By Patience Haggin and Jeff Horwitz
Facebook Inc. said privacy changes in Apple Inc.'s latest
operating system would cripple its ability to place personalized
ads and deal a financial blow to app-makers, highlighting a
high-stakes clash between the tech titans over the rules of the
road in the mobile-internet economy.
Under Apple's changes, which will go into effect this fall in
its iOS14 operating system, Facebook and other companies that
facilitate online advertising will no longer be able to collect a
person's advertising identifier without the user's permission. Many
apps will begin asking users whether or not they want their
behavior on the web to be tracked for the purposes of personalized
ads.
Facebook fears many users will reject tracking, if given the
choice, affecting not only its business but also any app that uses
its services to sell ads, from game-makers to news publishers.
Facebook told app developers Wednesday the changes will affect its
"Audience Network" business, which facilitates ad sales in outside
apps.
Apple's move also will hit Google's AdMob unit, which
facilitates ad sales in apps, as well as several ad-technology
companies that rely on tracking iPhone users. Apple's ad
identifier, or IDFA, is a 32-character string of numbers widely
used in the digital ad and data-broker industries to match up
datasets that reveal where users go online, what they do and what
they buy.
An Apple spokesman said the company welcomed in-app advertising
and wasn't prohibiting tracking. Apple was simply requiring each
app to obtain users' explicit consent to track, the spokesman
said.
Facebook's announcement is another shot in the increasingly
contentious relationship between the two companies, whose different
business models have led to public sparring. Apple, which produces
devices sold worldwide, says it is standing up for user privacy,
and has criticized the data-collection operation that underlies
Facebook's advertising business. Facebook, meanwhile, prizes the
free flow of data that underpins digital marketing and has faulted
Apple for the exclusionary nature of its platform.
Apple's latest policy change adds more momentum to a big shift
in the internet world, as moves to enhance user privacy make it
harder to track what users are doing online. Google plans to block
the use of "cookies" -- snippets of code that help track users' web
behavior -- in its Chrome browser by 2022, following in the
footsteps of Apple's Safari. New privacy laws in the European Union
and California give users more control over ad tracking.
"Apple's policy change is accelerating a paradigm shift -- that
was already well under way -- towards consumers having rightful
ownership and control over their data," said Matt Littin,
co-founder and CEO of gaming company Lootcakes.
Facebook doesn't disclose the size of the Audience Network
business within its nearly $70 billion digital-ad empire. Before
the Covid-19 pandemic struck, ad-tech consulting firm Jounce Media
estimated Facebook Audience Network would bring in $3.4 billion in
2020. The Apple change could also affect Facebook's sale of ads on
its own properties, since apps that use Facebook code -- from
food-delivery apps to games -- send data back to the company.
"If advertising effectiveness suffers, it will limit the scale
of ad spend on Facebook in the future, consequently limiting
Facebook's growth, " said digital-ad consultant Ratko Vidakovic.
Still, Facebook is far better positioned to weather such
difficulties than other ad-industry players because of the vast
quantities of data it collects directly from users.
Facebook expects the impact from Apple's new consent
requirements will be significant enough that the company
acknowledged the changes on its July 30 earnings call. Facebook
said that it was continuing to ask Apple for guidance, and might
revisit the way it handles the advertising identifier if Apple
provides it. Facebook said Audience Network will continue to
operate on Apple devices using previous operating systems and those
made by other manufacturers.
Facebook said the changes would likely result in reduced
earnings for developers of apps "at an already difficult time for
businesses." That is because ads that can be targeted at users
based on data about their interests and online habits generally
bring in more revenue for publishers.
Some publishers have expressed concern that ad prices will fall
for iPhone users who don't agree to tracking. Facebook said in
preliminary testing it has seen a 50% drop in publisher revenue
when personalization was removed from advertising.
One major digital publisher is weighing options to help cope
with Apple's change, including requiring app users to provide their
email addresses or showing users a second prompt asking them to opt
into the tracking. Game publisher Activision Blizzard Inc.
acknowledged in an earnings call that the change would affect its
business, but didn't elaborate.
Others in the app world were more optimistic that app makers
could adapt. "A critical mass of consumers may be willing to share
data if companies provide explicit and sufficiently meaningful
benefits for them to do so," said Mr. Littin of Lootcakes.
In a survey by Tap Research Inc. 85% of respondents said if
given the choice they would ask apps not to track them.
Apple isn't a big player in online advertising, but it does have
its own small business that personalizes ads shown in the App Store
and on Apple News. The company is applying different rules for its
own ad-tracking; to opt out, users must find an option in the
iPhone's settings.
Apple Chief Executive Tim Cook has made privacy one of the
company's priorities in recent years, running advertisements based
on its intent to protect user data and refusing to comply with some
law-enforcement requests to unlock iPhones for high-profile
investigations.
Mr. Cook has also sought to turn a principle advocated by his
predecessor, Steve Jobs -- that "our customers are not our product"
-- into a business strategy. The company has gradually aimed to
increase customer awareness of the value of privacy with features
such as a sign-in option on apps that conceals personal information
and a browser update that reveals how sites track users.
"Our view of privacy started from our values, then we crafted a
business plan from that," Mr. Cook said during a Fortune conference
in 2018.
Apple critics have argued the company is limiting access to its
platform to restrict competition. Facebook earlier this month
joined those protesting Apple's 30% cut from transactions within
apps, saying in a product release that it asked for an exemption
but was refused.
Facebook at the time presented the issue as a benefit for small
businesses struggling during the pandemic.
Write to Patience Haggin at patience.haggin@wsj.com and Jeff
Horwitz at Jeff.Horwitz@wsj.com
(END) Dow Jones Newswires
August 26, 2020 19:11 ET (23:11 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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