How A Small Change In Apple iPhone’s Privacy Feature Is Threatening Business Model Of Social Media Companies

Last year, technology giant Apple changed how iOS, its mobile operating system that powers the iPhone, handled users’ privacy preferences. It introduced a new privacy feature—App Tracking Transparency (ATT)—which makes it harder for app-makers and advertisers to track user behaviour. While this may have helped Apple take its “pro-privacy” stand further—much before ATT, Apple had LAT (Limit Ad Tracking) feature in 2016—social media platforms like Facebook, Twitter, TikTok, and others are losing revenue due to the stronger privacy wall that curtails their ability to collect data on users for personalised advertising.   

Targeted ads are a big source of revenue for social media platforms. The feature, first introduced in iOS 14.5, directly affected this business model. ATT makes it tough for them to target users with personalised ads. Facebook’s parent company Meta earlier this year said Apple’s new privacy feature will decrease the social media company’s sales in 2022 by about $10 billion. Companies including Snapchat and Twitter, which also depend on advertisements, acknowledged that the change will likely impact their business.  

According to Flurry Analytics, only 4 per cent of iPhone users in the US and 12 per cent worldwide agreed to app-tracking last year. Since advertisers found it tough to target users, they started cutting back on their expenses, which meant loss of business for the big tech companies.  

As per a Financial Times report, Snap, Facebook, Twitter and YouTube saw a revenue loss of an estimated $9.85 billion since Apple’s changes. Snap fared the worst as a percentage of its business because of its focus on smartphones, while Facebook lost the most in absolute terms because of its size.  

The revenue fall has hit the Metaverse hard. On Wednesday, Meta sacked around 11,000 employees, nearly 13% of its staff globally. It also extended the freeze it has imposed on new hiring. The layoffs follow the disappointing financial results last month. Meta reported revenue of $27.71 billion in Q3, down by 4 per cent year-on-year, amid a slowdown in online ad spending and increased competition from TikTok. Facebook’s parent also issued a weak forecast for the fourth quarter. Revenue in the Reality Labs unit fell by almost half from a year earlier to $285 million.  

“We believe the impact of iOS overall is a headwind on our business in 2022. It’s on the order of $10 billion, so it’s a pretty significant headwind for our business,” Meta CFO Dave Wehner had said after the company’s fourth-quarter earnings report.  

Since Facebook was no longer economic and the returns were not as good as before, advertisers shifted their attention to TikTok, a cheaper alternative. However, Twitter last year said it was less affected by Apple’s privacy changes in advertising because its ads rely more on context and branding than on tracking consumers’ mobile habits. Twitter’s quarterly revenue grew 37 per cent and its advertising revenue was $1.14 billion during the quarter ended September 30. Ironically, Elon Musk, after his $44-billion Twitter acquisition, fired nearly half of the company’s staff, justifying his move by citing massive losses.  

Snap this year announced layoffs, cutting 20 per cent of staff following an internal announcement it would miss its revenue goals for Q2 2022. In July this year, it recorded its weakest-ever quarterly sales growth, where sales were up 13 per cent year-on-year to $1.1 billion.  

Snap Chief Financial Officer Derek Andersen said, “The deceleration began with the platform policy changes implemented in Q3 of last year. The changes are impacting the traditional models that are used to drive the direct response to the advertising business, as well as the tools used to measure the returns from that direct response advertising.”  

What is Apple’s App Tracking Transparency and How is It Reaping Dividends?  

First introduced in iOS 14.5 last year, the privacy feature gives more control to iPhone users on whether or not they want to be tracked by advertisers online across apps. Prompts by ATT ask users if they would like to be tracked while opening an app. If the permission is denied, the app developer can no longer access Apple’s Identifier For Advertisers (IDFA), a device ID that is used to target and measure the effectiveness of online ads. IDFA has traditionally been used to track consumer behaviour for personalised advertising. According to a study from ad measurement firm AppsFlyer, 62% of iPhone users were choosing to opt out of sharing their IDFA.  

Apple announced the changes to its IDFA in June 2020. In December. Facebook ran a marketing campaign against it, saying it was about “profit, not privacy”. Apple CEO Tim Cook responded, saying, “We believe users should have the choice over the data that is being collected about them and how it is used. Facebook can continue to track users across apps and websites as before, App Tracking Transparency in iOS 14 will just require that they ask for your permission first.”  

ATT marks Apple’s aggressive stand on in-app privacy protection. Amid rising concerns over online privacy, such an approach is expected to bring dividends to its owner. In Q3 2022, according to Canalysis’ report, the global smartphone market recorded its third consecutive decline this year, dropping 9 per cent year-on-year, marking the worst Q3 since 2014. This was attributed to decreased consumer spending and economic uncertainty. However, Apple was the only major company to increase sales, with an 18 per cent market share amid strong demand for iPhones. 

Time for Change  

A Financial Times report last year said 90 per cent of Facebook’s revenue comes from targeted ads. However, it noted, 80 per cent of iPhone users opted not to be tracked by Facebook, Snap and other apps. Despite all the noise it has created in the past, Facebook cannot but adapt to the changing online privacy ecosystem. It is constructing its own systems inside the apps it builds, like the ability to buy products directly from Facebook, which reduces the need for third-party tracking.  

“As Apple changes make e-commerce and customer acquisition less effective on the web, solutions that allow big businesses to set up shop right inside our apps will become increasingly attractive and important to them,” Zuckerberg has said.  

Apple’s privacy-shielding ATT has appealed to a world that is uncomfortable with intrusion in its personal space. As countries get more serious about the internet privacy of their citizens, Facebook and others will have to get their act in place sooner rather than later.