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Oct. 18, 2021, 8:46 a.m.

Apple is becoming a bigger player in digital advertising, risking antitrust action and its image

Kneecapping Facebook and adtech companies in the name of privacy just happens to have tripled a key part of Apple’s ad business.

By this point, I would hope that we’re all properly cynical enough to take Google and Facebook’s philosophical statements about digital advertising with a grain of salt. (Or maybe an entire mine’s worth of it.)

“We don’t allow ads to be displayed on our results pages unless they are relevant where they are shown.” Oh, really? “When ads are highly relevant they’re not only more effective for businesses but they’re also more valuable to the people who see them.” Hmm, you sure?

That’s not to say that there aren’t plenty of people who work at those companies who have users’ best interests at heart. But when you make 80.5% (Google) or 97.9% (Facebook) of your revenue from selling ads, any corporate ode to “protecting privacy” or “time well spent” is going to be mediated, somehow, by the almighty dollar.

For years, Apple’s thought different. After all, it made the vast majority of its billions selling beautiful objects for your pocket and your desk, not selling ad slots to the highest bidder. Its flashiest endeavor in the ads business was a half-hearted flop. It was happy to let you install an ad blocker on your iPhone when Google was waffling about Android. And it’s used its brand-friendly focus on privacy to send dagger after dagger at the adtech industry, wrecking analytics and limiting targeting.

To think Apple’s choices were less tainted by Advertising Mammon than Googbook’s didn’t require you to believe it was somehow a better or more moral company. It just recognized that Apple’s business model aligned more with kneecapping advertising than with embracing it. It’s a strategy credit.

But…here’s one data point that suggests that view might need revising. From Patrick McGee in the Financial Times:

Apple’s advertising business has more than tripled its market share in the six months after it introduced privacy changes to iPhones that obstructed rivals, including Facebook, from targeting ads at consumers.

The in-house business, called Search Ads, offers sponsored slots in the App Store that appear above search results. Users who search for “Snapchat”, for example, might see TikTok as the first result on their screen.

Branch, which measures the effectiveness of mobile marketing, said Apple’s in-house business is now responsible for 58 per cent of all iPhone app downloads that result from clicking on an advert. A year ago, its share was 17 per cent.

“It’s like Apple Search Ads has gone from playing in the minor leagues to winning the World Series in the span of half a year,” said Alex Bauer, head of product marketing at Branch.

First announced a year ago and launched in April, Apple’s new privacy policy made each app on your iPhone ask you if you’re okay with being tracked across apps for ad-targeting purposes. (Until then, apps could just take your permission for granted.) Users overwhelmingly said yeah it’s gonna be a no from me, dawg, which made ad targeting for iOS users significantly less effective, even for giants like Facebook.

But who still has lots of data to use for ad targeting? Apple.

Well, it has lots of data useful for one specific kind of ad targeting: what apps you’ve downloaded in the past, and what app you’re searching for in the App Store right now. That’s not particularly useful if you’re a local dry cleaner or a political campaign — but it sure is great for targeting an ad for an app in the App Store. And those app-install ads are a big business, especially for Facebook.

So this is a case where Apple’s push for privacy has a direct connection to making money, not just a bank-shot improve-the-brand one. And advertising could become a big business for Apple, the kind that even a company that rich would notice:

The market for app advertising is large and fast-growing. AppsFlyer, another analysis company, estimates that marketing spending on mobile apps for both iPhones and Android phones was $58bn in 2019 and would double to $118bn by next year.

Apple, meanwhile, is likely to earn $5bn from its advertising business this fiscal year, and $20bn-a-year within three years, said researchers at Evercore ISI, who said Apple’s privacy push had “significantly altered the landscape.”

Apple has pulled in $347.1 billion in its last four quarters, so $20 billion a year would be meaningful, if not earth-shattering. To put it in context, over those four quarters, Mac sales have generated $35 billion for Apple, while iPads have pulled in $30.4 billion.

A $20 billion ad business could also make Apple a pretty decent 4th place in the (ex-China) digital ad rankings — still way behind Google and Facebook, but perhaps near the ballpark of Amazon, which will make an estimated $25 billion in U.S. ad revenue this year and is growing fast. (I’ve been coming to grips with someday having to update the Duopoly into a Triopoly, but Quadropoly is a bridge too far.)

A bigger Apple ad business would also be good for Apple News publishers, since ad revenue there has been bad to mediocre.

This sort of growth would be good for Apple shareholders, of course. And of all the varieties of ad targeting, “You downloaded Clash of Clans, you might also like Burrito Bison: Launcha Libre” is pretty low on the offensiveness scale. (Unless the Burrito Bison is plotting a run in 2024, it’s unlikely to actively harm democracy.)

But there are two potential downsides for Apple, too. This sort of move — a powerful company making a change that just happens to cripple its competitors but rakes in billions for itself — is precisely the sort of thing that makes antitrust regulators salivate. And it would likely mean Apple losing whatever small benefit of the doubt it has earned over the years when it comes to the ad business.

POSTED     Oct. 18, 2021, 8:46 a.m.
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