Why Facebook is so upset with Apple’s IDFA change: Insiders are spreading

For the past few weeks, Facebook has been running an advertising campaign to defend personalized advertising, claiming that targeted advertising is the key to small business success.

The catalyst for the campaign has been an ongoing battle between the social media company and Apple. The battle centers on a unique device ID on every iPhone and iPad called IDFA. Facebook and others that sell mobile ads rely on this identifier to help target ads to users and estimate their effectiveness.

With an upcoming iOS 14 update, apps that want to use IDFA will need to ask users to turn on tracking when the app is first launched. If users opt out, these ads will be much less effective. Facebook has warned investors that these impending changes could hurt its advertising business as early as this quarter.

But while Facebook has spoken loud and clear about how dangerous the change would be, rivals like Twitter and Snap have said the change will be good for user privacy and may even benefit their businesses. Google, the main advertiser on the web, hasn’t said as much about the changes, while simultaneously introducing its own privacy-related changes in its Chrome browser and committing to stop tracking individual users altogether.

CNBC spoke to a handful of former Facebook employees who have worked on advertising products and the company’s operations and explained why the social media giant is making so much noise about Apple’s upcoming change. .

The most critical issue for Facebook is what’s known as post-display conversions. This statistic is used by ad technology companies to measure the number of users who saw an ad, did not immediately click on it, but then made a purchase related to that ad.

Think post-posting conversions like this: You browse your Instagram Stories and see an ad for a pair of jeans. You don’t touch the bottom of the ad for more info because you’re busy checking out what your friends are up to, but the jeans were cute. A few days later, you go to Google, find the jeans you saw on Instagram and buy them.

After the purchase is made, the retailer records the IDFA of the user who purchased the jeans and shares it with Facebook, which can determine if the IDFA matches a user who saw an ad for the jeans. This shows the retailer that their Facebook ad has worked.

Losing this type of measure could be a big blow to Facebook. If advertisers aren’t able to accurately measure the effectiveness of their Facebook and Instagram ads, they may feel pressured to shift more of their budgets to other apps and services where they can see the exact ROI of their advertisements.

Facebook is the second largest recipient of online advertising dollars, behind Google. A particular threat is that advertisers will invest more money in Google’s search advertising activity, which Facebook cannot duplicate and which targets users at the time of conversion.

Regarding specific activities, the change of IDFA will particularly harm its audience network.

The Facebook Audience Network delivers ads in non-Facebook apps and uses IDFA numbers to determine the best ads to show each user based on Facebook data. For example, a soft drink maker might decide to target gamers aged 18 to 34 in the San Francisco Bay Area with a new promotion. The company could use the Facebook Audience network to get these ads to the right audience in mobile games; Facebook would share advertising revenue with game makers.

But if users decline IDFA tracking, all this personalization created by Facebook will be rendered useless outside of the company’s own applications. In August, Facebook acknowledged that Apple’s upcoming iOS 14 could result in more than a 50% drop in advertising activity on Audience Network.

Almost all of Facebook’s revenue comes from advertising, but Facebook’s audience network contributes only a small portion – well under 10% of the company’s net revenue, said someone familiar with the numbers. at CNBC.

Besides post-view conversions, Facebook can lose valuable data about what its iPhone users are doing on their devices when they are not in Facebook-owned apps. Already, Facebook collects a lot of data about its users from its apps, which include Facebook, Instagram, Messenger, WhatsApp, and others, but every additional bit of data improves its algorithms in what they do, including ad targeting.

While Apple lets users decide whether they want to opt for IDFA tracking, it will still allow app makers and advertisers to collect certain data through its SKAdNetwork API without explicit user permission. But the information shared will be much less granular – Facebook has warned in developer documents that it will not support activity breakdowns into compartments such as region, age or gender, for example.

Facebook knows it won’t be able to convince Apple to change its mind about IDFA, but it has continued this campaign for small businesses anyway. Why?

Reputation repair could be one reason. Facebook’s reputation has been in the gutter since the Cambridge Analytica scandal of March 2018, in which a data company improperly accessed the data of 87 million Facebook users and used it to target ads for Donald Trump during the campaign. presidential election of 2016.

Since then, Facebook has suffered numerous scandals, it has alienated itself from Democrats and Republicans and has waged an endless battle against misinformation about its services.

By taking the high moral stance and claiming to stand up for small businesses, the IDFA debate offers Facebook an opportunity to rebuild goodwill, even if it is only a section of the general public, has said a former Facebook employee.

Plus, IDFA tracking won’t go away – users will just have to choose to allow it. This means that Facebook and other app developers will have the opportunity to make their case with every Apple user.

Facebook’s marketing campaign is a key part of his case. The company wants users to associate device tracking with personalized ads and small business support. “Don’t choose Facebook, do it for the coffee you care about” – that is the essence of the message.

Among a small subset of its users, Facebook started showing prompts asking them to turn on IDFA tracking. It’s called A / B testing. Among tech companies, A / B testing is a popular strategy for determining the most efficient way to do something. In this case, Facebook can show different prompts to different users to determine which prompt will be the best to convince the most people to opt for IDFA tracking.

When asked if the IDFA change would actually impact small businesses, as Facebook claims, former employees gave mixed responses.

With less tracking data available, Facebook and all of its customers, including small businesses, will no longer be able to target ads as effectively as they once did. So in that sense, yes, small businesses will be affected.

However, for many small businesses, the change may not be noticeable at all.

If you’re a small cafe in Austin, Texas, for example, you might not need too much data to target your ads, said Henry Love, a former employee of Facebook’s Small Business team. . A business like this usually limits their targeting to fairly broad categories – for example, an age range and distance range from a specific zip code would allow them to target ads to nearby Facebook users. . This is the kind of data that Facebook could collect from its own apps, without needing IDFA to track a user’s activity elsewhere on their Apple devices.

“If you were to talk to a restaurateur anywhere and ask them what IDFA is, I don’t think any of them would know what it is,” Love said. “It’s affecting Facebook on a large scale. Not small business owners.”

Among the few “small business owners” who might feel the effects of the IDFA change, there are venture capital-backed start-ups that have hired professionals with the skills to target users with precision. sniper, Love said.

“The only people targeting mobile, web, and the Facebook audience network aren’t really small businesses,” he said. “They are sophisticated startups, backed by VC. They are not your typical SMEs.”

Additionally, while the change is not expected until early spring, Facebook has known about it for a long time and has rolled out a number of alternative solutions for businesses.

Most notably, the social media company launched Facebook stores and Instagram stores in 2020. These features allow brands to list their product catalogs directly on Facebook’s most popular apps and sell products directly on Facebook and Instagram. If a sale takes place within Facebook’s walls, IDFA tracking will not be necessary.

You may have already come across a few brands selling direct on Facebook and Instagram. Expect to see more in the future.

Megan Graham contributed to this report.