Two years ago, the I/O Fund wrote about Apple’s mobile privacy changes and kept our newsletter readers aware of these changes as they rolled out. Going into earnings, we are seeing headlines that Facebook may be affected. We think when Big Tech goes up against Big Tech, that investors should watch the outcomes closely. Our stance for the past two years is that Apple owns the real estate on iOS, and everyone else is renting. The hierarchy is straight forward yet many critics question Apple’s decisions, often feigning concern for the impact to small businesses. We do not think Facebook cares about small businesses at all, per se, but rather about ad dollars.
This upcoming quarter will be the first full quarter to reflect the change. Some models suggest about 7% decline if 20% of iOS users opt-in. The opt-in rates quoted here match what is being reported (about 1 in 5 users opt-in for Facebook to track them). Flurry also stated about 20% were opting in. Meanwhile, according to Bloomberg, some agencies are reporting that companies went from spending “nearly all” of their budget on Facebook to more around two-thirds or half of their budget due to the iOS tracking changes.
The reality is that Apple built the ecosystem and it’s theirs to monetize as they see fit. In this equation, consumers matter too, and data should not have been collected without permission in the first place. Although we’ve been covering privacy concerns since 2014, we specifically called out Facebook in 2018 during Cambridge Analytica to discuss the various ways Facebook was collecting data without permissions.
We’ve also maintained that Apple is running out of near-term growth markets so it makes sense they’re looking for ways to expand their revenue. Below is a snapshot of Apple’s growth pre-Covid in 2019. Due to an increase in time spent indoors, even sleepy segments like personal computers exploded overnight. However, these segments could return to pre-Covid levels (or even lower if consumer hardware saw a pull forward). This helps us to understand Apple’s motivation taking back its real estate. My only question is … why didn’t Apple do this sooner?
Pictured below: 2019 revenue for Apple and it’s iPhone segment
Below are excerpts and links to our previous analysis, which was written for our free newsletter subscribers over the past few years.
Governments Won’t Be Able to Stop Facebook and Google -- But Apple Could
Published October 3rd, 2019 in MarketWatch
In April 2018, Congress tried to piece together how Facebook’s platform works. It ended up being a disaster. Anyone who works in the mobile-ad industry knows that the mobile device, notorious for its massive data leakage, could be used to collect thousands of data points daily to reveal personal thoughts, behaviors and political preferences.
When Facebook CEO Mark Zuckerberg answered a question on how Facebook makes money — “We sell ads, senator” — he wasn’t fooling the ad industry. It’s well aware that Facebook sells audiences and identities, as the company’s ads would be worthless without extracting data points from the mobile device and aggregating them for targeting.
This isn’t your typical targeting of pizza (or beer) ads during football games. This targeting knows you better than you know yourself, as it monitors your actions with data science and look-alike modeling.
The only force that can stand up to the complex tracking methods used by Google and Facebook will be an opposite, yet equal, force. It will not come from governments, which think that paying for search results is the problem. Rather, the problem is the pervasive code and software that continually tracks people, which no competitor can compete with.
Turns out, there is an opposite and equal force in magnitude that has chipped away at the anti-competitive tracking that occurs in the browser with Intelligent Tracking Prevention (ITP). Yet it has not done so on the leakiest device of all: mobile. And that would be Apple.
Facebook and Google aren’t the only companies that track users on mobile and browsers. They simply have software and code in more places. For instance, Facebook’s software is in 32% of the top 500 app market — and up to 800,000 applications. They track billions of non-Facebook users with software that can track you whether you have navigated one of their digital properties or not.
There is no way to opt out of Facebook or Google from tracking you, as their tracking is simply everywhere. In fact, security experts, including Bruce Schneier of the Berkman Center for Internet and Society at Harvard, call such tracking outright surveillance.
The incredible depth of information those giant companies have on mobile and internet users is the “moat” that generates unprecedented cash flow in advertising.
