Advertising & Developers Face Challenges - Rhea+Kaiser

At last June’s Apple Worldwide Developers Conference (WWDC20), the company announced the iOS 14 update effective in 2021 would feature Enhanced Privacy, providing more transparency and privacy control for iPhone users. Advertisers must now set expectations for the year ahead.

All apps will now be required to obtain user permission before tracking via the identifier for advertisers (IDFA) tracking tag, which allows apps to aggregate data without personally identifiable user information (similar to how a cookie works on browsers). The IDFA tag identifies a device but not the personal user, so advertisers can customize campaigns and track the users who react to them without accessing personal user information. The new enhanced privacy features also alert the user when apps are accessing their camera and microphone.

Advertisers and publishers – most notably, Facebook – are concerned the new privacy features will affect ad monetization and user acquisition, forcing app developers to quickly rethink their ad-supported business models.

Developers Brace for Ad Revenue Plunge
Enhanced Privacy means advertisers are beholden to users opting-in to the IDFA tag if they want to:

• track a user’s movement across apps and on the web
• analyze conversion activity that results from advertising
• serve targeted ads which generate more revenue for apps

While this new privacy update will improve transparency in the “developer-customer” relationship, Facebook has warned businesses that they could see up to a 50 percent drop in Audience Network ad revenue. Industry experts estimate that given the choice, 50-95 percent of users will select a limited ad tracking option rather than opt in.

Apple Offers Few Solutions for Advertisers
To date, Apple has offered little clarity on what type of tracking will be allowed. The company announced SKAdNetwork – similar to the “Privacy Sandbox” which enables Google to eliminate cookies from its Chrome browser – which can target within IDFA by sending aggregated information about app installs via an application program interface (API). However, advertisers and developers consider it to be a rudimentary solution. Apple needs to resolve some key issues before SKAdNetwork will considered a comprehensive solution. 

Advertisers Set Expectations
Regardless of its final form, Enhanced Privacy is not a goal Apple is likely to abandon, so what should advertisers expect?

• Less ad effectiveness and lower CPMs. Increased inventory with less effectiveness will drive down CPMs, which means developers who focus on monetizing ads and the value of the long-term user may need to reassess what they are willing to bid for advertising. Some apps may be able to develop a new formula at a lower CPM; others may not be able to find a business model that works.
• Publishers could start to prioritize subscriptions over ads. If CPMs drop, publishers will make less money on their ad inventory. They could try to make up the difference through subscriptions. Or, publishers could use subscriptions as incentive for users to opt into IDFA (if Apple agrees to that model).
• User experience of ads becomes crucial. Publishers and advertisers will have to offer value so their audiences will want targeted messages and opt into IDFA.
• First party data will become even more important. This gives an advantage to large social media companies and Google. They have ample first party data collected from their networks to drive targeting and personalization. Targeting and personalization will be more difficult for publishers without an extensive logged-in user base.

Rhea + Kaiser is looking ahead to a digital ecosystem where privacy is king. We are working with our digital vendors on data sources and targeting solutions that are not reliant on cookie or IDFA technology. First party data and contextual targeting will likely be key to ad effectiveness. We will continue to work with publishers, creating ways to use new technologies for targeted advertising solutions.

R+K’s resident expert Erin Hickey, Media Planner, Paid Media, contributed to this post.