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News Analysis 26 Apr 2021 - 6 min read

Australia's ad industry, and Facebook, fears $2.2bn impact from Apple's privacy push but winners emerge

By Brendan Coyne - Editor
Mobile advertising: is the end of tracking nigh?

When Apple users update to iOS 14.5 from this week, every app on their phone will require explicit permission to track. Pic: iStock

Apple's privacy changes, set to kick in as early as today via iOS14.5, have massive ramifications for brands, publishers, developers, ad tech and martech firms – and Apple's Big Tech rivals. In Australia some $2billion-plus of ad spend will be affected as addressable audiences shrink, tracking is vastly reduced and analytics upended. But in the new world order, there are also winners.

What you need to know:

  • Apple iOS update stops companies lifting and linking data via third party apps. Fingerprinting and all other forms of ID tracking are affected. Users are asked whether they give consent to track for every single app, with major impacts for audiences, targeting and attribution. 
  • Facebook perceived as biggest loser.
  • “We’re about to find out what Facebook refuses to admit. It’s a 21st century version of direct mail. Without your data, no advertiser would choose to run its ads adjacent to FB’s unmanaged, unpredictable user-generated content environments. They’ll still dominate but this hurts.” – Jason Kint, CEO, Digital Content Next
  • “Facebook will lose a tonne of revenue, Google will take a hit… But there will be winners too, notably anyone with massive first party datasets that don't rely on IDFA – such as the streaming services.” – Nick Barnett, former Westpac head of digital & media technology turned consultant.
  • Don’t bank on a workaround, and don’t bet on anything that claims to be a silver bullet ... Some major analytics vendors appear to be in Apple’s crosshairs.”– Joey Nguyen, Co-Founder, Venntifact
  • Very low [ad tracking] opt-in rates would not be surprising, given the increased awareness of user privacy in Australia.” – Shane Dewar, Vice President, Advertising Operations, APAC, Essence
  • "We expect the user opt-in rate for IDFA to be low and cross-app tracking to steadily decline, as a publisher with more than one app will need to require that the user opt-in more than once to be able to measure across the publisher’s apps using IDFA, doubling the required opt-in rate to achieve any success." – Steven Anthony, Senior Product Manager, Xandr
  • “We have not seen an increase in focus on Android inventory as yet, but the expectation is that this will occur.” Gai Le Roy, CEO, IAB Australia

Limiting factor

Australian marketers will lose tracking capabilities on about $2bn’s worth of digital ads this week, according to Westpac’s former director of digital & media technology turned independent advisor, Nick Barnett.

As changes to Apple’s operating system kick in and its ID for Advertisers (IDFA, a device identifier which enables targeting and measurement) can only be used for apps where users have explicitly opted to allow tracking, mobile advertising faces massive disruption.

Apple has about a 54% share of the Australian smartphone market. As early as today, and certainly by the end of the week, every app on every iPhone updated to iOS14.5 must ask users whether or not they wish to be tracked for advertising purposes. If people say no, they have opted out of IDFA. That means advertisers won’t be able to track them or target them in the same way they have been able to date – and the implications go way beyond apps.

Ad tech companies use IDFA for ad targeting and retargeting, frequency capping, campaign measurement and attribution as well as ad fraud detection.

Barnett said his $2.2bn annual figure is a conservative estimate, based on a 39% opt-in to tracking on Apple devices. Locally, the IAB expects lower acceptance, with Australian members to date reporting 20-35% opt-ins via tests. Earlier polls have suggested opt-in rates as low as 14%, and Shane Dewar, head of Apac ad operations for GroupM unit Essence, believes “very low opt-in rates would not be surprising, given the increased awareness of user privacy in Australia”.

The upshot is that Australia’s marketers will be reevaluating billions of dollars of spend – shaking up the ad industry as a result.

 

Take a tentative approach to mobile advertising spend. I would be doing user testing to see whether it’s turned to spray and pray.

Nick Barnett, independent digital marketing advisor

Winners, losers

“Facebook will lose a tonne of revenue directly and indirectly (from diminished data supplies), Google will take a hit, a bunch of ad tech, developer, publisher and mobile measurement companies will suffer and advertisers will need to adapt to some changes,” Barnett told Mi3.

“But there will be winners too – notably anyone with massive first party datasets that don't rely on IDFA – such as the streaming services.”

In the short term, Barnett predicts campaign effectiveness will drop, but CPM rates, or ad unit costs, will fall in tandem. Performance metrics around app download campaigns “will be the biggest struggle”, with app and gaming companies worst affected.

Facebook confirmed these effects in an email to FB ad partners. It states:

  • Audience sizes will decrease.
  • We may see increased impact to delivery and reporting resulting in performance fluctuations and increased CPAs.
  • 1-day click-through and 1-day view through attribution will be modelled.
  • 7-day click-through and 1-day view through attribution settings will no longer include iOS14.5 opted out events.
  • Attribution methodology will shift from Impression Time to Conversion Time.
  • More details here.

Barnett thinks non-mobile data sets will also be affected, especially Facebook audience networks. “Facebook is the worst hurt of all the major players. It won’t be able to do cross-publisher conversion tests, or self-serve holdout tests.”

Potential winners are “those advertisers that understand contextual and brand, with the right measurement approach,” said Barnett.

While many forms of attribution will take a big hit, “anyone who measures using best practice won't be flying blind – which shows the importance of Media Mix Models (MMM),” he added.

Until things settle down, Barnett advised advertisers to take a “tentative” approach to mobile ad spend. “I would also be doing user testing to see whether it’s turned to spray and pray.”

Ultimately, he said, advertisers “will need to get better at segmentation and positioning” and make the most of their first party data.

 

The clients we work with are asking us to make it really clear to their execs that a silver bullet solution is not here now, and it is not on the horizon – so that they are not held to the same expectations and metrics in the future.

Joey Nguyen, co-founder, Venntifact

Imminent impact

“Expect imminent impacts from IDFA depreciation,” warned Joey Nguyen, co-founder of marketing advisory Venntifact.

Brands who leverage IDFA today must make the decision whether to ask for opt-in,” said Nguyen, who thinks trust issues could arise as users are prompted to question why a brand, such as a bank, wants to follow them around and gather data on them.

“It’s also important to remember only half of the equation is under your control – the IDFA is only usable if both the advertiser and the publisher have been granted permission,” he said.

So even if a trusted bank has a high opt-in rate of 40%, this is likely diluted by a lower publisher opt-in rate, e.g. 20% for Facebook – and they may not be the same group of users. “Therefore the addressable opted-in audience could be far, far lower than that,” said Nguyen.

Some don’t think it’s worth the hassle. Google, for example, “have said they won’t be using the opt-in framework at all in their apps,” added Nguyen. “So expect impacts across install campaign measurement, retargeting, attribution, deep linking and more.”

 

Other forms of tracking are also covered by the terms of Apple’s User Privacy & Data Use policy – including name, email address, phone number and other customer identifiers. Some major analytics vendors appear to be in Apple’s crosshairs.

Joey Nguyen, co-founder, Venntifact

Beyond IDFA

While marketers have plenty to digest in all that, Nguyen underlined that the impact is “much, much bigger” than just IDFA.

“Other forms of tracking are also covered by the terms of Apple’s User Privacy & Data Use policy – including name, email address, phone number and other customer identifiers.” As such, he said, “some major analytics vendors also appear to be in Apple’s crosshairs”.

It’s not yet clear how Apple will enforce those terms, “but marketers should carefully review the policy with their legal teams and have a backup plan for the worst case scenario”.

Nguyen urges marketers to ensure they have visibility about what they are collecting and tracking, and strong governance in place to ensure accuracy going forward, “otherwise you risk App store rejection.”

Even where marketers have reconfigured tech stacks to remain compliant and wring the most out of Apple’s alternative aggregated attribution tool, SKAdNetwork, they should expect major changes, he warned.

“Even in a best case scenario, there will be big fluctuations, drops in audience sizes and a re-basing of performance as the world adapts to the new state of things.”

Agility required

Nguyen agrees with Barnett that ad tech vendors will take a hit. He says clients are not looking at how to weight the impact from Apple’s changes with email-based solutions, such as those from Adobe or LiveRamp for example, or probabilistic measurement, because of uncertainty about how they will be treated.

“We don't know how effective those things are going to be or how long they're going to last,” said Nguyen, pointing out that Apple states explicitly that any identifier built off email is in the firing line.

“And even if something is not in the crosshairs now, it could be in the future. So the only things that are guaranteed at this stage is what Apple is putting forward themselves.”

Given additional uncertainty over where Google will land post-cookies, Nguyen advises marketers not to put all their eggs in one basket.

“Set up your technology to be as agile as possible. You can test three or four things at once, whether it's [Google’s] FLoC, contextual targeting or a provider like the Unified I.D. to see what works for you – and also to provide options in case FloC ends up getting banned in Europe or whatever.”

Equally, he advises marketers to be frank with management about the new world order.

“The clients we work with are asking us to make it really clear to their execs that a silver bullet solution is not here now, and it is not on the horizon – so that they are not held to the same expectations and metrics in the future.”

 

CDP problems?

How Apple’s changes affect key martech such as customer data platforms, or CDPs, is also unclear.

“The answer depends on Apple's interpretation,” said Nguyen. “An email address can come into a CDP, which could then go into your internal data warehouse, which is completely fine. It could go into your email platform, which is completely fine. But it could also be used to send to Facebook as a retargeting segment. So, the question is how far will Apple go to enforce: if it's one hop removed, is that OK?

“The answer is we don't know. I've spoken with a couple of CDP vendors about it. They believe that they have the tools to allow customers to be compliant, which may be enough. But it starts to get into a real grey area.”

For now, however, Nguyen thinks analytics providers are at far more immediate risk than CDP providers.

 

We have not seen an increase in focus on Android inventory as yet, but the expectation is that this will occur.

Gai Le Roy, CEO, IAB

Android swing?

As brands fear potential ramifications, and reach and measurement suffers, advertisers may weight spend towards Android devices, according to the IAB.

“There has been some testing by different agencies and networks. We have not seen an increase in focus on Android inventory as yet, but the expectation is that this will occur,” said CEO Gai Le Roy.

The IAB is advising members to quickly update SDKs and to work closely with Apple’s SKAdNetwork framework, “as advertisers will have no other way to measure and to attribute installs.”

Meanwhile, although the IAB predicts IDFA-enabled traffic to drop in volume, Le Roy thinks diminished supply may ultimately command higher value and deliver higher yields to publishers and developers.

Apple’s turnover

That Apple is simultaneously ramping up a context-driven ads business is hardly coincidental. As well as “kneecapping” Facebook and kicking Google, Apple is giving itself a head start.

Should it continue to invest in an ad ecosystem and technology designed around privacy, rather than have to redesign legacy systems as the other big players must now do, it may yet become an advertising force, suggests Venntifact’s Joey Nguyen.

Whether Facebook and Google can tilt regulators' antitrust concerns towards Apple as a result remains to be seen – there are far richer pickings in Apple’s app store dominance.

But Apple may yet prove that Big Tech doesn’t have to become Big Brother to build an advertising business. Plus, if Apple is ultimately forced to open up its app store, an ad business where it doesn’t have to worry about privacy interventions could prove a timely hedge.

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Brendan Coyne

Editor

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