Memo: A is for Ads

Apple’s advertising business strategy is becoming clearer after a string of announcements, confirming what’s been suspected by many analysts over the past year. The company is tipping the scales in favor of its own ad products, looking to cut competitors Meta and Google off at the knees. At the same time, Apple’s advertising products are expanding beyond the app store.

Apple is planning on aggressively expanding its ad business, with the goal of increasing annual ad revenue from $4 billion today into the double-digit billions, according to Bloomberg. That means iOS users can expect to find more Apple ad products across Apple’s native platforms. As of now: News, Stocks and the App Store have potential ad positions. Those will become areas that are increasingly monetized.

It’s something Apple will have to navigate carefully, meeting its own revenue goals without alienating the user and diluting the performance of its native apps. The company has already supercharged its ad business in the last five years, which 2PM reported on in March, growing the ad business from $300 million to $4 billion. To triple that will mean unlocking ad experiences that were previously off limits, and this could become a nuisance even to Apple loyalists. As Bloomberg’s Mark Gurman puts it: “Some people may resent Apple putting ads in the News and Stocks apps. After all, the iPhone is supposed to be a premium device. Let’s say you shelled out $1,000 or more to buy one, do you want to feel like Apple is squeezing more money out of you just to use its standard features?”

Apple’s ad strategy may carry risks, but it’s full of intention. The foundation of this strategy is that Apple limited the efficacy of third-party advertisers. The App Tracking Transparency (ATT) feature launched last year, a blow to performance marketers. By making it more difficult for ads to follow customers around multiple apps and sites, performance marketing has become less relevant and the data around what’s working and what’s not has become less clear. It’s something that has directly impacted Facebook’s performance marketing, with Facebook, Google, and Snapchat advertisers reporting that campaigns have become less effective.

Apple is simply exercising control over its walled gardens, and making it easier for users to opt out of tracking. That’s the noble angle shared by Apple’s public relations teams: it doesn’t want its ads to track people around the internet. As a result, any of Apple’s advertising business development will be framed in the context of its preceding privacy initiatives. The same initiatives that have impacted a number of social media companies that rely on advertising revenue to support its global audiences. The less-than-noble angle that could be attributed to Apple is that it has successfully torpedoed the advertising businesses of its competitors to fortify its own.

The key function of data collected by mobile app publishers via iOS for third-party advertising is no longer the priority for developers, an indicator that advertisers are looking for new sources of consumer data.

One of the workarounds that Meta was using to address Apple’s ATT changes has likely seen further disruption by Apple’s second wave of privacy initiatives. From Apple’s Privacy Tax, we cited Apple’s private relay:

Private Relay has the potential to have a major impact on the advertising industry. As The Information explains, the feature was released in September to Apple iCloud+ customers who could elect to turn the feature on for Safari browsing and a small percentage of “insecure app traffic over port 80.” For now, users can still use Chrome or any other non-native browser. Additionally, platforms that have you logged in: Gmail, Youtube, Facebook, TikTok can track your movements through the first-party data that the platforms collect.

It’s part of a bigger strategic shift for Apple to rely less on hardware sales and see more revenue coming from existing users in the form of ads and other subscriptions and features. It’s also likely to trigger responsive features from companies like Google that are building out their own privacy features. There’s more to come, and this development is only the latest. In March’s report on Apple and performance marketing, we explained:

Apple will need to continue growing its content marketplace; Tim Cook’s digital fiefdom will require greater (user-generated) content engagement. As such, it’s not a leap in logic that Apple will build a platform for user-generated content (UGC). Don’t be surprised if Apple acquires one in the process. Twitter, anyone? Without greater advertising opportunity within the Apple ecosystem, digitally-native businesses will suffer from the collateral damage. Apple has become the solution for handheld consumer privacy; business owners deserve a capable alternative to the services that Apple is crushing with its new practices.

I’ll admit that the prospect of becoming a platform for user-generated content may be too forward-thinking for Apple. Bloomberg’s Gurman predicts that the ads will soon spread to other apps including Maps, Books and Podcasts. Each of these have a tremendous audience that may eventually be repurposed for the sake of advertising revenue. And self-serve advertising is set to become easier for businesses looking to benefit from Apple’s now-superior first-party data, according to 9-to-5 Mac:

In addition to bringing ads to other stock apps, Apple has already announced that customers will start seeing more ads in the App Store. New ad units in iOS 16 will allow advertisers to place ads on the Today tab in the App Store, and at the bottom of product pages for other apps.

Apple’s ads business is only getting started, and it’s stepping on the competition to get ahead. This is more or less confirmed. Expect its biggest competitors to fight back but that’s an aside; the value of this conversation is that eventually DTC retailers may finally have some relief as the market for performance advertising is currently in contraction.

By Web Smith | Edited by Hilary Milnes with art by Alex Remy and Christina Williams

Part One: Apple and Performance Marketing

Part Two: Apple’s Property Tax

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