Apple’s privacy shift will hit Facebook’s core advertising business. See how.

The core of Facebook’s business, its core app and Instagram, would also be under pressure. Apple’s move will require mobile apps to seek users’ permission before tracking their activities, restricting the flow of data that Facebook obtains from apps to help build user profiles. These profiles allow Facebook advertisers to target their ads efficiently.

The change will also make it more difficult for advertisers to measure the return they get for the ads they run on Facebook – how many people see these ads on cell phones and take actions like installing an app, for example.

“The dynamics of the market here are going to change a lot,” said Simon Poulton, vice president of digital intelligence at WPromote, a digital marketing agency. “If you are marketing on Facebook and the results are falling because efficiency is falling, you will refuse.”

The chief executives of Facebook and Apple exchanged public barbs this week about the move. Facebook reacted aggressively to Apple’s plan. In a earnings conference call on Wednesday, Facebook Chief Executive Mark Zuckerberg said, “Apple has every incentive to use its dominance on the platform to interfere with the way our apps and other apps work.”

Apple defended its policy, saying it is giving priority to user privacy. An Apple spokesman declined to comment further. Without naming Facebook directly, Apple CEO Tim Cook condemned “algorithm-fueled conspiracy theories” and linked the recent social unrest to an argument that application tracking tools are turning consumers into advertising products.

The extent 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. Last year, Facebook’s business boomed despite the coronavirus pandemic and the boycott of several advertisers because of hate speech on its platform.

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

The fight is going on while Facebook and other tech giants are under antitrust scrutiny over their domain. Companies that seek to avoid regulatory action in such situations often argue that they face substantial competitive threats in the market.

“As we have said repeatedly, we believe that Apple is behaving in an anti-competitive way, using its control of the App Store to benefit its financial results at the expense of application developers and small businesses,” said a Facebook spokesman.

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

The data is usually associated with an Apple identifier unique to the user of the application – a sequence of numbers and letters that helps Facebook identify individuals, allowing them to add that data to their profiles, or “identity graph”. Application data represents about 15% of user profiles, estimates Mr. Poulton of WPromote.

Apple’s planned privacy change will mean that apps cannot pass that identifier on without users’ permission, thereby limiting what Facebook can harvest.

Ad buyers say Facebook’s perception 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 dependent on in-app purchases can target ads to users with a history of high spending on the game.

Many apps rely on highly targeted ads to drive downloads. The dating app Bumble Inc. cited Apple’s impending move as a risk factor in its records for an initial public offering and predicted that 20% or less of its users would choose to be tracked.

Apple’s restrictions will also affect Facebook’s ability to show how its advertising works. Facebook provides advertisers with metrics such as how many people who saw an ad last week bought the advertised product. The company relies on Apple’s identifier to obtain this information on iOS mobile devices – which account for a significant part of Facebook activity: among smartphone users in the United States, 45.3% used iPhones in 2020, according to the 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 about 50% of the sales it currently makes as a result of the change.

“It will have a big impact on the total revenue amount, or conversions, that Facebook can attribute to itself, which is basically the signal that all advertisers use to make investment decisions,” he said. “This will greatly decrease your performance metrics.”

In August, when Facebook first warned of Apple’s impending move, it pointed to the Facebook Audience Network, a small part of its business that makes it easy 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 third-party “cookies”, bits of code used to track users on desktop browsers.

In the fall, Facebook warned its partners that “digital privacy initiatives that will affect multiple browsers will limit companies’ ability to measure people’s interactions across domains and devices,” according to correspondence read by The Wall Street Journal.

The bright side of Facebook, Poulton said, is that its competitors will also be hurt by Apple’s move, especially those in the realm of serving automated or “programmatic” ads in real time on the web. Marketers who want to divert Facebook spending can look at the options scenario and say, “‘Facebook – it’s not as good as it was, but it’s better than that,” “said Poulton.

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