Abuse of Dominance: Apple’s ATT Costs Its Competitors $10B While Increasing Its Revenues by $700M

Here is the first assessment after 6 months of ATT.

After having caused a lot of ink to flow at the end of 2020, then at the beginning of 2021, Apple's App Transparency Tracking (ATT) came into effect during April 2021. Just 6 months after the implementation of this transparency policy, it is already time to make a first assessment of the consequences of the new virtuous model pushed by Apple.

The results recently published by Apple's competitors in the online advertising world showed that it had cost them nearly 10 billion dollars in just 6 months. This amount corresponds to the shortfall of Snap, Facebook, Twitter, and YouTube.

Not all of them are affected in the same way since Facebook and Snap are the hardest hit by Apple's ATT.

Apple's ATT has cost Apple's competitors nearly $10 billion

For those who have forgotten what Apple's ATT is all about, it's a new policy that requires third-party applications to ask permission before tracking users' behavior to serve them personalized ads. Logically, most users refused, leaving advertisers in the dark about how to target them. Advertisers responded by cutting back on spending at Snap, Facebook, Twitter, and YouTube, and diverting their ad budgets elsewhere, including to Android phone users and Apple's burgeoning ad business.

Sheryl Sandberg, Facebook's COO, said the changes to Apple meant that “the targeting accuracy of our ads has decreased, which increases the cost of getting results for our advertisers. And measuring those results has become more difficult”.

A Lotame estimate shows a 12% revenue loss in the third and fourth quarters for the four companies previously mentioned, or $9.85 billion. Snap proved to be the biggest loser in terms of percentage of its business due to its focus on smartphones, while Facebook lost the most in absolute terms due to its size.

Advertisers are now getting less bang for their buck on iPhones. Lotame gives the example of a men's underwear brand that acquired a customer with a $5 ad targeting 1,000 people. Since you can't tell who is a man and who is a woman anymore, you have to show the ad to 2,000 people to hope to reach 1,000 men. The acquisition costs have doubled and the return loss is 50%.

Facebook has the most to lose in this scenario, as the cost of serving ads on its platform has been rising for years. As soon as the relevance on Facebook is less good, advertisers will be better off migrating to a platform like TikTok where the cost per 1,000 impressions is much lower.

Snap and Facebook will continue to lose big in the coming months as they must build a new paradigm focused on user privacy

Ad spending isn't going down, though, but it will move to where marketers will see the best results. And that's not on Snapchat anymore. Snap was fooled by Apple's slow implementation of changes that coincided with an iOS update. Thus, the implementation of ATT from mid-April 2021 did not impact the results until mid-June 2021.

After the group's earnings release, Snap stock price thus lost more than 27% of its value or more than $30 billion in market cap. The way Snap has handled the implementation of the ATT has increased the sense of concern among investors.

Some analysts even believe that Lotame's estimates are conservative and that Facebook alone would have lost nearly $8.3 billion since the ATT went into effect. Worse, these analysts believe that the lost revenue will continue in the coming quarters as advertising groups rebuild using a privacy-centric paradigm.

Facebook and Apple's other competitors in this advertising space will have to rebuild their model from scratch. It will likely take them at least a year to build new, efficient infrastructure. The time it takes to develop and test these new environments thoroughly will penalize them.

For their part, Alphabet and Twitter were generally more spared by Apple's ATT. For Twitter, ad sales even increased by 41% in the last quarter. The company said soberly that it was less affected by Apple's policies because its ads rely more on context and image than on tracking consumers' mobile habits.

For its part, Alphabet has enough first-party data that it doesn't need to track users in third-party apps. The exception for Alphabet is YouTube. However, even in this case, the effect has been more than limited, to quote Alphabet's CFO Ruth Porat. In addition, Alphabet has benefited from advertisers switching to Android phones. When you lock in the iPhone, marketers do tend to spend more on Android.

Many have accused Apple of hypocrisy by abusing its dominant position to favor its advertising revenues

The reason these transparency and privacy changes by Apple are even more disturbing is that these groups are accusing Apple of abusing its dominant position. In the July-September 2021 quarter, Apple is reporting a record for its advertising business. Its services segment beat revenue estimates by $700 million to reach $18.3 billion.

Apple's CFO, Luca Maestri, simply stated that "advertising is a growing business, like everything else". This is not the opinion of Apple's competitors. This is even less so after hearing the same Luca Maestri declare Apple's ambitions in the field:

“We believe we have the ability to continue to grow more over time.”

The windfall that Apple has been able to create for itself is now earning it accusations of hypocrisy. Apple defends itself, but it's worth noting that Apple has done a great job of turning privacy into a public relations game. Nevertheless, let's not fool ourselves. If Apple did this, it is because there is money in it.

Of course, Apple still defends itself through the voice of its CEO Tim Cook:

“We firmly believe that privacy is a fundamental right. So that's our motivation. There is no other.”

It's up to you to judge whether Apple's attitude seems normal or an abuse of dominant position since Apple's applications do not have to ask users' permission to target their behavior. We will see the evolution of the financial impacts for Apple's competitors during the year 2022.