In today's Finshots we talk about how a privacy update created a new revenue driver for Apple

The Story

Do you remember that ad Apple released in May? A person walks into a coffee shop and buys a drink. When he leaves, the barista follows him. He gets into a cab (with the barista). When he exits the cab, the driver and the barista follow him into the bank. And this goes on. Apple call this dystopia the “data industrial complex”. A world where everyone knows everything about you!

And it created a massive buzz because right around that time, Apple also released a new software update with a renewed focus on user privacy.

Over 1 billion Apple users began seeing pop-up’s about “tracking”. For instance, if you opened the Facebook app on your iPhone, you received a prompt that said something like this — “Allow Facebook to track your activity across other companies' apps and website?" And of course, you could choose to say no and prevent the app from tracking your activity.

Bottom line — Apple’s spiel was this — “Hello! I care about your privacy. So I’m giving you the choice to block all those pesky apps that track your activity.”

So now imagine you were given the chance to stop apps from tracking you, what would you do? Choose to block the tracking, yes? Well, 96% of US users thought the same way. And just like that, Apple took away the advertiser’s most potent weapon — personalised ads.

How?

Well, think about it this way.

If you want to use Facebook, you have to let them track your activity on the website — see what places you check into, what kind of content you interact with, your nationality and all that stuff. This data is then used to let advertisers target you and there’s very little you can do about this. But Facebook also tracks you across other websites. So when you eye that new pair of sneakers on an e-commerce platform, it knows. When you buy a tub of ice cream, it knows. It understands your preferences. And over time, it collects so much data that it probably knows you better than yourself. Facebook then tells advertisers that it can offer them personalised and targeted ads on its app based on this information.

But if Facebook can’t track you across websites anymore, what happens? Well, its in-app ads on iPhones won’t be so personalised anymore. And it’s hard to judge the efficacy of those ad spends when you don’t know what users are doing elsewhere. In fact, by some estimates, Facebook could lose as much as 10% of its revenue owing to this update alone. They even placed print ads in The New York Times, The Wall Street Journal and The Washington Post declaring that it’s “standing up to Apple for small businesses everywhere.”

The argument being that small businesses rely on such personalised ads to keep their shop running. Apple immediately posted a curt reply — “We believe that this is a simple matter of standing up for our users. Users should know when their data is being collected and shared across other apps and websites — and they should have the choice to allow that or not. App Tracking Transparency in iOS 14 does not require Facebook to change its approach to tracking users and creating targeted advertising, it simply requires they give users a choice.”

But this isn’t just about user privacy. Tech giants like Apple see an opportunity everywhere and as one report from the Financial Times notes — Apple may have a new revenue driver with this new update.

The company’s very own Search Ads now drive 58% of all iPhone app downloads when users click on an ad. Last year, Search Ads only had a 17% market share. That’s a massive jump. So in effect, with Facebook and other apps losing teeth, advertisers are now turning to Apple's walled garden. Meaning, if you wanted to get people to download your amazing podcasting app, then the best way to get their attention is to advertise on the app store. Pay Apple money to show your ads when people search for the word “podcasts” and you could probably get their attention.

All in all, Apple continues to defy all expectations and make more money with everything they do.

Until next time...

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