Technology

Apple’s privacy change is poised to increase the performance of the App Store

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NEW YORK, NEW YORK – SEPTEMBER 20: Apple CEO Tim Cook greets customers at the reopening of Apple’s flagship retail store, Apple Fifth Avenue on September 20, 2019 in New York City.

Taylor Hill | WireImage | Getty Images

The digital advertising world is preparing for a seismic change when Apple updates its iPhone software in the coming weeks.

The step known as App Tracking Transparency (ATT) forces app makers to ask for permission before they can collect a unique identifier on each iOS device, known as the advertiser identifier, or IDFA. A significant proportion of users are expected to say no. Nowadays, developers and advertisers use IDFA to target cellphone ads and measure how effective they are.

Apple has consistently said that the change to its platform announced in June is about privacy.

However, digital advertising experts say Apple could have a side effect: increased performance through the App Store, which gives Apple more control over the types of apps that become popular in the store and make millions.

In particular, it could become more difficult for app manufacturers to persuade consumers to download their apps via in-app advertising. This could help Apple direct consumers to the apps they want to highlight in the App Store for their own business purposes instead. For example, Apple could highlight more games that are billed through subscriptions, where Apple receives a rolling cut, and fewer casual games that are heavily monetized through in-app purchases, which could detract from the overall iOS gaming experience and damage Apple’s brand.

The move could also improve Apple’s own search ads, which are ads for app downloads that are displayed directly on the App Store.

Apple’s App Store and advertising business are both reported as part of the service business, which the company has highlighted as a growth engine for investors. In fiscal 2020, revenue was $ 53.8 billion, up 16% year over year.

“Apple managed to stake out the moral superiority I believe, claiming they are focused on user privacy. In reality, they turned app discovery and merchandising to Facebook and Google. I see them do it are trying to regain that control, “said Brian Bowman, CEO of Consumer Acquisition, a digital advertising company focused on user acquisition.

When asked for a comment, Apple reiterated its commitment to privacy.

“We believe that privacy is a fundamental human right and that users should have visibility and choice about how their data is collected and used. We have invested in privacy technologies for decades, with Intelligent Tracking Prevention in Safari and privacy labels in the app Save, sign in to Apple, and app tracking transparency. Our privacy features apply to all developers – including Apple. However, users won’t see any prompts about Apple app tracking transparency because we don’t track users. “

How the app installation screens work

For years, many of the apps that have topped Apple’s App Store charts have been boosted by a marketing strategy that targets users who are most likely to spend money.

Companies like Facebook, Google, and TikTok sell app installation ads. They usually appear as a popup or item in a feed in other apps. When users click on the ad, they are directed to a page in the App Store to download the advertised app.

App installation ads are a central part of the user acquisition strategy for many businesses, especially ecommerce and casual gaming businesses that require a small fraction of users to purchase many in-game add-ons. These users are sometimes referred to as “whales”. According to an estimate by AppsFlyer, which makes advertising software for app makers, app makers will spend $ 96.5 billion on app installation ads in 2021, roughly a third of total mobile ad spend.

That’s because they’re effective. Sensor Tower, an analytics firm that monitors app stores, released a study Thursday that found that referrals to other apps resulted in 20% of new app installs in the App Store in 2020. The only major source was direct searches on the App Store, which accounted for 59% of installs.

A mock-up of the pop-up window iPhone users see before using an app that tracks their data. This image was provided by Apple.

Apple

App install ads often sell by price per install, ranging from pennies to ten dollars. Typically, ad buyers estimate how much a customer in a given demographic can spend all their time on the app and make a simple math assessment. If the price per install is less than the estimated lifetime value of the people these ads are targeting, the app maker will buy as many of those ads as they can afford.

The ATT change and other Apple privacy enhancements are threatening this model by drastically reducing the amount of information marketers have about the effectiveness of their ads. Without this information, app marketers can’t tell if they’re getting the right people to install their apps.

“If you look at the companies that are investing $ 6 [million] At $ 20 million a month, every month for 18 months to get a payback, all of this stuff goes very, very quickly opaque when Apple flips that switch, “Bowman said.

Casual gaming apps, which frequently appear on Apple’s top grossing charts, are the most likely to be affected. According to an estimate by the Sensor Tower, games make up a large chunk of Apple’s App Store business and account for 65.8% of the spend on the platform.

For games, referrals are the main source of downloads. According to Sensor Tower, 38% of initial installations will be performed in 2020 – more than people who search directly in the App Store.

“The primary growth strategy for most, if not all, mobile game companies is paid ads. There aren’t really any game companies that don’t use them,” said Eric Seufert, the author of Mobile Dev Memo, who has a background in user acquisition for Game companies.

Unity, a company that makes game and promotional software for small developers, warned in February that the IDFA change could change “the way mobile game developers attract customers and how they maximize customer experience for life.”

Andre Kempe of Admiral Media, a marketing firm focused on mobile app publishers, believes Apple’s change could force game makers to change how their games work. Instead of relying on a few large funders, they may need to reach larger numbers of people to spend smaller amounts.

“As soon as they realize, okay, I have to make some money, a product manager would say, okay, we have to put a payment screen somewhere on the first level that you haven’t seen before so the user experience changes a little,” said Kempe.

Yes, Apple sells ads

There are more than 1.8 million apps in the App Store and App marketers say apps can’t rely on people to discover them on the App Store or wait for Apple to offer them.

“It’s the tyranny of overselection because you can go in there and, from a playful point of view, for the most part, access and download everything from the free-to-play site,” said TS Kelly, head of analytics at Carat, a media agency.

Apple prefers to advertise sleek, beautiful apps on the App Store that fit its brand image – not the casual games that are knowledgeable about advertising.

“If Apple harms advertising and makes it a lot less efficient, developers are more dependent on Apple in terms of awareness,” said Seufert.

However, there is one way to pay for better placement on the App Store: browsing ads.

Though tiny compared to Apple’s App Store revenue, which according to Sensor Tower was an estimated $ 21.7 billion last year, the ad business is growing.

In January, Apple’s CFO Luca Maestri announced that the company had achieved a record in advertising revenue. The company wasn’t any more specific. The Wall Street Journal reported in 2018 that it had annual sales of around $ 1 billion.

Apple’s search ads have an advantage over other ad networks because Apple doesn’t need to conduct cross-location tracking to identify people who are likely to buy. In the case of search ads, the user has already indicated their intention to download a certain type of app.

Because app installation ads are less effective, it may encourage more app makers to buy Apple’s search ads.

“A lot of advertisers will not accept the fact that they are blind to iOS and Facebook,” said Kempe, relying instead on the more detailed information Apple can give them.

Apple highlighted this ad business in its last earnings call, re-emphasizing privacy.

“The search engine advertising business is doing well, the search has many intentions,” said Tim Cook, Apple’s CEO, in an interview with analysts in January. “We do this in a very private way, observing the large data protection guidelines and so on.”

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Katherine Clark