New iPhone operating system inhibits ability to gather user data that helps marketers
By Patience Haggin and Jeff Horwitz
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 27, 2020).
Facebook Inc. said privacy changes in Apple Inc.'s latest operating system would cripple its ability to place personalized ads and deal a financial blow to app-makers, highlighting a high-stakes clash between the tech titans over the rules of the road in the mobile-internet economy.
Under Apple's changes, which will go into effect this fall in its iOS14 operating system, Facebook and other companies that facilitate online advertising will no longer be able to collect a person's advertising identifier without the user's permission. Many apps will begin asking users whether or not they want their behavior on the web to be tracked for the purposes of personalized ads.
Facebook fears many users will reject tracking, if given the choice, affecting not only its business but also any app that uses its services to sell ads, from game-makers to news publishers. Facebook told app developers Wednesday the changes will affect its "Audience Network" business, which facilitates ad sales in outside apps.
Apple's move also will hit Google's AdMob unit, which facilitates ad sales in apps, as well as several ad-technology companies that rely on tracking iPhone users. Apple's ad identifier, or IDFA, is a 32-character string of numbers widely used in the digital ad and data-broker industries to match up datasets that reveal where users go online, what they do and what they buy.
An Apple spokesman said the company welcomed in-app advertising and wasn't prohibiting tracking. Apple was simply requiring each app to obtain users' explicit consent to track, the spokesman said.
Facebook's announcement is another shot in the increasingly contentious relationship between the two companies, whose different business models have led to public sparring. Apple, which produces devices sold worldwide, says it is standing up for user privacy, and has criticized the data-collection operation that underlies Facebook's advertising business. Facebook, meanwhile, prizes the free flow of data that underpins digital marketing and has faulted Apple for the exclusionary nature of its platform.
Apple's latest policy change adds more momentum to a big shift in the internet world, as moves to enhance user privacy make it harder to track what users are doing online. Google plans to block the use of "cookies" -- snippets of code that help track users' web behavior -- in its Chrome browser by 2022, following in the footsteps of Apple's Safari. New privacy laws in the European Union and California give users more control over ad tracking.
"Apple's policy change is accelerating a paradigm shift -- that was already well under way -- towards consumers having rightful ownership and control over their data," said Matt Littin, co-founder and CEO of gaming company Lootcakes.
Facebook doesn't disclose the size of the Audience Network business within its nearly $70 billion digital-ad empire. Before the Covid-19 pandemic struck, ad-tech consulting firm Jounce Media estimated Facebook Audience Network would bring in $3.4 billion in 2020. The Apple change could also affect Facebook's sale of ads on its own properties, since apps that use Facebook code -- from food-delivery apps to games -- send data back to the company.
"If advertising effectiveness suffers, it will limit the scale of ad spend on Facebook in the future, consequently limiting Facebook's growth, " said digital-ad consultant Ratko Vidakovic. Still, Facebook is far better positioned to weather such difficulties than other ad-industry players because of the vast quantities of data it collects directly from users.
Facebook expects the impact from Apple's new consent requirements will be significant enough that the company acknowledged the changes on its July 30 earnings call. Facebook said that it was continuing to ask Apple for guidance, and might revisit the way it handles the advertising identifier if Apple provides it. Facebook said Audience Network will continue to operate on Apple devices using previous operating systems and those made by other manufacturers.
Facebook said the changes would likely result in reduced earnings for developers of apps "at an already difficult time for businesses." That is because ads that can be targeted at users based on data about their interests and online habits generally bring in more revenue for publishers.
Some publishers have expressed concern that ad prices will fall for iPhone users who don't agree to tracking. Facebook said in preliminary testing it has seen a 50% drop in publisher revenue when personalization was removed from advertising.
One major digital publisher is weighing options to help cope with Apple's change, including requiring app users to provide their email addresses or showing users a second prompt asking them to opt into the tracking. Game publisher Activision Blizzard Inc. acknowledged in an earnings call that the change would affect its business, but didn't elaborate.
Others in the app world were more optimistic that app makers could adapt. "A critical mass of consumers may be willing to share data if companies provide explicit and sufficiently meaningful benefits for them to do so," said Mr. Littin of Lootcakes.
In a survey by Tap Research Inc. 85% of respondents said if given the choice they would ask apps not to track them.
Apple isn't a big player in online advertising, but it does have its own small business that personalizes ads shown in the App Store and on Apple News based on where users go and what users do in Apple's apps. The company is applying separate rules for its own ad-personalization; to opt out, users must find an option in the iPhone's settings.
Apple Chief Executive Tim Cook has made privacy one of the company's priorities in recent years, running advertisements based on its intent to protect user data and refusing to comply with some law-enforcement requests to unlock iPhones for high-profile investigations.
Mr. Cook has also sought to turn a principle advocated by his predecessor, Steve Jobs -- that "our customers are not our product" -- into a business strategy. The company has gradually aimed to increase customer awareness of the value of privacy with features such as a sign-in option on apps that conceals personal information and a browser update that reveals how sites track users.
"Our view of privacy started from our values, then we crafted a business plan from that," Mr. Cook said during a Fortune conference in 2018.
Apple critics have argued the company is limiting access to its platform to restrict competition. Facebook earlier this month joined those protesting Apple's 30% cut from transactions within apps, saying in a product release that it asked for an exemption but was refused.
Facebook at the time presented the issue as a benefit for small businesses struggling during the pandemic.
Write to Patience Haggin at email@example.com and Jeff Horwitz at Jeff.Horwitz@wsj.com
(END) Dow Jones Newswires
August 27, 2020 02:47 ET (06:47 GMT)Copyright (c) 2020 Dow Jones & Company, Inc.