How Apple's privacy update impacts mobile app advertising

Marketers that rely on a steady flow of new customers and app installations to keep growing are feeling the effects of Apple’s privacy changes on iPhones, which are leading to higher digital advertising costs. Last week, Zynga, the mobile game-maker, offered the latest look at how the digital ad market is shifting amid Apple’s privacy edicts, saying that customer acquisition is getting more expensive. “The adoption of Apple’s privacy changes resulted in a higher cost to acquire our players,” Zynga executives said in a letter to shareholders after announcing quarterly earnings. “In response, we scaled back our [user acquisition] spend to maintain target returns, resulting in fewer players installing our games during this period.” Zynga is well-known as the creator of the “Farmville” franchise and other popular mobile titles. Mobile app advertising experts say that Zynga is just one example of game developers and brands that are adjusting to the new privacy climate, which is curtailing access to consumer data and gumming up the ad works. E-commerce companies, traditional retailers, delivery apps, ride-hailing services, travel, and fast-food chains all rely on app-install advertising to find more users. “As apple removes IDFA, the certainty with which we understand who a consumer is to personalize ads has disappeared,” says Brian Bowman, CEO of ConsumerAcquisition, a marketing technology platform. “The efficiency with which anyone [on Apple] can operate is becoming more opaque.” Bowman says that advertisers are seeing a 15% to 20% lower return on ad spending on Apple devices that run the latest privacy-enabled software. Reports say that 70% of Apple devices have upgraded to the latest iOS software with the anti-tracking protections, the rest operate on older software, for now. So what’s happening: In April, Apple implemented privacy rules that force all apps to ask permission from users to track their activity on iPhones. Without that permission, platforms like Facebook, Snapchat, Twitter, TikTok, Pinterest and YouTube do not receive Apple’s Identifier for Advertisers, a code that is useful to help target ads and measure ad campaigns. When fewer people accept tracking, advertisers have less precise targeting tools for ad campaigns on platforms like Facebook. Mobile game advertisers are especially dependent on such targeting data, because they have customer-acquisition down to a science, knowing how much they spend to acquire each user and exactly how much revenue those users could expect to contribute over their lifetime. “These companies are extraordinarily smart on the lifetime-value calculations that run out two to three years,” Bowman says. “Those entire models need to be rebuilt.” Mobile marketing experts say that brands all over the spectrum have been affected, as about 75% of Apple users decline to be tracked, according to a Bloomberg News report. The tracking opt-in rate is different for every app. Even Facebook, one of the digital ad companies with perhaps the most data on consumers, says it expects less effective ad targeting in the coming months due to Apple’s privacy changes. Kate Lovejoy, VP of operations at Adikteev, a firm that specializes in app-install advertising, says that most game-makers are spending more to acquire customers through advertising. One factor contributing to higher rates is that more of the game-makers are moving more of their ad spend to Google Android devices, increasing competition in that ad marketplace, which raises the cost-per-install. Cost-per-install is the amount a marketer pays for one customer to download an app. Another factor is that these same developers also are competing for the Apple iPhone users who have yet to update to the latest iOS software. That’s a shrinking pool of available consumers, since most people have switched over to iOS 14.5, which is the operating system with the latest data restriction. Marketers can still use the old targeting tactics if the consumers are on the older software, but that’s fewer people, meaning more competition for the marketer, Lovejoy says. “On iOS, marketers have spent recent months fighting for the users who had not yet upgraded to iOS 14.5 or 14.6, leading to increased [cost-per-install] on these OS versions,” Lovejoy says. “Similar to what's happening on Android, these users were in high demand because we still have full visibility into performance.” App-install advertising will account for almost $100 billion in spending in 2021, according to AppsFlyer, an app marketing analytics firm. The global digital ad market will reach $455 billion in 2021, according to eMarketer, making app-install advertising a significant portion of the entire advertising landscape. Ikkjin Ahn, CEO of Moloco, a mobile ad tech software provider, says that brands are seeing higher user acquisition costs in the short-term, but that they will become more sophisticated as they get used to the new paradigm. Apple, for instance, is developing tools like its SKAdNetwork, which offers a new way to track app installs without sharing personal data. “This is a transition period, where advertisers will reduce spending while they test new measurement [systems] with smaller budgets,” Ahn says. In the meantime, there is a “temporary increase in costs.” “We see a 50% increase in [cost-per-acquisition],” Ahn adds. “But we will begin to see some downward trends as we introduce better machine learning models, and also adding all the features from SKAdNetwork.”

How Apple's privacy update impacts mobile app advertising

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