top line momentum of our business. And this may not be clear until several months or more after the changes are implemented.
Pinterest (ticker: $PINS) is known for the high purchase intent of its users, most of whom are searching for generic terms.
In response to an
analyst question
on whether they are relatively better equipped to deal with IDFA changes, management said that because Pinterest is a search-oriented platform where users have a high purchase intent, the first party data that Pinterest has on its users is much more valuable as compared to other platforms, which would help Pinterest advertisers to continue to serve targeted and personalized ads even without IDFA consent.
But what we do know about our platform is that we have a high degree of commercial intent and planning behavior, and that planning behavior drives a fair amount of on platform signal. So things like board creations, things like visual and text-based queries, saves that are based on that planning behavior, that creates a fair amount of on platform signal that helps to inform targeting. And so relative to other platforms, off-site signal is probably less important for us because of the intent that we're able to capture first-party on our platform. All that said, when you think about measurement, there are some product improvements we can continue to make on that front, but that's where the ambiguity comes in. And I wouldn't want to overstate our position relative to others. But I think from a targeting perspective, we're in an enviable position based on the use cases and the planning behavior of our power user base.
also said
that while measurement would remain a challenge in the post-IDFA world, they are investing in R&D to generally improve conversion visibility.
Unity Software
Unity's (ticker: $U) Operate Solutions segment
generates advertising revenue
by facilitating game publishers to sell their ad inventory to advertisers through a programmatic Unified Auction.
When announcing it's FY2021 outlook on its 4Q20 earnings call, Unity said that expect a one-time hit of $30 million, or around 3% of its total revenue as a result of Apple's privacy changes.
we estimate a onetime hit in 2021, approximately $30 million to revenues or just over 3% as advertisers become accustomed to the new IDFA approach being implemented by Apple.
Management said that they are utilizing their learnings from their contextual advertising product, which does not rely on IDFA, to mitigate the risk from IDFA.
we've been preparing for this for a long time. We are leveraging our learnings from GDPR, from our contextual advertising product, which does not rely on IDFA. And we're working hard to mitigate the risk, both to Unity and to our customers.
Casper Sleep
Casper Sleep (ticker: $CSPR) is an e-commerce company that sells mattresses and other sleep products, and derives a majority of its revenue from the direct-to-consumer channel.
In response to a
on how might the IDFA deprecation impact their marketing strategy, management played down concerns and suggested that they would rely on different data points for targeting and measurement.
On the marketing front, we definitely have been talking about for some time now the changes in data privacy and some of the deprecation that we're going to see later this year. We do think that it's going to impact kind of the industry at large from a direct marketing standpoint but that we've had good advanced notice on it and have been working on other ways that we think we can drive performance in the channels. And we don't think that performance media at large is going to take a material hit. I just think we're going to have to rely on different data points and different tools to drive optimization.
Game developer Zynga (ticker: $ZNGA), which relies on in-app ads for advertising revenue, also downplayed concerns over IDFA deprecation's impact on advertising yields and revenue, suggesting that the impact from the changes will be "short-lived."
From an advertising perspective, our guidance assumes that the upcoming changes of -- to IDFA will create some pressure on advertising yields, but we expect this impact to be short-lived.
In response to an analyst question, management said they viewed the IDFA changes as part of regular changes happening across the industry.
I know IDFA is getting a lot of airtime both in the press and across the industry. But practically speaking, our industry always has puts and takes that we deal with. And from our vantage point, we just added this one to the puts and takes. And we're continually working with our advertising partners to optimize yields, to find different offerings that we can embed within our games that are player friendly, but also gives us new opportunities to deliver advertising bookings and revenue. And so from that point of view, definitely, there's been a lot more discussions with our partners and how we can operate in a post-IDFA world. But I have to say it's been, for the most part, business as usual in terms of us looking to optimize and grow our business. So from that point of view, it's not like there was a separate set of specific initiatives.
Spotify (ticker: $SPOT) added information on risks related to IDFA deprecation to its risk factors on advertising revenue in its annual report filed early in February.
Spotify's Ad-Supported business segment accounted for around
of its total revenue in FY20.
In addition, changes to operating systems' practices and policies, such as Apple's iOS updates that may impose new requirements in order to track users or otherwise access Apple's Identifiers for Advertisers (“IDFA”), may reduce the quantity and quality of the data and metrics that can be collected or used by us and our partners. These limitations may also adversely affect our and our advertisers' ability to target advertisements and measure their performance, which could reduce the demand and pricing for our advertising products and harm our business.
Match Group
Match Group (ticker: $MTCH), owners of online dating app Tinder,
said on their 4Q20 earnings call
that they did not incorporate any potential impact from IDFA changes into their 1Q21 and FY21 outlook because it was not yet clear to them how the changes would impact their marketing spend efficiency.
On IDFA, so obviously, since we're not an ad-supported business, the impact to us is mostly on the marketing spend and the user acquisition efficiency. And so there are a lot of puts and takes, and it is a little bit unclear how this all shakes out. For instance, if the targeting becomes weaker, it will have an impact on marketing efficiency. At the same time, it's unclear to what extent rates may or may not come down.In terms of how we measure and our spend -- and marketing spend attribution framework goes, we do have experience in evaluating brand spend like out-of-home and TV, et cetera. So net-net, I don't think we know quite how the market will sort itself out. I do believe it will eventually sort itself out. In the short-term, what sort of dislocation happens is unclear, particularly in terms of what the impact will be to our marketing spend efficiency.
The company utilizes performance marketing strategies for user acquisition, and listed Apple's IDFA changes as a
potential risk factor
that may lead to increased cost per registration in their latest 10-K filing.
Tinder's competitor Bumble, which just went public recently,
mentioned a similar risk
in their S-1 filing.

Summing Up...

After reviewing the management comments from various different companies, it is clear that Facebook is leading the charge against Apple's policies. Perhaps this is because Facebook has been the biggest beneficiary of targeted ads, but making a judgment on that is beyond the scope of this article.
For other companies affected by the change, rather than criticizing Apple, most management teams appear to have accepted the inevitability of the IDFA deprecation and are focusing on utilizing first-party data and contextualized advertising as an alternative.
While Facebook's argument that small businesses that rely on cost-effective targeted ads would be negatively impacted by this change makes a lot of sense, it appears that arguing against giving users more choice over how their data is used is not a good look.