The impact of the privacy change in Apple's iPhone operating systems, launched in April, has begun to show up in the financial statements of other companies, highlighting the immense power Apple exerts on industries unrelated to consumer electronics. The controversial update introduced a new pop-up asking users whether they want to allow apps on their phones to track them to help personalize advertisements, enabling iPhone owners to easily opt-out by clicking a "Don't Track" button. This privacy feature has altered the behind-the-scenes workings of many mobile advertisements.
For its part, Meta, the parent company of Facebook, warned last month that the adoption of these features has reached a "critical stage," making its advertisements less effective at targeting potentially profitable customers. Facebook stated that its revenues would have grown sequentially in the third quarter if not for Apple's advertising changes. Meanwhile, Snapchat blamed the privacy change in iPhone operating systems for impacting its sales, which saw negligible growth in the third quarter. Snapchat's CEO, Evan Spiegel, noted that the new feature on iPhones posed risks to the company's profits in the fourth quarter, with projections estimating sales for the last quarter of the year at around $1.18 billion, compared to Wall Street analysts' expectations of $1.36 billion. Peloton also mentioned last month that Apple's privacy feature harms its user growth.
Apple CEO Tim Cook declined to comment on the feature's impact on other companies, stating, "We don't make the decision; we simply allow users to make their choices easily."
Apple's Benefit
While the changes have been marketed as a win for users, they also benefit Apple's advertising product, known as Apple Search Ads, which marketers use for mobile ads that increase app installs. Shani Rosenfelder, the head of content at AppsFlyer, an advertising measurement company, remarked, "We have seen a significant increase in Apple's search ad market share." He added, "They have become the new leading player, surpassing Facebook, which had previously dominated the iOS ecosystem." An AppsFlyer report indicated that 86% of devices running Apple’s iOS are updated enough to be eligible for the ad-tracking prevention feature, with 38% of users choosing to allow tracking, while 62% opted for not tracking.
Reactions
Meta has openly declared its war against the iOS update from the beginning. Facebook CEO Mark Zuckerberg stated, "As Apple's changes make e-commerce and customer acquisition less effective on the web, solutions that allow large companies to create in-app stores will become increasingly appealing and important to them." While Evan Spiegel of Snapchat previously praised Apple's approach, the company has updated its advertising products to work with an alternative to Apple’s App Tracking Transparency (ATT) service. However, last month, Snapchat officials indicated that replacing Apple's ad measurement with SKAdNetwork services is unreliable. Snapchat stated that it is working to develop its advertising service directly.
Financial Results
Although Apple does not disclose its advertising revenue in its financial results, it represents a small part of its services business, which reported $68.43 billion in revenue for the fiscal year 2021, a 27% increase. Bernstein analyst Toni Sacconaghi estimated that Apple Search Ads generate $4 billion annually and hold a 60% market share of the "app search ads" on iPhones. He noted in a client memo last week that search ads are just a small part of the entire mobile advertising market. The overall mobile advertising market is estimated to be worth $300 billion annually, with 20% of these ads dedicated to mobile applications, or about $60 billion, of which the iOS system represents half.
