Apple’s change in privacy could increase the power of its App Store

The digital advertising world is struggling to prepare for a seismic shift when Apple updates its iPhone software in the coming weeks.

The change, called App Tracking Transparency (ATT), will force app manufacturers to ask for permission before collecting a unique identifier on each iOS device known as IDFA. A significant proportion of users are expected to say no. Today, developers and advertisers use IDFA to target mobile ads and measure their effectiveness.

Apple has consistently stated that the change in its platform, announced last June, is about privacy.

However, digital advertising professionals say there may be a side benefit for Apple: greater power over its App Store, giving Apple more control over the types of apps that become popular and make millions through the store.

In particular, it can make it more difficult for app makers to attract consumers to download their apps through in-app ads. This could help Apple guide consumers to the apps it chooses to feature on the App Store for its own business purposes. For example, Apple could feature more games that charge through subscriptions (where Apple gets a continuous cut), and less casual social games that generate big revenue through in-app purchases (which could detract from the overall gaming experience. iOS and damage the Apple brand).

The move could also boost Apple’s own search ads, which are ads for app downloads that appear directly on the App Store.

Apple’s App Store and advertising businesses are reported as part of its services business, which the company has highlighted to investors as a driver of growth. It generated revenue of $ 53.8 billion in fiscal 2020, an increase of 16% over the previous year.

“Apple has been able to establish a high moral position, I think, on the grounds that they are focused on user privacy. But in reality, they really did deliver app discovery and merchandising to Facebook and Google. What I see them doing it is trying to get that control back, “said Brian Bowman, CEO of Consumer Acquisition, a digital advertising company focused on user acquisition.

When asked to comment, Apple reiterated its commitment to privacy.

“We believe that privacy is a basic human right and that users should have transparency and choice about how their data is collected and used. We have invested in privacy preservation technologies for decades, with Intelligent Tracking Prevention on Safari, in-app privacy labels Store, Sign in with Apple, and App Tracking Transparency. Our privacy features apply to all developers – including Apple. But users won’t see Apple’s App Tracking Transparency notices because we don’t track users. “

For years, many of the apps that topped the Apple App Store charts have been overwhelmed by a marketing strategy designed to reach users most likely to spend.

Companies like Facebook, Google and TikTok sell app install ads. They usually appear in other applications as a pop-up or an item within a feed. When users click on the ad, they are taken to a page on the App Store to download the advertised app.

App install ads are an essential part of the user acquisition strategy for many companies, especially e-commerce and casual games companies that rely on getting a small fraction of users to buy many add-ons within the game (these users are sometimes known like “whales”). App makers will spend $ 96.5 billion on app install ads in 2021, or about a third of total mobile ad spend, according to an estimate by AppsFlyer, which produces advertising software for app makers. applications.

That’s because they are effective. Sensor Tower, an analytics company that monitors app stores, published a study on Thursday finding that referrals from other apps generated 20% of new app installs on the App Store in 2020. The only major source was direct searches on the App Store, which accounted for 59% of installations.

App install ads are often sold for price per install, ranging from cents to tens of dollars. Typically, ad buyers estimate how much a customer in a particular demographic group can spend over time using the app and make a simple mathematical judgment. If the price per install is less than the estimated lifetime value of the people these ads are aimed at, the app manufacturer buys as much of these ads as possible.

The change in ATT and other Apple privacy settings threatens this model by drastically reducing the amount of information marketers have about the effectiveness of their ads. Without this information, application marketers cannot say whether they are getting the right people to install their applications.

“When you look at companies that are investing $ 6 [million] to $ 20 million a month, every month for 18 months to get a return, it all becomes opaque very, very quickly when Apple changes that button, “said Bowman.

Casual game apps, which often appear on Apple’s hit charts, are the most likely to suffer. Games are a big part of Apple’s App Store business, representing 65.8% of spending on the platform, according to an estimate by Sensor Tower.

For games, references are the main source of downloads, generating 38% of the first installations in 2020 – more than people searching directly on the App Store, according to Sensor Tower.

“The main growth strategy for most, if not all, mobile game companies is paid advertising. In fact, there are no game companies that don’t use them,” said Eric Seufert, author of Mobile Dev Memo, who has experience in acquiring users for game companies.

Unity, a company that makes game software and advertising for small developers, warned in February that the change in IDFA could change “the way mobile game developers acquire customers and how they optimize the customer’s lifetime value.”

Andre Kempe of Admiral Media, a marketing company focused on mobile app publishers, believes that Apple’s move could force game creators to change the way their games work. Instead of relying on a few large spenders, they may have to target more people to spend smaller amounts.

“As soon as they realize, ok, I need to make money from it, so some product manager would say, ok, we need to put a payment screen somewhere on the first level, which you haven’t seen before, so that the user experience changes a little bit, “said Kempe.

There are more than 1.8 million apps on the App Store, and Application marketers say applications cannot wait for people to discover them on the App Store, or expect Apple to display them.

“It’s the tyranny of over-choosing, because you go there and you can access and download anything, most of the time for free, from a game perspective,” TS Kelly, head of analytics at Carat, a media agency, said.

Apple prefers to promote stylish and beautiful apps within the App Store that fit its brand image – not casual games that specialize in advertising.

“If Apple harms advertising and makes it much less efficient, developers become more dependent on Apple for exposure,” said Seufert.

But there is a way to pay for better placement on the App Store: search ads.

Although small compared to revenue from Apple’s App Store, which reached about $ 21.7 billion last year, according to Sensor Tower, its ad business is growing.

In January, Apple’s CFO, Luca Maestri, said the company broke a record in terms of advertising revenue. The company was no longer specific. The Wall Street Journal reported in 2018 that it generated about $ 1 billion in revenue per year.

Apple’s search ads have an advantage over other ad networks because Apple doesn’t need to do cross-site tracking to identify people who are likely to buy – with search ads, the user has already signaled an intention to download a specific type of app .

As app install ads become less effective, more app makers may be tricked into buying Apple’s search ads.

“Many advertisers will not accept the fact that they are half blind on iOS and Facebook,” said Kempe, and will instead rely on the more detailed information that Apple can give them.

Apple highlighted this ad business on its latest conference call, while again emphasizing privacy.

“The search advertising business is doing well, there is a lot of intention in search,” said Apple CEO Tim Cook in a conference call with analysts in January. “We do this in a very particular way, observing great privacy policies and so on.”