Apple’s privacy change will affect Facebook’s core business. Here’s how.

The core business of Facebook, its flagship app and Instagram, is also said to be under pressure. The Apple change will require mobile apps to seek user permission before tracking their activity, limiting the flow of data that Facebook gets from apps to help create profiles of its users. These profiles allow Facebook advertisers to effectively target their ads.

The change will also make it harder for advertisers to measure the performance they get for the ads they run on Facebook – how many people see these ads on mobile phones and take actions such as installing an app. , for example.

“Market dynamics are going to change dramatically here,” said Simon Poulton, vice president of digital intelligence at WPromote, a digital marketing agency. “If you are marketing on Facebook and the results go down because the efficiency goes down, you’re going to turn it down.”

The CEOs of Facebook and Apple traded public beards this week over the change. Facebook aggressively rejected Apple’s plan. In a call for results Wednesday, Facebook chief executive Mark Zuckerberg said, “Apple has every interest in using its dominant position on the platform to interfere with the functioning of our apps and other apps.”

Apple has defended its policy, saying it puts user privacy first. An Apple spokesperson declined to comment further. Without naming Facebook directly, Apple CEO Tim Cook has condemned “algorithm-fueled conspiracy theories” and linked recent social unrest to an argument that app tracking tools turn consumers into ad products. .

The magnitude of the potential financial impact on Facebook, which generated $ 86 billion in revenue last year, is unclear. The company said it expects revenue to be stable over the next two quarters. Over the past year, Facebook’s business has flourished despite the coronavirus pandemic and the boycott of several hate speech advertisers on its platform.

Eric Seufert, an analyst and marketing strategy consultant who has studied Facebook’s business, said he expects the company to have 7% revenue in the second quarter as marketers spend less and ad prices drop due to Apple’s change.

The fight is unfolding as Facebook and other tech giants are under antitrust control over their dominance. Companies that seek to avoid regulatory action in such situations often claim that they face significant competitive threats in the marketplace.

“As we have said on several occasions, we believe that Apple behaves in an anti-competitive manner by using its control of the App Store for the benefit of its bottom line at the expense of app developers and small businesses,” he said. a Facebook spokesperson said.

Part of the power of Facebook’s business is how it collects data from mobile apps – what people do on the apps, what they search for, what they buy and more. More than 85,000 iOS apps had installed Facebook code that relays data to the company in December, according to analytics firm MightySignal.

The data is often associated with a unique Apple ID for the user of the app, a string of numbers and letters that helps Facebook identify individuals, allowing it to add this data to their profiles, or ‘graph of’. identity”. App data makes up about 15% of user profiles, estimates WPromote’s Poulton.

Apple’s planned privacy change will mean apps can’t pass on this ID without user permission, limiting what Facebook can glean.

Ad buyers say Facebook’s understanding of app usage is part of its value proposition. This data allows Facebook to better optimize ads for the people most likely to become profitable customers, saving advertisers money in the long run. For example, a mobile game that relies on in-game purchases may target ads to users with a history of significant in-game spending.

Many apps depend on highly targeted ads to drive downloads. Dating app Bumble Inc. cited Apple’s upcoming change as a risk factor in its filings for an initial public offering and predicted that 20% or less of its users would choose to be followed.

Apple’s restrictions will also undermine Facebook’s ability to show how well its advertising is working. Facebook gives advertisers metrics such as how many people who saw an ad in the past week bought the advertised product. The company relies on Apple ID to get this information about iOS mobile devices, which make up a significant portion of Facebook activity: among US smartphone users, 45.3% used iPhones in 2020 , according to Statista.

Madan Bharadwaj, chief technology officer and co-founder of Measured, a marketing measurement company, estimates that Facebook will only be able to claim credit for around 50% of the sales it currently makes, due to the change.

“This is going to have a huge impact on the total amount of revenue, or conversions, that Facebook can claim, which is basically the signal that all advertisers use to make investment decisions,” he said. declared. “This will significantly lower their performance indicators.”

In August, when Facebook first warned of Apple’s upcoming change, it singled out Facebook Audience Network, a small part of its business that makes it easier to place ads on websites and apps.

Apple’s move is part of a broader tightening of privacy rules in the digital advertising ecosystem, from government regulations in Europe and California to plans announced by Google to get rid of “cookies” third-party pieces of code used to track users on desktop browsers.

In the fall, Facebook warned its partners that “upcoming digital privacy initiatives affecting multiple browsers will limit the ability of businesses to measure people’s interactions between domains and devices,” according to correspondence seen by the Wall Street Journal. .

The good thing about Facebook, Poulton said, is that its competitors will also be affected by Apple’s change, especially those in the real-time automated or “programmatic” ad serving industry on the web. Marketers who want to sidetrack spending from Facebook can scour the options landscape and say, “‘Facebook – it’s not as good as it used to be, but it’s better than that,” Poulton said.

Write to Patience Haggin at [email protected], Keach Hagey at [email protected] and Sam Schechner at [email protected]