Apple VS Facebook on Ads and Consumer Privacy: Let’s Get Ready to Rumble
October 01, 2021
Lead Tech Analyst
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.
Read more here: https://www.marketwatch.com/story/governments-wont-be-able-to-stop-facebook-and-google-from-abusive-tracking-on-smartphones-but-apple-could-2019-10-03
Advertising Stocks Face New, Major Challenge with Apple’s iOS 14
Tim Cook has publicly criticized [Facebook with its software development kit “Audience Network” installed in 300,000 applications on iOS and Android combined and has seen nearly 200 billion downloads. Google’s AdMob is even worse with installation in 1.5 million applications and 375 billion downloads. (Now consider that users did not authorize or download this software on purpose!)
[Despite Apple’s privacy advertisements] what happens on the iPhone most certainly does not stay on the iPhone. Mobile has become a free-for-all in data collection over the past ten years. The device leaks volumes of information through software development kits (SDKs) installed inside every application. Most applications have 18 SDKs, which extends beyond Facebook and Google to include a mix and match of ad software companies although the most pervasive being Google and Facebook who are inside the far majority due to the depth of their data for cross-targeting.
The concept of Apple pioneering privacy at the client level is not new. Apple began to restrict tracking on the Safari browser through iterations of Intelligent Tracking Prevention (ITP) from 2017 to 2019. As I covered previously in depth, Apple implemented strict requirements, such as having a relationship with the customer within the last 24 hours to place a cookie, and companies have continued to find loop holes.
Unlike cookies on the web, where there is a tag on the browser, mobile identifiers have much stronger tracking capabilities. Apple’s IDFA enables the following: user tracking, marketing measurement, attribution, ad targeting, ad monetization, programmatic advertising including DSPs, SSPs and exchanges, device graphs, retargeting of individuals and audiences.
What investors may not realize is these advertising cash machines are largely dependent on tracking software for the high CPMS (cost per thousand views) and CPIs (cost per install) they charge because they can track actions on a granular level even days after a mobile user has seen an advertisement. The mobile users are not aware they are being tracked by many companies they do not have a first-party relationship with (but the developer or publisher does). These developers and publishers must now obtain permission. Without permission, the inventory on mobile becomes less valuable.
Mobile applications, such as Spotify, Uber, Lyft, and mobile gaming, for example, are also dependent on the ability to track and identify cohorts for user acquisition. This is one reason we see the top line grow rapidly in ridesharing at the expense of the bottom line; these companies are crunching customer acquisition costs and lifetime value (LTV) across specific demographics and then using lookalike modeling to target the demographics with the best LTV.
Read more here: https://www.forbes.com/sites/bethkindig/2020/07/27/advertising-stocks-face-new-major-challenge-with-apples-ios-14/?sh=6d513d4e624e
Facebook’s Surveillance-Like Software is Called Audience Network
The betrayal was two-fold. On one hand, a first-party data company boldly entered the third-party data marketplace to broker data, risking the trust of its social media users. Secondly, Facebook did everything in its power to make sure social media users would not find out. Audience Network, which fuels a substantial portion of Facebook’s revenue from the social network, has not been disclosed to the public to this day. It is eerily absent from PR releases and discussions around privacy. Unless a Facebook user was a detective, they would have no reasonable way to know that Facebook operates Audience Network and is selling private data across hundreds of thousands of applications at an estimated 40% of the app market.
Built in 2012, Audience Network went live in 2014, and caused Facebook to stage a remarkable turnaround on the stock market. Facebook has posted consistent returns ever since. This is in marked contrast to the years prior to Audience Network, between 2012 and 2014, when Facebook faltered quarterly, often losing 50% of its stock value due to frequent, disappointing earnings.
Read more here: https://medium.com/hackernoon/facebooks-surveillance-like-software-is-called-audience-network-56c3e76cdb89
Disclaimer: Beth Kindig and I/O Fund does not own stocks mentioned in this article. This is not financial advice. Please consult with your financial advisor in regards to any stocks you buy.
Gains of up to 403% from our Free Newsletter.
Here are sample stock gains from the I/O Fund’s newsletter --- produced weekly and all for free!
+344% on Nvidia
+403% on Bitcoin
+218% on Roku
*as of March 15, 2022
Our newsletter provides an edge in the world’s most valuable industry – technology. Due to the enormous gains from this particular industry, we think it’s essential that every stock investor have a credible source who specializes in tech. Subscribe for Free Weekly Analysis on the Best Tech Stocks.
If you are a more serious investor, we have a premium service that offers lower entries and real-time trade alerts. Sample returns on the premium site include 324% on Zoom, 601% on Nvidia, 445% on Bitcoin, and 4-digits on an alt-coin. The I/O Fund is audited annually to prove it’s one of the best performing Funds on the market with returns that beat Wall Street funds.
More To Explore
Nvidia Will “Still” Surpass Apple’s Valuation
My coverage on Nvidia as an AI leader began in 2018 (yes, really – five years ago). Since then, I’ve covered the AI microtrend for this specific stock 27 times on my research site, which is the equiva
FAAMG Stocks Trading At Precarious Valuations
The mega-cap stocks that are known as FAAMG reported earnings recently. These names are driving the market higher, especially Microsoft and Apple. In fact, the percentage of Microsoft and Apple’s comb
Apple’s Stock In Focus: More Profitable Than Banks
Investors looking for the “next big thing” will point toward companies like Stripe, Sofi or Square as the leading fintech stocks. Meanwhile, the next big thing to disrupt the financial sector may be s
This Stock Price For Netflix Is A “Buy” For 2023
In April of 2022, Netflix surprised the markets by reporting its first subscriber loss in nearly 10 years. The stock tumbled 35% the following day, as investors panicked. Famed hedge fund manager, Bil
Where the I/O Fund Holds Cash When Banks Keeps Failing
Amidst the growing skepticism in our banking sector, we thought it would be helpful to introduce an alternative way to both protect and diversify one’s assets. The information below discusses a method
Tesla Stock: What You Need To Know About Q1 Earnings
Two months ago, we wrote that after realizing gains of 31%, it was time to take a time out on Tesla at the $208.31 price when our firm stated: “Right now, our technical analysis is at odds with our fu
Bitcoin Vs Banks: Here's Where the Price Goes Next
The recent decoupling of Bitcoin from equities, we believe, is the start of a new uptrend that appears to be inversely correlated to the financial sector. The financial media would have us believe tha
Official Press Release: I/O Fund’s Cumulative Returns Double the Nasdaq Following a Tough 2022
Actively managed portfolio and research site announces its largest cumulative lead over institutional all-tech portfolios. The I/O Fund defies a challenging market, outperforming peers and providing i
Slowdown In Cloud Stocks On Thin Ice Following Q1 Guides
Following last quarter’s earnings, we published an analysis on cloud that showed hyperscalers were slowing (5%) sequentially and best-of-breed was slowing (12%) sequentially, based on Q4 guides.
NVIDIA Showcases AI Breakthroughs, Omniverse Platform, and New Partnerships at GTC 2023
The tech giant reveals cutting-edge AI advancements, a powerful cloud based Omniverse platform, and strategic collaborations in the automotive industry.