This is how Apple’s tracking protection affects Facebook & Co.

With a relatively simple change in the rules of the game, Apple has turned the industry’s business model upside down in parts. While the tech companies used to be able to understand without any problems which click their users made in another app through the lively data exchange between app and smartphone, this is only possible according to the new rule (“App Tracking Transparency”, ATT for short) possible if the users agree in advance.

But the willingness of most iPhone owners is apparently low. According to industry estimates, on average only around one in five users of an app gives permission to access the usage data of other apps. For Facebook, Snap & Co., this means that it is much more difficult for them to measure how well individual campaigns are working – and in some cases also less able to assess which products a user may be interested in in the future.

For Apple, on the other hand, it looks very different. At the same time as the tracking change, the group expanded its Search Ads advertising offering. With this, companies can buy placements at the top of the search results in the app store. The offer is used more by advertisers because the tracking change makes it more difficult to reach iPhone customers. And they represent a lucrative target group.

According to the investment bank Evercore, Apple will earn five billion dollars with Search Ads this year, with sales expected to rise to 20 billion dollars by 2024.

Facebook and Snap, on the other hand, have been hit hard. Lotame indicates a loss of sales of 13.2 percent for each. Youtube and Twitter were hit less severely, but still significantly, with a loss of 7.7 and 7.4 percent respectively. The dips are different because the platforms use the app data to different degrees. On the other hand, they also serve different customer segments.

Advertisers suffer too

This not only affects the advertising platforms themselves, but ultimately also the advertisers. For example, the Apple update in some segments meant that business almost came to a standstill, says Gartner analyst Eric Schmitt, who advises the marketer. “Above all, those companies whose business is based on impulse buying have felt the effects.” Likewise, game and app developers who sell their software primarily through ads.

In both cases, success depends primarily on the fact that the advertising is targeted precisely to the target group. But if Facebook’s algorithm does not know, for example, whether a certain game is already installed, the group can exclude less promising users from campaigns, even with less accuracy. As a result, customers also achieve poorer results or pay more for their ads – as the example of Rawskill from Frankfurt shows.

Robert Naftaliev and his co-founders have developed an app in which users can play FIFA soccer tournaments against each other. Rawskill raises funds to fund the company and prize money through sponsorships, in-app ads, and sometimes entry fees. Young mobile game companies like Rawskill win almost every new customer through internet advertising. More precisely: by showing ads on platforms that address their target group exactly.

Higher costs, less success

“Apple’s tracking restrictions make it harder for companies like us to get to users and reanimate them,” says Robert Naftaliev, whose user base is said to include more than 22,000 players. Facebook’s strength has always been that, after a kind of test run of an ad campaign over 24 to 48 hours, it was able to say very precisely which users clicked on a particular ad.

Because Facebook can no longer ascertain exactly which apps users have installed on their smartphones, what they are still doing on this device and how much money they spend online, fewer reactions are now achieved with the same number of displayed ads. Naftaliev estimates that his company has to spend around 20 percent more per interaction, i.e. per downloading the app or participating in a game again.

Whereas a new participant in the game used to cost the company two euros, today it is 2.40 euros. “The more specific your target group and the lower the budget, the more inefficient Facebook advertising has become,” says the founder. In other words, if a food delivery company can display advertisements to thousands of users for a lot of money, the order rate is significantly higher than if a company can pay a hundred advertisements for soccer mobile games.

Apple’s own ad business is growing

While the business of competitors is suffering, the advertising platform in Apple’s app store, Search Ads, which is exempt from the ATT rule, is enjoying growing importance: In just one year, the proportion of apps installed via this channel has increased The Financial Times recently reported that it almost tripled from 17 to 58 percent.

At the moment, it doesn’t look like the major ad platforms will be able to counter the new rule in the short term. For example, Facebook manager Sheryl Sandberg has already prepared investors and analysts for the fact that it may take a few quarters before the group can tap into comparable data sources. The group has also spoken out in favor of a uniform industry solution for the problem on several occasions. However, that is not in sight.

One reason for this is that Google, as the largest player, not only has several ad channels, but also has the most widespread smartphone operating system in the world with Android. The consequences for the parent company Alphabet as a whole were correspondingly small: with sales of 52.6 billion US dollars, the group’s advertising business even slightly exceeded the expectations of most analysts.

The market is divided

Gartner analyst Schmitt also estimates the chances of a cross-industry initiative for the secure exchange of user data to be rather low. “Rather, it looks as if several networks that work independently of one another will emerge and divide the big ones among themselves,” is his vague prognosis. Companies like Apple or Google, which as developers have direct access to the operating system, have an advantage.

Meanwhile, Facebook is trying to encourage its customers not only to advertise via the social network, but also to sell there via their own shop. Like Apple with its app store, the company gets unfiltered access to the data that is generated during the purchase process. The algorithm can track exactly which user makes a purchase decision in which context – and optimize itself accordingly.

Another corporation that is doing well with this model is online retailer Amazon, whose advertising revenue grew 50 percent year-on-year to $ 8 billion in the past quarter. In an industry comparison, the group is now in third place behind Google and Facebook, which, with their various platforms, divide up around half of the digital advertising market among themselves.

But if sales and advertising channels should grow closer together, this also means that advertisers may have to think more in terms of double structures in the future – for example, operate and maintain several e-commerce shops on different platforms such as Facebook and Amazon in order to be able to compare each channel Achieve tracking results.

For many software companies like Robert Naftaliev’s, that wouldn’t be of much help. Because as app developers, you ultimately remain dependent on the rules of the operating systems and app stores of the smartphone manufacturers. In the case of Apple, this means: the willingness of users to give ad platforms permission for tracking.

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