By Christopher Mims
If Apple is King Kong and Facebook is Godzilla, mom-and-pop
online merchants are worried they're the screaming, scattering
citizens who are about to get stomped as these two giants battle it
out.
What's at issue is a seemingly small change to the iPhone and
iPad operating system that upends the past decade of the online ad
industry, by prompting users to choose whether or not they'd like
to be tracked by the apps they use.
Apple Chief Executive Tim Cook says the iOS update, currently
rolling out, is about respecting user privacy. Facebook CEO Mark
Zuckerberg has accused Apple and Mr. Cook of a power grab, an
attempt to take control of data that has long been widely available
to advertisers and data brokers. Facebook launched an ad campaign
insisting that those who will be most hurt by Apple's changes are
small and medium-size businesses, which represent the majority of
the social network's more than 10 million advertisers.
Anything Facebook says about the virtues of it having unfettered
access to our data should be greeted with an appropriate level of
skepticism. But, according to small-business owners who advertise
heavily online, and the agencies that help them, Facebook is
speaking truth about how Apple's shift might disproportionately
affect them. What's more, the privacy-minded ad tools the iPhone
maker is offering instead likely won't provide the same clear view
of target customers.
It's possible that businesses will end up having fewer insights
into their ad spending -- and paying more for less-effective
advertising. Whether this change is enough to harm a business
depends on its size, maturity and what sort of goods it sells.
The Data Behind the Online Ads
Online advertising is built around data. For many years,
merchants, through their own sites, and platforms like Facebook,
through their apps, have tracked users, matching them via email
addresses, phone numbers and their phones' unique advertising
identifiers. A retailer can verify that a person who saw its ad,
wherever it appeared, is the same person who later made a purchase
-- even if they hit "buy" on a different app or device than where
they saw the ad.
This has provided advertisers with the ability to spend a small
amount of money targeting a very specific audience on Facebook or
Instagram, and tweaking their targeting and ads repeatedly to find
the most receptive audience, almost in real-time. This system has
also allowed Facebook to demonstrate how effective its ads are,
yielding a record $84 billion in advertising revenue for the
company in 2020.
With Apple's change in user tracking via apps, this flood of
data about users could become a trickle.
When presented with the pop-up question, " Allow this app to
track your activity?" many iPhone users will choose no. Changes
Facebook has already made to its internal advertising systems, some
in anticipation of Apple's new rules, have already led to a coarser
picture of who responds to ads, says Gracie Foxwell, co-founder of
Foxwell Digital, which advises businesses on their online
advertising.
"Apple's privacy changes are well-intentioned, but they do hurt
small businesses in a real, tangible way, making it much more
confusing for business owners to navigate and stay abreast of
rapidly changing rules," says Ms. Foxwell.
Advertisers can still track purchases, and they still have a
limited view of what happened before that purchase, because they
will have, among other things, statistical inferences from Facebook
about what ads users interacted with. Advertisers could also still
access anonymized user data collected on devices other than the
iPhone or iPad, such as a laptop running Chrome. (This, too, may
change in the next two years, as Google makes its own moves to
increase privacy and change how advertisers can track
customers.)
The Impact on Small Businesses
Before, even the smallest business could throw as little as a
hundred bucks at a tiny ad campaign on Facebook or Instagram, and
get detailed and immediate feedback. Now they will have to spend
substantially more -- thousands of dollars at least -- to show
their ads to a larger audience, because the targeting will be less
precise, says Christian Lovrecich, founder of PixlFeed Media, an
e-commerce marketing agency.
Much of this targeting is driven by Facebook's "look-alike
audiences" feature, a complicated algorithm that uses artificial
intelligence to generate a pool of people who resemble, in ways
that affect how they're likely to spend, an existing pool of
customers or prospects provided by a merchant. For example, a
merchant that already has a mailing list of customers for its adult
onesies can feed that to Facebook, and Facebook's algorithm will
allow them to find yet more fully grown humans who are likely to
wear children's pajamas. These could be obvious similarities, like
age, and not so obvious, such as having a job in an industry that
allows working from home. The more data Facebook can feed this
algorithm, the more correlations it can look for.
This situation highlights a fundamental trade-off between two
countervailing trends in technology as a whole: consumers' desire
for privacy and their desire for experiences tailored just to
them.
"I'm not in the camp that privacy doesn't matter, but data has
been used forever in order to personalize advertising," says John
Merris, CEO of Solo Stove, a startup that sells backyard fire pits
online. "The question is, where is the right place to draw the
line? And why is Apple now the decider?"
Mr. Merris's company splits its digital ad spend among
Facebook's properties, Google, and a grab bag of smaller platforms,
including Pinterest, Reddit and podcasts. Mr. Merris has prepared
for the impending changes by hiring engineers to build a system to
track ads, aggregate available data and look for correlations. It
behaves much like Facebook's ad system, but works across all the
places Solo Stove buys ads. "It was a huge undertaking, a huge
investment," says Mr. Merris.
Apple's influence on the U.S. digital advertising industry is a
product of its dominance in mobile devices. Apple has 60% of the
share of all mobile devices in use in the U.S., according to web
analytics company Statcounter. People who use iPhones and iPads are
also more valuable to marketers, because they tend to have higher
incomes and spend more online.
Mr. Cook has expressed exasperation over the ad-tracking debate
that arose with Apple's decision to prompt users. In a recent
podcast, he said he was "shocked that there's been a pushback on
this to this degree." He also called arguments against Apple's
moves, such as those made by Facebook, "flimsy."
Facebook, for its part, presents small-business owners such as
Hrag Kalebjian, proprietor of Henry's House of Coffee, a San
Francisco-based coffee shop that also sells roasted beans online.
Mr. Kalebjian says he earns $3 for every $1 he spends on Facebook,
and that it has been enough to make up for the revenue lost when
the pandemic forced him to close his shop. He says he's worried
that after Apple updates its mobile operating system, the money he
spends on advertising on Facebook won't lead to as many sales.
'Users Should Have the Choice'
Apple isn't entirely deaf to advertisers' concerns. "We firmly
support advertising, we simply believe users should have the choice
over the data that is being collected about them and how it's
used," says an Apple spokesman. "Apps and advertisers can continue
to track users across apps and websites as before -- App Tracking
Transparency in iOS 14 simply requires that they ask for users'
permission before sharing their data with other companies," he
adds.
Apple is also rolling out its own alternatives to the
traditional ad-tracking identifier. They allow advertisers to
figure out if an ad campaign is working -- a process called
"attribution" -- while protecting the privacy of the user. Since
Apple does the processing required for these technologies on your
device instead of in the cloud, they inherently limit what data can
be sent to data brokers and companies like Facebook.
However, the ad consultants I talked to said these tools would
require advertisers to change their processes, and probably
wouldn't result in the same sharpness of targeting. My colleagues
have reported that some big advertisers, such as Procter &
Gamble, are exploring such alternative tactics as "device
fingerprinting," a tracking workaround that Apple frowns upon.
"Even though in the short term this is probably not a great
thing for small and medium-size businesses, in the long term it's
probably for the best," says Solo Stove's Mr. Merris. He expects
innovators to find ways to build "wonderful personalized
experiences that generate good return on investment, while getting
around some of these hotter topics like data collection."
Write to Christopher Mims at christopher.mims@wsj.com
(END) Dow Jones Newswires
April 10, 2021 00:14 ET (04:14 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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