Explained: Why Apple’s Privacy Changes Are Giving Mark Zuckerberg’s Meta A Hard Time
Meta fell 26 per cent on 3 February, the largest single-day drop in market value for an American company, after the social media giant issued a bleak forecast, blaming Apple Inc's privacy changes and increased competition.
Apple's revised privacy measures were expected to cause some disruption in the online advertising sector and it looks like the vision of a more private internet is affecting online companies, especially Meta, that depend on advertising revenue.
Meta, the parent company of Facebook, fell 26 per cent on 3 February, the largest single-day drop in market value for an American company, after the social media giant issued a bleak forecast, blaming Apple Inc's privacy changes and increased competition.
During Meta's Q4 earnings report, which was released on 2 February, CEO Mark Zuckerberg stated that Apple's App Tracking Transparency feature (ATT), will cost the company $10 billion in 2022.
Even, last year, after Apple introduced such changes, Snap Inc's stock dropped 25 per cent on 21 October.
But now, according to the latest reports, unlike Meta, other apps like Snap and Pinterest appear to be faring better in terms of adapting to the change, while Snap claims that its ad partners are adjusting well to the new system.
According to Apple, it has always placed a priority on protecting its customers' personal data and claims that “we don't collect or maintain a mountain of personal details about our customers in the first place”.
The American tech giant clearly stated that “Your devices carry the story of your life. We believe you should have a choice in how apps track and share your data with other companies for advertising or with data brokers.”
The company explained that Identification for Advertisers (IDFA) is a user-controllable identifier assigned by iOS to each device that “allows advertisers to create a detailed profile of your activity across different apps or websites when they see your device identifier and associate your activity with it”.
Advertisers need to track customers’ behaviour because it allows them to deliver the targeted advertisements and measure the effectiveness of their campaigns. For example, if someone visits a lot of pet-related websites, IDFA can assist advertisers in sending that potential consumer advertising for pet products.
Since Apple has committed to being a more safe and reliable company, it introduced ATT—making it available for the devices in April last year.
Apple stated in its privacy section: “Starting with iOS 14.5 and iPadOS 14.5, apps are required to ask your permission when they want to track you across apps and websites owned by other companies. You’ll be able to change your preference for any app or prevent apps from asking for permission entirely in Settings.”
In simple words because of the ATT, when users open an app, a pop-up window appears asking if they want the app to track their data. So when a user opts out of being monitored, which is a common occurrence, IDFA technology is rendered worthless and marketers are unable to see the kind of websites people visit.
However, Apple has introduced a privacy-friendly IDFA substitute, but Meta and Snap have criticised it for being less efficient than IDFA.
In the case of Meta, Apple’s vision for a more private space doesn’t give it that window to become profitable as the great majority of its revenue comes from advertising. Advertisers would look elsewhere for their advertising needs if they can't target certain groups with ads or accurately analyse how effective those ads are.
The ATT impact, according to Meta, is hurting not only the company's earnings but also small businesses which rely on the company's ad services to reach the right clients. According to Zuckerberg’s company, if users opt-out of being tracked, the efficiency of tailored adverts will suffer and this would push app developers that provide free apps in exchange for ad revenue to start charging for their apps and in-app purchases.
It also argued that the tech giant charges a 30 per cent fee for apps purchased through its App Store, which is the only way to get apps on iPhones and iPads, therefore the new app adjustments would benefit Apple, which became the world’s first $3 trillion company.
Meta's revenue increased by 20 per cent in the three months ended in December last year, to $33.7 billion when compared to the same period a year ago. But the company's quarterly profits fell by 8 per cent, to $10.3 billion.
On the other hand, Snap, the creator of the Snapchat app, stated in its third-quarter earnings report in October 2021 that Apple's privacy changes caused an unexpected impact on its business. But, as Snap stated in its fourth-quarter earnings report, the company is adapting and the most significant effects of Apple's change may be behind it.
Additionally, Pinterest's revenue climbed by 20 per cent to $847 million in the last three months of the year 2021, compared to the same time a year ago. It made $175 million in profit, down 16 per cent from 2020.
The big social media platform Twitter previously claimed that Apple's privacy drive had little impact on its company because most of its advertising came from brand awareness campaigns and huge events, such as the Olympics, rather than targeted advertising. However, the company will release its fourth-quarter earnings on 10 February.
But for Apple, its fourth-quarter earnings report revealed that the privacy changes was profitable. Despite supply chain issues, the tech behemoth reported iPhone sales totalled $71.6 billion, up 9 per cent from the previous year. The smartphone manufacturer claimed an 11 per cent increase in revenue and a 20 per cent increase in profit.
This result is not surprising as Apple has made privacy a significant element of its iPhone and other product marketing.
But the problem will certainly worsen for Meta and those major platforms which massively depend on advertising revenue. Because Google will soon provide the ability to opt-out of ad tracking for the vast majority of its users.
Last year in a blog post Google’s David Temkin, director of product management for ads privacy and trust, wrote that search giant had received questions about whether the company will “join others in the ad tech industry who plan to replace third-party cookies [another tracking mechanism] with alternative user-level identifiers”.
“Today, we’re making explicit that once third-party cookies are phased out, we will not build alternate identifiers to track individuals as they browse across the web, nor will we use them in our products,” Temkin wrote.
As Meta is aware of the challenges ahead, it is not only complaining about the issues but also attempting to engineer a solution.
Zuckerberg’s company is developing new tools to assist advertisers in regaining insight into the effectiveness of their ads and simultaneously attempting to break free from Google and Apple's grasp by developing its own metaverse operating system, which it thinks will become the next big computing platform.
So it is expected that controlling the operating system will prevent firms like Apple from disrupting Meta's revenue model in the future. This would give Meta complete control over the pop-up notifications and the users may not have the option to opt-out of being tracked.
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