Facebook is one of the two most dominant companies in an $80 billion industry that impacts hundreds of billions of dollars, if not trillions, in consumer spend. But a huge percentage of that revenue is now at risk, thanks to an obscure privacy move by Apple at the company’s World Wide Developer Conference in June.
Deprecating a mobile device identifier called the IDFA.
It’s a super-geeky term in a super-geeky industry: mobile advertising. But it represents a sea change in how advertisers and ad networks target ads to consumers. Good targeting leads to relevant advertising and high returns for both the advertiser and the ad network.
Poor targeting? It’s literally worth 50% less by Facebook’s own numbers.
The IDFA is the Identifier for Advertisers, and in every existing version of Apple mobile operating system for iPhones and iPads, it’s visible to ad networks and mobile advertisers. Unless consumers opt out in a little-seen out-of-the-way setting, which only about 30% of iPhone users have bothered to turn off.
Facebook uses the IDFA — and the Android equivalent from Google, GAID — to accumulate data on what billions of people do in apps. Facebook then uses that data to target app install ads (ads that are aimed at getting you to install a new app or game). Because they have so much data via the IDFA, Facebook is likely to be able to find the people who are most likely to install the app and do specific things inside it.
Like register. Or buy something. Or complete a level in a game.
Here’s how Facebook describes the technology, called App Event Optimization:
“Using AEO, you could optimize your ads for an app event such as Achieve Level, so your ads would be shown to people who were likely to download your app and also achieve a new level within the game. You could also optimize for in-app purchases using the Purchase app event in AEO.”
At World Wide Developer Conference in June, Apple changed how the IDFA is set.
Rather than a global setting for all apps, buried somewhere in an iPhone’s settings, the IDFA will now be set for each app individually.
It will be set by active, required choice by consumers for each app they install, much like GDPR permissions on websites today, and people will choose whether to allow or deny permission to “track you across apps and websites owned by other companies.” Most mobile experts think this will get a 0-20% adoption rate. The high end of that range is probably generous.
The immediate result: tracking what people do in apps will become a lot harder. Probably, in fact, illegal, and likely impossible.
That’s what puts the first few billions of Facebook ad revenue at risk.
Mobile app installs is close to an $80 billion business in 2020, and estimated to hit almost $120 billion within two years. Facebook and Google own about half of the global digital ad industry in general, and are also the two most dominant players in mobile app installs, perennially featuring in the first or second place in industry charts for best performance.
Now here’s where it gets interesting.
As mobile expert Eric Seufert noted today, Facebook published a white paper just a month ago — shortly before Apple’s conference — that says personalized ads are twice as effective as non-personalized:
“We ran a test that constrained delivery to just mobile app install ads for a small portion of Audience Network Traffic, then compared personalized ranking to non-personalized ranking,” the white paper says. “We observed more than a 50% drop in publisher revenue between these two treatments, with no changes made to targeting.”
A 50% drop in return on ad spend might just mean a 50% drop in ad prices you’d be willing to pay.
Less sophisticated targeting could easily mean less valuable advertising.
And the IDFA was just the first shoe to drop.
Seufert says that Google is likely to follow suit “within six months,” which would follow a trend. Apple created the IDFA to increase privacy and decrease use of hard-coded unchangeable device identifiers; Google followed suit. Apple killed the third-party cookie on the web with Intelligent Tracking Prevention; Google is following suit with Chrome.
If Google continues the trend and makes GAID opt-in in a similar way (basically designed to guide consumers to opting-out), that’s when the other shoe drops. Then Facebook’s not just out of luck on Apple mobile platforms; it also loses sophisticated tracking capability on Android as well.
That’s additional billions at risk.
Facebook has its software development kit in hundreds of thousands of apps, as I’ve mentioned before. The company could try to use that data source to aid in ad targeting. But it would be tough, because it’s not a given, standard, always-available option. And because based on what I’ve heard via those who have talked to Apple, that would violate a users’ don’t-track-me choice.
Interestingly, killing the GAID would harm Google’s advertising capabilities as well. But as the Android platform owner, Google is more likely to be able to come up with a solution that enables its own ad tracking while harming Facebook’s. Or, at minimum, harms itself less.
(At least, if it’s willing to take the antitrust heat on both sides of the Atlantic.)
This isn’t the first challenge ad networks have faced in targeting. The vast majority of ads used to be delivered with contextual targeting: getting a Wall Street Journal audience in the WSJ, for example. Only with tracking technologies like third-party cookies on the web and IDFA/GAID on mobile were ad networks able to assemble WSJ audiences off-platform, in Candy Crush or on The Enquirer, for instance.
That saved advertisers a lot of money, because ads on the WSJ are more expensive than ads in Candy Crush. But it also cost premium publishers a lot of money. And it cost consumer privacy by requiring tracking technologies.
GDPR, California’s Consumer Privacy Act, a general consumer feeling that tracking has gone too far, and now Apple’s disabling of the IDFA are likely returning us from tracking to more of a contextual model of advertising
And that threatens Facebook revenue, at least in the short term:
“Over the long term, I believe that Facebook will find a path to its current level of ad serving efficiency without needing advertising identifiers,” says Seufert. “But the content of its own white paper underscores very clearly how important personalization is for ad targeting, and IDFA deprecation damages Facebook’s ability to deliver that kind of personalization.”
About $10 billion in Facebook revenue might be at risk in the short term. If its ads lose relevance and therefore return poorly on advertisers’ investments, that $10 billion could turn into $5 billion pretty quickly.
Unless there’s no better game in town, or Facebook finds a way to make contextual targeting as powerful as tracking.
Feature Image Credit: PHOTO BY BAREFOOT COMMUNICATIONS ON UNSPLASH
I forecast and analyze trends affecting the mobile ecosystem. I’ve been a journalist, analyst, and corporate executive, and have chronicled the rise of the mobile economy. I built the VB Insight research team at VentureBeat and managed teams creating software for partners like Intel and Disney. In addition, I’ve led technical teams, built social sites and mobile apps, and consulted on mobile, social, and IoT. In 2014, I was named to Folio’s top 100 of the media industry’s “most innovative entrepreneurs and market shaker-uppers.” I live in Vancouver, Canada with my family, where I coach baseball and hockey, though not at the same time