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Facebook’s ad business is in trouble after Apple changes iOS

Facebook has built one of the most amazing money machines the world has ever seen. Then Apple came and threw a wrench into the gears.

It was one of the stories that came from the news last week, when Meta, the parent company of Facebook sent an alarming earnings report to Wall Street, which quickly cut a staggering $250 billion from the company’s value in just one day – a 26% drop. And there are many stories.

For a large group of Facebook haters, the stock crash is an opportunity to redefine your thinking: If you think Facebook is becoming an opportunity to create a toxic product that makes the world a… should be worse, then you can show that the first time Facebook lost users . If you think Mark Zuckerberg turns the axis to one metaverse doesn’t exist yet is a fantasy, you can point to the $10 billion the company says it spent last year. And if you think TikTok is eating Facebook’s lunch, you can quote Mark Zuckerberg himself, who admitted on the company’s earnings call that the video app was “too big as a competitor and also as big as a competitor.” is continuing to grow at a fairly rapid rate compared to its very large base. ”

And all of those stories have some degree of truth. But the idea that Apple has hurt Facebook’s revenue in a direct and meaningful way seems to be the most genuine: Facebook says changes Apple made that affect how ads work on iOS apps – specifically, it’s now much harder for app makers and advertisers to track user behavior. – will hit $10 billion in sales this year.

For context: Facebook is still making a huge chunk of money from advertising – analyst Michael Nathanson estimates the company will generate $129 billion in ad revenue by 2022. But that means activity. Its advertising business will grow only about 12% this year, compared with a 36 percent increase year-over-year. Wall Street has praised Facebook for its ability to grow at rocket speed, and now that rocket may be sputtering.

What can Facebook do with it?

Background: The seed for last week’s news was sown months ago. In June 2020, Apple announced changes to its mobile operating system to give iPhone users the opportunity to ask app makers not to track them on the internet. That tracking system is the backbone of the internet’s advertising infrastructure, and you’re familiar with it even if you’ve never thought about it: For example, it’s why you see ads for those shoes that you have viewed on Zappos when you visit other websites. And in the case of Facebook, it’s important to find the people advertisers want to reach, and it’s important to let them know what happens after those people see or interact with their ads. .

A month later, Facebook began warning investors that the changes would affect their advertising business. The war between two companies tensions then became more intense, with both sides frequently attacking each other.

While there are plenty of indications that Apple’s change is in fact affecting Facebook’s ad sales, people inside and outside the company also think Facebook will find a way around it because Facebook is a giant company with cash and brilliant engineers. And while Facebook continues to warn investors in its quarterly updates that Apple’s move will be a problem, Facebook has used generic terms like “opposite” in doing so. . More skeptical observers wonder if Facebook is doing too much to gain sympathy from regulators seeking to rein in Facebook’s power — or to focus their attention on enter Apple, also under antitrust scrutiny.

Now, Facebook is telling the public that Apple’s advertising changes are really a big deal. The short version, as COO Sheryl Sandberg told investors last week: Facebook’s ad targeting has become less accurate because it now knows less about its users. That means Facebook advertisers have to spend more money hoping to reach people on iPhone – and Facebook advertisers, who are used to measuring the effectiveness of their campaigns on an individual basis. cents, now have to make less informed guesses about whether their advertising dollars are working

In other words, through Alex Austin, CEO of Branch, a company that helps advertisers find out how their campaigns are doing: After Apple introduced anti-tracking changes in spring 2021, advertisers use its service Branch to measure paid advertising on iOS has dropped by 20%. Instead, Affiliate customers spent more time using the company’s services to track “organic” marketing campaigns using tools such as email and on social media. service for advertisers already using Google’s Android phones – where such anti-tracking measures do not exist. “Clearly the market is still figuring it out [Apple’s new rules] on iOS and shift the focus to Android and organic channels on iOS,” he told Recode.

Facebook says it’s working on a fix to make things better for advertisers going forward through “aggregate event measurement“Solution. This in plain English means that while it cannot tell advertisers which individual users clicked on a link or downloaded an app after viewing an ad, it can tell them a group of people. used bigger did.

Depending on your perspective, that’s either a huge improvement for user privacy or a huge setback for advertisers accustomed to granular accuracy on the internet. But both Google and Snap have launched similar products and told investors they’re doing well; Facebook executives admit that their version is not yet; they think it will take months to get there.

Again: Facebook is an advertising giant that isn’t going away anytime soon. And it’s perfectly reasonable to assume it’s going to be messy in the process, in large part because it’s so big. If you’re an advertiser, “there are very few other places to go,” Nathanson told Recode.

But you can also find Facebook tacitly admitting that even as its tools get better, they’ll never work as well on iOS as they used to. That’s one of the reasons that the company is making a new effort in sell products on their own app – not only Facebook’s Marketplace platform but also the actual digital facades on Instagram and Facebook. It’s a plan Zuckerberg made public last spring, no coincidence when Apple’s privacy changes went into effect.

The revenue Facebook can generate from those sales is great, but the data Facebook can legally collect about how users behave, without Apple’s interference, can be invaluable. . Facebook can’t notify a shoe store if someone sees their ad on the app, then clicks through to the store’s website or app and buys something – but that’s it. maybe let them know if a Facebook user sees an ad on Facebook and then buys shoes on Facebook.

Facebook’s other recent moves show how Apple’s iOS changes have permanently affected its existing ad business. For example, Facebook is making a fresh push on Reels, a TikTok clone it’s promoting on Instagram and the traditional Facebook app, though it barely runs ads on Reels right now.

The hope is to build usage and then calculate revenue later. It’s an age-old tech tactic, and one that has worked well for Facebook to copy Snapchat’s “stories” on Instagram – which has helped it create a new source of ad revenue and slow the growth of Snapchat.

And you can also see Facebook’s Apple problem as another impetus for its super-reverse push: It will take years for Facebook’s alternate reality future to materialize — and it may never happen. out. But if that happens, Zuckerberg will build his company a hardware and software platform where he can interact directly with his users – and his advertisers too – without without interference by Apple or anyone else.

Which brings us back to Apple, which has always insisted that it changes privacy because it values ​​privacy, not because it would harm Facebook. And it should be clear: Apple doesn’t want Facebook to go away because Apple users like Facebook. For hundreds of millions of people, an iPhone without Facebook, Instagram or WhatsApp is not a very useful iPhone.

But Apple has also made it clear how much it despises Facebook’s core business. For example, a year ago, Apple CEO Tim Cook did not specifically name the company, publicly criticized businesses “prioritize conspiracy theories and incitement to violence simply because of high engagement rates”, “not only tolerating but also rewarding content that erodes public trust in injections.” vaccines save lives” and “see thousands of users join extremist groups and then maintain an algorithm that recommends many more. “

Cook said in a speech at an international privacy conference, “If a business is built on misleading users, on data mining, on choices that are no choice at all. at all, it doesn’t deserve our praise. “It deserves reform.”

Could it be that Apple cares deeply about user privacy and sees an advantage in tailing one of its major competitors (while, by the way, build your own advertising business)? Sure.

But instead of wondering what Apple’s motivations are, maybe we should spend some time thinking about the power Apple has. As regulators around the world struggle to rein in Facebook’s power and influence, Apple has pushed its rival in the back leg with just one tweak to its phone software. You can welcome that change – and still worry about other things Apple might want to change.

https://www.vox.com/recode/22929715/facebook-apple-ads-meta-privacy Facebook’s ad business is in trouble after Apple changes iOS

Fry Electronics Team

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