Apple's IDFA Changes Pit Privacy Against Small Business Profits

January 6, 2021
Data privacy has come to the forefront of many American's minds, especially with signs of foreign election interference and personal information leaks by major corporations. In the near future, there will be another choice for Apple users to make: whether to allow companies to track their behavior. 
Apple is planning to ask users to opt into allowing companies to use their mobile IDs, known as IDFA or identifier for advertisers. This string of numbers and letters allows companies to follow people's activities on their devices without revealing personally identifiable information. The changes were initially expected to roll out in mid-September, but have been delayed until early 2021. 
"In the intended purpose of IDFA, it's been misused," mobile marketing analytics AppsFlyer U.S. president Brian Quinn admitted. "There have been use cases where people build rich profiles of that user and sell that data and trade that data. That's one of the things that Apple is going to stamp out."
Most people don't even realize that they're being tracked, pointed out The New York Times' vice president for implementation and data governance Robin Berjon. 
"If you ask consumers, they don't know companies are tracking them across digital behavior," Berjon said. "So with the idea of building trust with the user, it makes more sense to prevent that kind of tracking." 
The IDFA is not all bad. Advertisers and app developers say by losing IDFA, it will hurt the mobile advertising ecosystem. Without the IDFA, many fear they won't be able to serve relevant ads to people because they don't have those valuable insights. The IDFA also helps detect ad fraud and helps companies measure the effectiveness of ads. 
"It allowed you to have an easier path to identifying individuals," marketing consultancy Epsilon chief operating officer Ric Elert explained. "As they went app to app, you could understand that person and their path. It makes it harder for a marketer to understand the individual when they don't have that connected journey." 
According to a survey from AppsFlyer, about 73 percent of marketers expect the changes to have a "strong negative impact." A fifth plan to change their mobile advertising budgets as a result. Facebook also observed a 50 percent drop in publisher ad revenue in a test where personalization was removed. 
"What we have to be careful about is we don't stamp out all the good things and the bad," AppsFlyer's Quinn said.   

Privacy vs Profit

For Epsilon and its clients, which include The New York Times, the changes will have minimal impact. Epsilon's system has been moving away from using IDFAs, and it has been relying more on performance metrics, including interactions and conversions to purchases, rather than tracking to serve ads. Likewise, the Times phased out the use of IDFA and all third-party data ahead of Apple's update. Instead, it's relying on its own information from its apps and website. As a result, it will show advertising based on what a user is reading instead of getting information from what else they did online. 
"We've been expecting these kinds of identifiers to disappear at some point," the Times' Berjon said. "But It's certainly true that these platforms [like Apple] could have made an effort to make sure that these things are announced far in advance so these things can align."
Larger companies have the money and large data set to build their own trackers across their owned properties. But smaller publishers and direct-to-consumer companies don't have these resources, so they've always relied on Apple and other platforms. It can be expensive to create your own system, about 5 to 10 percent of a company's data and technology budget, according to customer data platform ActionIQ's Head of Product Marketing Ryan Greene. 
"The small players are the ones who are in a tough spot because they don't have a user base on their own to work off of, so they have to go through those big channels," Greene said. "They don't have the reach, and they don't have the big user base to lean back on." 
Apple customers are especially valuable. Studies have shown that Apple phone owners have a higher household income than Google phone owners. A 2018 Slickdeals survey found iOS users make 30 percent more than their Android counterparts. It makes them more expensive to advertise to, meaning additional revenue for publishers. 
Without the IDFA, many of these small publishers won't be able to charge as much for their ads because they lack specific information on their users. This means brands won't want to pay as much for ads. A Google study showed that CPMs, or the industry cost per thousand impressions, went down as much as 52 percent when third-party tracking data was removed. 
Last year, about 98 percent of all iOS App Developers earned under $1 million in annual consumer spending, per app-data firm App Annie. These accounts made only 8 percent of total App Store revenue, meaning the IDFA changes won't affect Apple's bottom line significantly but could hurt a lot of these smaller companies. It could also force companies in this position to rely more on subscriptions or in-app payments instead of advertising revenue, of which Apple will take a 15 percent cut starting January 1.
"For the industry, it makes it hard to personalize and makes it harder to optimize spend, so consumers are going to be hit with a lot more ads you can't understand," Epsilon's Elert said. "It will take money out of the publishers' hands and put it in the platform's hands."  
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