Why Facebook is so upset about the change at Apple IDFA: leaking insiders

In recent weeks, Facebook has been running an advertising campaign in defense of personalized ads, arguing that targeted ads are 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 focuses on a unique device identifier on each iPhone and iPad, called IDFA. Facebook and others that sell mobile ads rely on this ID to help target ads to users and estimate their effectiveness.

With a future update to iOS 14, apps that want to use IDFA will have to ask users to choose to track when the app is launched for the first time. If users give up, these ads will be much less effective. Facebook warned investors that these impending changes could hurt their advertising business as early as this quarter.

But while Facebook has spoken out loud about how damaging this change will be, rivals like Twitter and Snap said the change would be good for user privacy and could even benefit their business. Google, the leading web advertiser, did not say much about the changes, while introducing its own privacy-related changes to its Chrome browser and pledged to stop tracking individual users altogether.

CNBC spoke to a handful of former Facebook employees who worked on the company’s advertising products and businesses and explained why the social media giant is making such a fuss about Apple’s move.

The most critical at stake for Facebook is what is known as view-through conversions. This metric is used by advertising technology companies to measure how many users saw an ad, didn’t immediately click on it, but then made a purchase related to that ad.

Think of view-through conversions like this: you’re accessing your Instagram stories and see an ad for a pair of jeans. You don’t touch the bottom of the ad to get more information because you’re busy checking out what your friends are up to, but the jeans were cute. A few days later, you go on Google, search the jeans you saw on Instagram and buy.

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

Losing that kind of measurement can be a big blow to Facebook. If advertisers are unable to accurately measure the effectiveness of their ads on Facebook and Instagram, they may feel compelled to transfer more of their budgets to other apps and services where they can see the exact return on investment from their ads.

Facebook is the number two recipient of online advertising dollars, behind Google. A particular threat is that advertisers will pour more money into Google’s search ad business, which Facebook cannot duplicate, and which targets users at the time of conversion.

In terms of specific businesses, the change in IDFA will particularly affect your Audience Network.

The Facebook Audience Network provides ads on non-Facebook applications and uses IDFA numbers to determine the best ads to display for each user based on Facebook data. For example, a soft drink manufacturer may decide to target players aged 18 to 34 in the San Francisco Bay area with a new promotion. The company could use Facebook’s public network to place these ads for the right audience in mobile games; Facebook would share ad revenue with game makers.

But if users choose to opt out of IDFA tracking, all the customization that Facebook has built will become irrelevant outside the company’s own applications. In August, Facebook acknowledged that the launch of Apple’s iOS 14 could lead to a drop of more than 50% in its advertising business on the Audience Network.

Almost all of Facebook’s revenue comes from advertising, but Facebook’s Audience Network contributes only a small part of that – well under 10% of the company’s net revenue, a person familiar with the numbers told CNBC.

In addition to view-through conversions, Facebook can lose valuable data about what its iPhone-based users do on their devices when they are not in Facebook-owned apps. Facebook already collects a lot of data about its users from its applications, which include Facebook, Instagram, Messenger, WhatsApp and others, but each additional bit of data makes its algorithms better at what they do, which includes ad targeting.

Although Apple is allowing users to decide whether they want to choose IDFA tracking, it will still allow app manufacturers and advertisers to collect some data through its SKAdNetwork API without the user’s explicit permission. But the information shared will be much less granular – Facebook has warned in developer documents that it will not support dividing activities into groups such as region, age or gender, for example.

Facebook knows that it will not be able to convince Apple to change its mind about IDFA, but it has nevertheless moved forward with this campaign to support small businesses. Why?

Reputation repair may be one of the reasons. 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 to Donald Trump in the 2016 presidential election.

Since then, Facebook has suffered several scandals, alienated Democrats and Republicans and waged an endless battle against disinformation in its services.

By taking a high moral stance and saying it is defending small businesses, the IDFA debate presents an opportunity for Facebook to rebuild goodwill, even if it is with only a part of the general public, said a former Facebook employee.

In addition, IDFA tracking will not go away – users will simply have to choose to allow it. This means that Facebook and other application developers will have the opportunity to plead their case for all Apple users.

Facebook’s marketing campaign is a fundamental part of your case. The company wants users to associate device tracking with personalized ads and support for small businesses. “Don’t opt ​​for Facebook, do it for the cafeteria you are interested in”, is the essence of the message.

Within a small subset of its users, Facebook started showing prompts asking them to accept IDFA tracking. This is known as the A / B test. Among technology companies, the A / B test is a popular strategy for finding the most effective 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 most people to choose IDFA tracking.

Asked whether the change in IDFA will really impact small businesses, as Facebook says it will, former employees have given ambiguous responses.

With less tracking data available to it, Facebook and all of its customers, including small businesses, will not be able to target ads as effectively as before. In that sense, yes, small businesses will be affected.

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

If you’re a small coffee shop in Austin, Texas, for example, you may not need a lot of data to target your ads, said Henry Love, a former employee of the Facebook small business team. Such a company usually limits its targeting to very broad categories – for example, an age range and a distance range from a specific postal code would allow them to target ads to Facebook users in their vicinity. This is the kind of data that Facebook would be able to collect from its own apps, without needing IDFA to track a user’s activity elsewhere on their Apple devices.

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

Among the few “small business owners” who can feel the effects of the IDFA shift are start-ups backed by venture capital money who have hired professionals with the skills to target sniper-accurate users, Love said.

“The only people who target the mobile, web and Facebook audience are not really small businesses,” he said. “They are sophisticated startups, supported by VC. They are not a typical SMB.”

In addition, although the change is not scheduled to take place until the beginning of this spring, Facebook has known this for a long time and has been launching a series of alternative solutions for companies.

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

You may have already found some brands selling directly on Facebook and Instagram. Expect to see later.

Megan Graham contributed to this report.