It’s no secret that the digital advertising space is dominated by Facebook. Brand, of all niches and sizes flock to the platforms for their advertising needs. As the targeting maestro, Facebook was famous for having data on every individual that used the app, and knew how to leverage it to benefit brands. A jackpot for any advertiser wanting to reach its desired audience, the targeting utopia was seemingly crushed as Apple released iOS 14.5, automatically opting users out of any cross-platform data tracking.
Advertisers on the platform felt the immediate effects of Apple’s release. Advertising costs on Facebook suddenly skyrocketed as spend had to increase to learn about the ideal customer. With just one iOS update, Apple single-handedly worsened Facebook’s advertising data, which impacted both its main revenue generating channel along with every brand that relied on the platform to reach their customers. With Meta’s suffering this revenue loss, and their new shift of focus towards the Metaverse, Apple laid the foundations for itself to rise as a major player in the digital advertising space.
The Effects of Focusing on The Metaverse
Meta’s instability began with the iOS 14.5 update that tanked its advertising product’s performance. As Apple runs the devices that the Facebook app is often installed on, Meta has had trouble coming to terms that the fate of its own app would be controlled by a potential competitor’s policies.
To date, a whopping 100 billion dollars has been spent on building the Metaverse, with $15 billion spent just last year. A $3.7 billion loss over the last three months was suffered by the Metaverse wing of the company, with larger losses predicted to come in 2023. The tactic thus far has been to sacrifice short term loss for longer term gain, but those invested in the company have already begun pulling out, with Meta’s shares dropping by over 25%.
Meta’s efforts in building the Metaverse are challenged by investors. Altimeter Capital urged Facebook to put a cap of $5 billion on its Metaverse spending in an open-letter. Investors are frustrated at the company’s focus on a new product that has yet to generate a return.
As hardship hits the economy, and advertisers pull back spend, Meta’s advertising profits were cut in half during the third quarter alone. The increased competition in the space is not helping the situation, as TikTok’s advertising platform finds brands flocking towards it (not to mention its wide organic reach). Rather than Meta going all-in on its advertising platform, it steers its focus onto a product that has only suffered losses. Meta is also now getting ready to layoff its employees in the first ever mass layoff the company has ever experienced.
Apple’s Rise As a Major Player
Between Apple's ad cramdown, young people abandoning FB, and spending $250 billion on "the metaverse", I'm wondering if Meta might actually just die as a company.
— Noah Smith 🐇🇺🇸🇺🇦 (@Noahpinion) October 29, 2022
As Apple laid the foundations for a failing advertising product on its devices, it also laid the foundations to establish themselves as a major player in the digital advertising space. Since the iOS update, Apple has begun expanding its advertising tools to all Apple users.
Apple App Store Search Ads accounted for “58% of all iPhone app downloads” last year, and Apple plans to double down on them. Apple search ads will appear when users search for apps that marketers bid on. For example, an advertisement for AliBaba app appears in the search results when you search “Shopify.” This is a bottom-of-the-funnel advertising strategy that allows apps to capture their target audience without needing much data, circumventing its own rules on app tracking. Apple is releasing new Apple search ads placements, including on the homepage of the App Store for all app store visitors to see.
Apple is set to begin allowing marketers to buy space on its Apple TV+ streaming platform, a move we have seen Netflix newly adopt with its ad-supported tier subscription. They are also rumoured to be building their own Demand Side Platform for their Apple TV+ advertising, allowing advertisers to buy media rather easily. It is likely that once they build a successful DSP, although originally intended for Apple TV+ advertising, they will use it for other placements on apple products, such as Apple Books and Podcasts.
Will Apple’s Efforts Work?
This isn’t the first time that Apple tried to enter the ads business and compete with Facebook and Google. It released its advertising product, iAds, in 2010, only to be shut down in 2016 due to data limitations and high costs for brands.
Although a lot of Apple’s monetization comes from subscriptions on Apple products (Music and TV+, and Apple News), doubling down on Apple ads seems a natural next step for them.
Although Apple sees to have set themselves up for success, that isn’t to essay that their ride to ad domination will be a smooth one. In the face of antitrust laws, Apple has been working towards dominating the ads space with the release of App Tracking Transparency, or ATT. Third party apps like Meta and Google are blocked from sharing user data, yet Apple ads is still able to deliver personalized ads based on gender and age.
"Everything is an Ad Network" and the billboard-ification of the iPhone has to be one of the most ironic outcomes from a major platform policy decision in consumer tech history. I wonder how Steve Jobs would feel about this. pic.twitter.com/4MwjQWY17Q
— Eric Seufert (@eric_seufert) October 31, 2022
