Apple recently announced a new privacy feature that will ask iPhone and iPad users to opt-in or opt-out of tracking for in-app advertising. While most applaud Apple for its pro-privacy stance, there’s much more to the story. As I’ll explain below, Apple’s move will hurt publishers and consumers for its own financial gain. The truth is that Apple’s virtue-signaling is masking anti-competitive behavior that needs to be called out.
The first domino
Apple announced in June that iOS14 (due later this month) would prompt users to opt-in/out of tracking by advertisers in third-party apps on their iPhones and iPads. It’s not hard to see why most expect users to opt-out en masse. How ominous is this warning?
When a user selects “Ask App Not to Track,” it disables an anonymous identifier known as the ID for Advertisers (IDFA). Once the IDFA is disabled, app developers and publishers can no longer make that identifier available to advertisers seeking to deliver relevant ads to users. While it seems rather innocuous, it will set off a chain of events that will end badly for everyone but Apple and Google.
Harm to publishers and developers
Articles have covered how this will hurt advertisers. While few will take pity on advertisers, what about your favorite news, weather, music, fitness, gaming, or meditation app? Disabling the IDFA will devastate ad-supported apps because it’s the IDFA that makes their media valuable to advertisers. If you’re a luxury apparel brand for women, you’re targeting a very narrow set of users, and you’re willing to pay more to reach them. In this example, apps that serve ads to affluent females (anonymously identified by their IDFA) can charge a 2-3x premium for that ad. Without IDFAs to target ads to relevant audiences, prices will plummet by 50-70%, making ad-supported models untenable.
Of the 2.2 million apps in the Apple store, many will fail as ad revenue nosedives. Apps that are able to migrate to subscription models will pay a high price. Aside from the costly development work and the inevitable loss of users, publishers will have to pay Apple a 30% tax on new subscription revenue. This is where Apple crosses the line into monopolistic behavior—more on that below.
Harm to consumers
When ad supported content is no longer viable, consumers will have to pay for content. While very few say they like ads, most realize we need them. A recent NAI study found that 75% of consumers are aware that free content is enabled by advertising. Moreover, 64% of consumers believe online content should be free. So we expect free ad-supported content, but we don’t want to share data that makes ad models work? Actually the problem isn’t advertisers. The NAI study also found that the #1 privacy concern is data collection by hackers, not publishers. Guess who else knows this and stands to benefit from the death of the free content? Well … you know the answer.
So to recap: Apple knows that disabling IDFAs will kill ad models and force publishers to migrate to subscriptions for which Apple will collect 30%. Apple also knows this will require us to pay for content (such as Apple News+ at $9.99/month) that we fundamentally expect for free. Are you getting the picture yet?
When Steve Jobs introduced the iPhone in 2007, he proclaimed that this was “the Internet in your pocket,” and a transformational step for the growth of online publishing. I don’t recall his desiring to be a 21st century railroad baron. The decapitation of the IDFA threatens the viability of the open mobile web while imperiling the very ecosystem that made Apple’s devices so magical in the first place. Is this really the future Jobs envisioned in 2007?
I’m a longtime fan, customer, and shareholder of Apple. I admire Tim Cook and the company’s ethos. But we have to call this out for what it is. If Apple simply wants to offer more privacy protection, there are less subversive ways to do it. Intentional or not, Apple is using privacy as an excuse to stifle competition and harm consumers for its own benefit.
What else can we expect?
For starters, Google is likely to follow suit—quickly. Once Apple has transitioned apps to fee-generating subscription models, Google will be right behind it, with 2.8 million apps in the Google Play store.
We can also expect more lawsuits. Following Epic Games’ lawsuit against Apple, Google, and Samsung, more and more apps will file suit for anti-competitive practices.
Lastly, the government will have to intervene. While the FTC and DOJ have been very accommodating to date, the domino effect will require a federal response. For reference, the FTC prohibits conduct by a single firm that unreasonably restrains competition by creating or maintaining monopoly power. Specific examples might include:
Exclusive supply or purchase agreements:
IPhone/iPad app distribution and/or downloading can only occur via the App store. Violate terms and find yourself persona non grata across 800 million devices.
Tying arrangements:
Prohibiting mobile commerce outside the App ecosystem in which publishers must share revenue with Apple.
Lack of alternatives:
If you want to reach iPhones, you must pass through the App store. It’s the same for consumers seeking Apps.
Predatory pricing:
Is 30% reasonable? Go ask Fortnite.
Stay of execution
Last week, Apple announced it will postpone implementation of the anti-tracking feature until early 2021. It cited the fact that ad-supported developers and publishers were not yet prepared (quite the understatement). While this stay is helpful, it only delays the inevitable—unless we act.
Call to action
Now more than ever, the advertising, publishing, and developer communities must start working together on two critical fronts:
1. Communicate the exchange of value when we consume free ad-supported content.
Each time I visit a page or open an app, I should be informed that anonymous tracking enables the publisher to generate ad revenue to provide free content. By allowing the site to track me, I’m supporting their business. If I choose not to opt-in for tracking by (pick a date), I will have to subscribe to view the content. I should then be directed to a page that clearly and succinctly states what data is being tracked (e.g. anonymous or personal) and how it will and will not be used. Explain the tradeoffs and allow me to make an informed decision. It’s common sense.
2. Lobby Apple to change the language in its opt-in/opt-out prompt.
As currently written, users are going to opt-out of tracking in droves. But what if it read something like this, instead?
"This app relies on an anonymous identifier to provide relevant advertising that supports free content. You may opt-out now or in the future. Learn more: visit PalAbout/Privacy."
I believe Apple should prioritize helping users make informed decisions rather than scaring them down the path to paid content.
I’m hopeful that Apple will act in good faith and work with the industry to balance privacy with the interests of consumers, publishers, and advertisers. But it will not happen on its own. As they say, speak now or forever hold your peace. Because once this occurs, the damage will be hard to undo.
By Steve Latham, Global Head of Analytics
Originally published by Venture Beat
