Late last year, Facebook went on the PR offensive, taking out a series of full-page ads in major U.S. newspapers and rolling out a website decrying Apple’s planned implementation of ad tracking protections,
The online campaign warns of the impending App Tracking Transparency update, which will allow iOS 14 users to opt-out of 3rd-party data tracking.
Foreboding messages such as “Apple has announced product and policy changes that may significantly impact the way you can run ads, measure performance, and engage customers” run amok. And, Facebook claims that the changes will have an especially adverse impact on ecommerce brands, citing a study that claims a complete loss of ad personalization could result in a 60% decrease in online sales.
As spectators to this untimely skirmish, we’re left to wonder, should ecommerce brands expect to see diminished returns on Facebook in 2021? Let’s dig into the facts.
How will the iOS update impact Facebook?
Our media analysts believe that although Facebook may be overstating its case, Apple’s changes do pose a genuine threat to ecommerce brands that rely on Facebook advertising.
Given that ad personalization is the cornerstone of the Facebook Ad Platform, opt-outs threaten to diminish the quality of the data pool and undermine a distinct competitive advantage.
While it’s impossible to predict how many users will opt out of tracking, the vast majority of iPhone users in the U.S. will have the option to limit their access.
How will iOS 14 changes impact ad performance?
Our analysts predict that opt-out activity will significantly affect ad efficiency for advertisers using the following targeting methods (and are crucial tactics for all ecommerce advertisers):
- Conversion Targeting: Given that the “likelihood for purchase” algorithm is derived from behavior data that will be blocked by App Tracking Transparency, eComm advertisers running conversion-optimized campaigns will likely be the first to notice a lag in efficiency.
- Lookalike Audiences: Advertisers targeting lookalike audiences are vulnerable to the proposed privacy changes. The lookalike algorithm identifies customer prospects by comparing behavior data to existing customers’, so that if prospects opt-out there will be no basis for comparison.
- Site Visitors: Advertisers setting Facebook pixels will also see a significant drop in efficiency. The iOS updates will inevitably limit brands’ ability to retarget opt-out visitors with Facebook ads.
Who has what motives?
Facebook is claiming to be a necessary ally for small businesses, while Apple says it’s standing by its consumers to protect their own privacy.
Facebook’s 10 million advertisers are mostly small businesses (80 percent of small businesses said they relied on social media for marketing in a 2017 study by emarketer), and Facebook says it’s fearful of a tremendous drop in return on advertising spending because the wrong audiences will be catered to due to lack of insight.
“While it’s difficult to quantify the impact to publishers and developers at this point with so many unknowns, in testing we’ve seen more than a 50% drop in Audience Network publisher revenue when personalization was removed from mobile ad install campaigns,” reads a blog post by Facebook.
One of Facebook’s main selling points is its ability to use data to custom-tailor ads to individuals, which is obviously useful for marketers. Targeted ads are also more expensive to take out than more general interest ones. Another is Facebook’s ability to prove to marketers that their ads are working, which is important to the company because over 98 percent of its global revenues (over $70 billion in 2019) come from advertising.
“I do want to highlight that we increasingly see Apple as one of our biggest competitors. iMessage is a key linchpin of their ecosystem… we are also seeing Apple’s business depend more and more on gaining share in apps and services against us and other developers. So Apple has every incentive to use their dominant platform position to interfere with how our apps and other apps work, which they regularly do to preference their own,” said Zuckerberg in a recent quarterly earnings call.
“By making tracking more difficult, it could be pushing free apps toward paid services to make up for revenue lost from targeted advertising. (Apple takes as much as a 30 percent cut of in-app sales.) Or it could be working to preference its own tracking technologies that allow it to make digital dossiers based on consumers’ behavior within Apple apps and services,” according to a recent New York Times opinion piece.
And if Americans had it their way, it seems they would prefer to keep every move they make to themselves, according to a recent survey by TapResearch which revealed that less than one in four respondents were likely to allow tracking if given a choice.
What should advertisers do to prepare for the iOS 14 opt-outs?
Ultimately, the magnitude of the impact of Apple’s changes won’t be clear until they go into effect. Still, because opt-outs hit at the core of Facebook’s effectiveness as an ad platform, brands should take them seriously and prepare their contingency plans. Here are a couple of steps we recommend:.
- Manual Targeting: Let this be a lesson for all those who replaced workers with robots; when technology fails us, we’ll need analog options close at hand. We recommend that advertisers hedge their bets against artificial intelligence with investments in customer research and manual targeting.
- Channel Diversity: The relative maturity of Facebook’s algorithm makes it more vulnerable than competitors like Snapchat, Pinterest, and TikTok. In the wake of iOS 14, we’re likely to see alternative platforms fill the vacuum in customer acquisition. As such, we recommend that advertisers diversify their channel mixes to minimize the impact of future changes.
- Know Your Customers: Companies that know their customers well achieve higher returns on their advertising spend than companies that don’t.
At the end of the day, Apple’s updates have the potential to usher in a new paradigm in online advertising. Although Facebook ads will continue to be a good way to reach consumers, the platform and its advertisers may need to take big steps to adapt and maintain ad effectiveness.
How will Apple’s iOS 14 privacy update actually work?
Apple devices will ask users if they wish to allow companies to track them on multiple apps.
iPhone users will be able to block their IDFA, the identifier for advertisers. Doing so makes it more difficult to measure who has seen an ad or taken an action.