App Tracking Transparency : Facebook v/s Apple
A look at the impact of the iOS 14.5 tracking changes and where incentives lie for both companies.
I hope you all are doing well and welcome (if you are new here) to Dozen Worthy Reads. A newsletter where I talk about the most interesting things about tech that I read the past couple of weeks or write about tech happenings. If you’ve been a regular reader you will probably know that I religiously publish on a Wednesday and this week is an exception, so sorry about that! I got a couple of pings from my classmates who read this and asked if everything is OK. All is well with me but India as you all know is suffering quite badly, so if you do work with a team in India cut the team some slack and expect them to be less on uh Slack.
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This week is a very interesting week for two of our favorite BigTech companies. On the one hand both companies, Facebook and Apple reported brilliant Q1’s and Q2’s respectively. On the other hand in the underbelly of tech the privacy war between both companies just escalated! On Monday Facebook released iOS 14.5 which includes what is known as App Tracking Transparency (ATT) which Facebook has been pushing back on the claims that this hurts small businesses. They also released IDFA changes which I’ll briefly touch on below. Today we’re mostly going to look at ATT, what Facebook's real fears are and how justified these fears are. But let's back up a bit, what are IDFA and App Tracking Transparency?
Let’s start with something called IDFA. IDFA stands for Identify for Advertisers. This is nothing but a random device identifier that is assigned by Apple to a user’s device. This is a unique ID similar to your mac address. Only you can reset this so that the old IDFA is no longer associated with your device. Advertisers use this to track data in order to deliver “customized” advertising. Marketers love this since this can be used to track when a user interacts on an advertising campaign. Put simply, for example, if Macy’s buys Facebook Ad’s and you end up visiting Facebook and buy Macy’s will know that your entry point was Facebook and they might decide to double down on advertising on Facebook (since it led to a customer!). Apple has a somewhat weak replacement for this called SkAdNetwork, a privacy friendly way to “protect privacy” while allowing for attribution, which is nothing but a fancy term for letting the person who ran the ad (maybe a marketer) that YOU clicked on the ad. SkAdNetwork just makes the YOU private
App Tracking Transparency
While a key part of the changes this isn’t the killer. The killer is ATT. This essentially means that an app must ask a user to opt-in to any kind of in-app tracking or analytics. This new feature will ask you for your permission to uhh “track your activity across the internet”. Advertisers of course use this to show you that pair of shoes you saw on Amazon following you everywhere. Creepy!
If you are an iOS user on iOS 14.5 you will see something similar to the below when you open/use apps that want to track you:
Apple does give you a way to explain, in a few words, why you should allow tracking. Now you’d imagine that the word “track” would be enough to dissuade everyone but you might just be wrong:
With privacy such a hot button issue, this type of prompt as displayed by an app could easily trigger a knee-jerk reaction of "No" among most people. Various estimates of the opt-in rate of those who would agree to the tracking have ranged from as low as 2% to as high as 20%, with most forecasts closer to the lower end, according to AppsFlyer. However, AppsFlyer found different results based on its analysis of millions of interactions across almost 300 apps. In its research, the company discovered average opt-in rates of around 41% overall, with 28% on average per app
Yeah, go figure. We’ll see how this plays out in the wild soon enough
So what is Facebook’s beef with this?
Facebook was uh well, PISSED, and took out full page newspaper ads and they also got significant press coverage. Newspaper ads!
Facebook’s beef is that Small Businesses will suffer. This is not an incorrect statement.
Facebook has two different types of advertisements. First the ones you see inside of Facebook properties (Facebook App, Instagram etc) such as the ones below. These can be multiple different types of ads (direct response ads → Visit our website now,app install → Install MyApp Now!). These can be in different formats as well (Facebook Ads Guide: Ad Format Specs & Recommendations)
Facebook also has something called Facebook Audience Network which is basically a network of websites, other apps etc that place their ad inventory on 3rd party sites. For example in the below:
Website or app → LIFESTYLE
Advertiser → BEATS MUSIC
The website basically places their ad inventory on Facebook’s exchange and the advertiser, in this case Beats bids and wins that ad slot. As part of this Facebook gets rich data about who is installing the app and they also get money because it's their ad exchange. The ATT changes will affect this 3rd party inventory, to what extent is not known yet, however this is not an insignificant amount of $
The company has not recently disclosed separate financial figures for its Audience Network, but its revenue appears to be in the multi billions of dollars. Facebook’s Audience Network paid more than $1.5 billion to publishers and developers in 2018, according to the Audience Network by Facebook website. In 2015’s fourth quarter, when it was just catering to mobile apps, Audience Network had a “$1B revenue run rate in ad spend,” Facebook said, but it hasn’t provided an updated figure since. Jounce Media estimated, pre-covid, that Facebook Audience Network would generate about $3.4 billion in gross revenue in 2020.
In addition to Facebook Audience Network they also have something called “Lookalike audiences” as well as “Facebook Pixel” which is a tracking pixel. Both of these are affected (Facebook Pixel Updates for Apple's iOS 14 Requirements).
From WSJ :
Much of this targeting is driven by Facebook’s “look-alike audiences” feature, a complicated algorithm that uses artificial intelligence to generate a pool of people who resemble, in ways that affect how they’re likely to spend, an existing pool of customers or prospects provided by a merchant. For example, a merchant that already has a mailing list of customers for its adult onesies can feed that to Facebook, and Facebook’s algorithm will allow them to find yet more fully grown humans who are likely to wear children’s pajamas. These could be obvious similarities, like age, and not so obvious, such as having a job in an industry that allows working from home. The more data Facebook can feed this algorithm, the more correlations it can look for.
What about Small businesses?
Small businesses probably do spend on both Facebook advertising (Facebook App) as well as Audience Network Advertising which if the estimate is correct is $3.4B. How much of this is small businesses? It's not known but I think that it won’t be a majority of this $3.4B. Facebook has 10M advertisers using their ad products:
Also small businesses are likely not that sophisticated and will still be able to target accurately enough without having to target 3rd party ad inventory (non Facebook website or apps). It's definitely true that small (or any business) will have slightly less insight into their ad spending and will have to pay more for potentially less-effective ads.
Before, even the smallest business could throw as little as a hundred bucks at a tiny ad campaign on Facebook or Instagram, and get detailed and immediate feedback. Now they will have to spend substantially more—thousands of dollars at least—to show their ads to a larger audience, because the targeting will be less precise, says Christian Lovrecich, founder of PixlFeed Media, an e-commerce marketing agency.
In fact this is good for Facebook right? I mean if a small business wants to spend $500 a month and cant access 3rd party ad inventory would that not mean that they’d spend all $500 on Facebook 1st party ads and Facebook keeps a larger share than they would with Audience Network? Also this would mean that Facebook has less combined inventory (1st and 3rd party) and naturally this would mean that an ad slot would cost more on Facebook?
In the short run this might be good for Facebook since they might be able to increase ad prices but I might be wrong about this. From Dave Wehner, Facebook’s CFO:
Facebook continues to expect increased ad targeting headwinds in Q2 2021 from regulatory and platform changes. This of course is the iOS 1.4 update.
But in the long run?
In the long run as Ben Thompson pointed out in Data Factories, Facebook is a Data Factory. Essentially each piece of data is valuable to the “data factory” which helps Facebook paint much better pictures of the users -- which are in turn used for better targeting.
Those aren’t the only avenues through which Facebook collects data: the company has deals with multiple third-party data collection companies, gathering everything from web traffic to offline store receipts, and also has incentivized an untold number of websites — particularly content providers — to include Facebook links on their sites that collect data from those sites.
That results in a much fuller picture of Facebook’s business:
Data comes in from anywhere, and value — also in the form of data — flows out, transformed by the data factory.
Raw Data Versus Processed Data
The first challenge with a data factory is that it is impossible to peer inside. Both Facebook and Google offer customers ways to view their data, but not only is the presentation overwhelming, the data is precisely what you gave them. It is the raw inputs.
Advertisers, interestingly enough, cannot download custom audiences once uploaded, but given that data is (also) their business, it is extremely likely that they retain the list of email addresses they uploaded in the first place; the same thing applies to 3rd party data providers. Websites, meanwhile, are completely in the dark: that Facebook badge or like button may provide a page view or two, but it doesn’t give any data back in return.
What no one gets is the final product: the melding of all that data from all those sources to build a far more detailed profile of every Facebook user than they provided on their own. There is no question, though, that it is happening. Last week Gizmodo had an excellent write-up of a paper in the journal Proceedings on Privacy Enhancing Technologies detailing how Facebook users could be targeted for ads with a whole host of information that was never provided by the user, including landline numbers, unpublished email addresses, and phone numbers provided for two-factor authentication:
They found that when a user gives Facebook a phone number for two-factor authentication or in order to receive alerts about new log-ins to a user’s account, that phone number became targetable by an advertiser within a couple of weeks. So users who want their accounts to be more secure are forced to make a privacy trade-off and allow advertisers to more easily find them on the social network. When asked about this, a Facebook spokesperson said that “we use the information people provide to offer a more personalized experience, including showing more relevant ads.” She said users bothered by this can set up two-factor authentication without using their phone numbers; Facebook stopped making a phone number mandatory for two-factor authentication four months ago.
That quote from the spokesperson is an acknowledgement of the data factory: Facebook doesn’t care where it gets data, it is all just an input in service of the output — a targetable profile.
Essentially Facebook is hiding behind small businesses and crying that they are victims. Very true but the biggest victim is none other than Facebook’s own data factory!
Why does Apple want to do this?
Tim Cook says that this isn’t personal animosity but they both are definitely foes doing right by their business and to their stakeholders -- shareholders and employees.
Apple can do this for several reasons. One is that they have 60% of the share of mobile devices in the US which is one of the most lucrative ad’s markets. Apple is standing behind its “Privacy choice” narrative (which I do agree with). Who the hell wants Facebook to scoop more of my data?
But Apple is not altruistic. No sir. This is about going after the ad’s market in which Apple has a small but growing App Store Ads business (App Install Ads). From Reuters:
Apple Inc is planning to expand its advertising business by adding a second advertising slot in its App Store search page's "suggested" section, the Financial Times reported on Thursday. The new advertising slot, which will be rolled out by the end of the month, will allow advertisers to promote their apps across the whole network, rather than in response to specific searches, according to the report.
At the end of it, this might be the only route to eke out more money from the ad’s ecosystem unless they create a search engine of their own to go along with Safari, which as I wrote last year is a bad idea
I, for one, will not be allowing any of those pesky apps to “track” me!
Appendix : What does Apple consider “User Privacy & Data”
Examples of tracking include, but are not limited to:
Displaying targeted advertisements in your app based on user data collected from apps and websites owned by other companies.
Sharing device location data or email lists with a data broker.
Sharing a list of emails, advertising IDs, or other IDs with a third-party advertising network that uses that information for retargeting those users in other developers’ apps or to find similar users.
Placing a third-party SDK in your app that combines user data from your app with user data from other developers’ apps to target advertising or measure advertising efficiency, even if you don’t use the SDK for these purposes. For example, using an analytics SDK that repurposes the data it collects from your app to enable targeted advertising in other developers’ apps.
The following use cases are not considered tracking, and do not require user permission through the AppTrackingTransparency framework:
When user or device data from your app is linked to third-party data solely on the user’s device and is not sent off the device in a way that can identify the user or device.
When the data broker with whom you share data uses the data solely for fraud detection, fraud prevention, or security purposes, and solely on your behalf. For example, using a data broker solely to prevent credit card fraud.
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