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News Analysis 5 May 2021 - 4 min read

‘Help keep us free of charge’: Industry dismisses Facebook’s 'empty threat' as iOS tracking fallout continues

By Sam Buckingham-Jones - Senior Writer

Facebook reported $US84.2 billion in advertising revenue in 2020, up 21 per cent from the $US69.7bn it reported in 2019.

While Facebook delivered on its ultimatum to shut down news, industry figures say its implicit threat to replace free, ad-funded services with a paid model in response to Apple's iOS tracking changes is "ridiculous" – given Facebook takes north of $80bn in ad revenue. Meanwhile, as Australia's opt-in percentages struggle to reach double digits, some publishers and brands are holding out for higher public acceptance of tracking over the next few weeks. 

What you need to know:

  • Facebook says users should opt-in to tracking across iOS devices because personalised ads keeps its platforms free.
  • Sam Kelly, CSO at Hello Social, said the notion of Facebook or Instagram going paid is “ridiculous”.
  • If adding consent to the process breaks a company’s business model, it shows the business model was based on a relationship users didn’t want, per Chris Cooper, Executive Director, Reset Australia.
  • Suzie Shaw, Managing Director at We Are Social, predicts one in four people are likely to allow tracking on social apps.
  • Facebook claimed its prompt is simply to help inform readers that personalised ads help keep the internet free.
  • Australia's marketing industry is bracing for significant impacts to addressable audiences, advertising effectiveness and reporting as a result of Apple's changes.

If their numbers are big, they have something to sell. I can’t see Facebook or Instagram doing it, it sounds ridiculous to me.

Sam Kelly, CSO at Hello Social

The pitch

Facebook and Instagram have raised the spectre of making people pay to use its platforms if they do not allow the data giant to keep tracking them across the digital universe.

In notifications to all users now required under Apple's iOS14.5 update, both Facebook and Instagram are urging users to allow tracking across iOS apps and websites to help keep its platforms “free of charge”.

Industry, however, is deeply skeptical the platform would do anything to compromise its hugely lucrative ad business. 

Facebook reported $US84.2 billion in advertising revenue in 2020, up 21 per cent from the $US69.7bn it reported in 2019.

Whether Apple's changes will make much of a dent in those figures remains to be seen. But the ad industry predicts only a 20-25 per cent of Apple users will allow Facebook to track them. Facebook has told advertisers this will have a material impact on addressable audiences and attribution, while advertising costs will increase.

Free, ad-supported services have been essential to the growth and vitality of the internet, but Apple is trying to re-write the rules in a way that benefits them and holds back everyone else.

Facebook spokesperson

'No threat'

The social media giant claimed its notification is not a threat, but merely a prompt to help inform Facebook and Instagram app users that personalised ads "help keep the internet and Facebook free".  

While in 2019 Facebook changed the slogan on its homepage from stating “It’s free and always will be” to “It’s quick and easy”, Australia's ad industry thinks the platform is highly unlikely to make people pay to use the platform if they do not allow it to track them outside of its apps.

“Facebook has been known to come out with these broad sweeping threats,” Sam Kelly, Chief Strategy Officer at digital media agency Hello Social, said.

“And with the publishing side, they followed through. In this instance, I don’t think they would. If their numbers are big, they have something to sell. I can’t see Facebook or Instagram doing it, it sounds ridiculous to me.”

Worldwide tracking opt-In rates to Apple’s new App Tracking Transparency (ATT) policy via iOS14.5 are just 11 per cent, according to Verizon-owned analytics firm Flurry.

In Australia, media agencies are reporting slightly lower opt-in rates of 9-10 per cent in the week following Apple's update. In the medium term, one major ad holding group said it expects opt-in rates to remain below 20 per cent. The IAB has stated that members testing opt-in prompts prior to Apple's changes reported 20-35 per cent success rates.

The new iOS privacy measures are sure to take a bite out of Facebook’s revenue, especially given it limits retargeting capabilities. However, while Facebook will no longer track a portion of users across other sites and apps, it will still record users' behaviours within its own ecosystem.

Suzie Shaw, Managing Director of We Are Social

Still boss

“Facebook are the masters of the empty threat,” said Chris Cooper, Executive Director at Reset Australia, a not for profit that works to counter digital threats to democracy.

“No doubt Facebook would have done polling to understand whether their business model is viable as a subscription.

“To say you could shift the model to get users to pay is a completely empty threat.”

Suzie Shaw, Managing Director of We Are Social, said research shows one in three iOS users are likely to opt-in to ATT, "however, the ratio goes does go down to one in four when it comes to social apps,” she said.

“The new iOS privacy measures are sure to take a bite out of Facebook’s revenue, especially given it limits retargeting capabilities. However, while Facebook will no longer track a portion of users across other sites and apps, it will still record users' behaviours within its own ecosystem, which includes the top four apps (Facebook, WhatsApp, Messenger and Instagram) by monthly active users in Australia.”

“It's fair to assume that smart brands will continue to invest on the platform to reach their audience,” she added.

“This change might also push Facebook to expand its on-platform shopping offerings even further, supporting those businesses, large and small, that are ready to go harder into social shopping. 

“All things considered ... I doubt Facebook will switch to a subscription model.”

Facebook's form

Facebook delivered on its threat to pull news from its platform after protesting the government’s media bargaining laws. It reversed the ban a few days later after a backlash from small businesses, public services and charities that also had their content blocked as Facebook's algorithm struggled to determine what was, and what was not news.

Google also threatened to remove its search engine from Australia in voicing its opposition to the same laws, saying the News Media Bargaining Code would mean “breaking the free and open web for everyone”.  

However, both parties accepted the code after government ceded ground – allowing both sides to claim a win.

But this time Apple is the opposite number - and Facebook blasting its iOS changes as self-serving rather than an altruistic push to respect people's privacy.

“This is about the future of the free internet," said a Facebook spokesperson. "Free, ad-supported services have been essential to the growth and vitality of the internet, but Apple is trying to re-write the rules in a way that benefits them and holds back everyone else.” 

Facebook are the masters of the empty threat... No doubt Facebook would have done polling to understand whether their business model is viable as a subscription.

Chris Cooper, Executive Director of Reset Australia

Privacy push

Privacy advocates have welcomed the changes. Reset Australia's Chris Cooper said any change that reins-in the extractive data practices of Facebook and Google is a good thing.

“It’s giving more control to people – you can still opt-in to have them track you.

“If this breaks the business model, it proves the model was predicated on them having a relationship with users that users didn’t want.

“We have sleep walked into this relationship with the internet that is one of ‘free’ services, [but ended up with] surveillance, and I think that can’t be the only way the internet can operate… We need to challenge ourselves to break free of that.”

Waiting game

Those who can wait before asking for ATT permission may benefit, one US expert said. Rick Webb, Chief Operating Officer of an app called Timehop, told Adexchanger his experience from the rollout of GDPR in Europe suggests users grow more accustomed to tracking prompts over time,.

“When we launched [for] GDPR, we made the catastrophic mistake of launching early,” he said.

“We suffered for it. We were the first prompt a lot of our users saw. The reason everybody waits until the same day is it happens to everyone, people get inured to it.”

We have sleep walked into this relationship with the internet that is one of ‘free’ services, [but ended up with] surveillance, and I think that can’t be the only way the internet can operate… We need to challenge ourselves to break free of that

Chris Cooper, Executive Director of Reset Australia

Effects unknown

The ad industry can only wait to understand the full impacts on their campaigns.

Many brands use Facebook pixels – pieces of code that are placed on websites that allow them to track conversions from Facebook ads and build targeted audiences. Apple's changes make those pixels accessed on iOS devices far less potent sources of high-quality data.   

The platform has been on the front foot with its communications with partners and businesses, said Hello Social's Sam Kelly.

“Facebook is quite proactive on things that affect its revenue,” Kelly said, but noted the platform’s “support times have blown out”.

“It has caused quite a bit of concern for brands operating on the platform.

“People who’re quite well educated understand what this means. They are trying to personalise ads, not sell [data] to the Chinese government. But my sense-check is my mother. What would she do? She would say, ‘I don’t want to be tracked’. So 80-90 per cent feels like a more accurate figure for opt-outs.”

Shaw pointed out that while it’s still unclear how Google will settle on a post-cookie solution, Apple’s current changes will ultimately only affect 54 per cent of mobile web traffic in Australia - with some people opting-in.

Facebook's response

Mi-3 asked three questions of Facebook and Instagram:

  • whether this prompt represented a serious or empty threat to become a paid platform.
  • what proportion of users had "opted-in" so far.
  • what Apple is doing more broadly with this update.  

A Facebook spokesperson declined to disclose how many Facebook users have opted-in. Below is its response in full:

We’re launching this prompt to help inform readers that personalised ads help keep the internet and Facebook free. At Facebook we use data to provide personalised ads on our platforms, which support small businesses and help keep apps free of charge. As Apple has said that providing additional context is allowed, we are showing an educational screen before presenting Apple’s prompt to help people make an informed decision about how their information is used.

"It provides more details about how we use data for personalised ads, as well as the ways we limit the use of activity other apps and websites send us if people don’t turn on this device setting. Our screen also lets people know that they’re seeing Apple’s prompt due to Apple’s requirements for iOS 14.5.

"We feel that people deserve the additional context, and further information is available in our blog post.

“This is about the future of the free internet. Free, ad-supported services have been essential to the growth and vitality of the internet, but Apple is trying to re-write the rules in a way that benefits them and holds back everyone else.” 

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Sam Buckingham-Jones

Senior Writer

Market Voice

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