Apps

Apple’s App Tracking Transparency Update Is Turning Out to Be the Worst-Case Scenario for Facebook

Two weeks after Apple rolled out what is arguably the most meaningful update to the software that powers the iPhone–requiring developers to request permission before tracking users–less than six percent of those users have opted-in. That’s based on data from Flurry, an analytics platform owned by Verizon Media that says it is used by 1 million apps. 

That’s a staggeringly low number that falls short of even the most conservative estimates. Advertisers had estimated that as many as 40 percent of users would enable tracking, but that looks like an overly optimistic prediction. 

Certainly, that number must be sounding alarms at Facebook, which has made quite a public fight over Apple’s move. The social media giant claimed that the iPhone maker was out to hurt small businesses and threaten the free and open internet. 

Late last year, Facebook even took out full-page ads in an attempt to, well, actually I’m not really sure what Facebook was attempting to do. If they were trying to put pressure on Apple to change its mind, it didn’t work.

If Facebook was trying to get sympathetic news coverage, that didn’t work either. In most cases, the ads were seen as disingenuous–at best. Even Facebook’s own employees could see that the ads were a bad idea.

And, if Facebook was trying to persuade users to allow tracking, that doesn’t appear to have worked either. It turns out that, when given a choice, most people would rather apps not track everything they do online. 

That part shouldn’t come as a surprise to anyone. But, the fact that users are declining to opt-in might not even be the worst news for Facebook. 

According to AppsFlyer, only around 15 percent of apps have started asking permission to track users, a sign that developers are waiting to see how things shake out. While they wait, it’s becoming much more clear that it’s Facebook that has the most to lose. 

Facebook’s entire business model depends on collecting as much information as possible in order to show users what it calls “personalized ads.” The bigger problem, however, is that developers and advertisers might just realize that the world isn’t coming to an end. 

In that scenario, Facebook’s value proposition starts to look less convincing. If most users opt-out of tracking, they’ll see ads. They may not be personalized based on which websites you visited. 

There are really two aspects of digital advertising that will be most affected by users opting out in mass. 

Apple’s identifier for advertisers (IDFA) is at the core of the company’s App Tracking Transparency (ATT). Think of the IDFA as a social security number for your iPhone, except no one is going to send you $500 a month when you retire. It’s a long random string of letters and numbers that can be used to identify an individual device.

Developers have to request permission before they can get the IDFA for your device. They do that for two reasons. The first is to identify a user across different apps or websites. It’s how Facebook knows that you’ve been shopping for a new watch. When you then open an ad-supported app, the app pulls your IDFA, and the advertiser–in this case, the watch store–can show you an ad for whatever you put in your cart.

The second way it’s used is to then measure the effectiveness of ads. This is most common in what are known as app-install ads for games.

Game developers buy ads on Facebook, and Facebook uses the IDFA to identify who is shown the ad. If you click on the ad and install the game, the developer knows you converted from the ad it paid for. That’s how Facebook justifies its ad product. 

Except, without the IDFA, it’s a lot harder to track attribution for ads. That means it’s harder for Facebook to justify its advertising products since advertisers won’t have the same level of information about whether their ads are converting.

Of course, Apple has an ad platform within the App Store. It’s a relatively small business for Apple, and the company has–for a very long time–ceded customer acquisition for apps to Facebook. Just recently, however, Apple has seemed to take a renewed interest in its own advertising products, hiring one of Facebook’s former ad product managers, Antonio Garcia Martinez, to its own team. 

Now, if Facebook’s ads are less useful because they can’t be targeted or attributed to individual customers, advertisers–especially game developers–just might find Apple’s ad platform a lot more interesting. That’s literally Facebook’s worst-case scenario.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.