Apple’s New iOS Means Significant Revenue Drop for Facebook

By Thomas Price Thursday, August 27, 2020

With the oncoming rollout of their newest update, iOS 14, Apple has put themselves in direct opposition to Facebook. Within Apple’s newest update, there is a clear focus on protecting the privacy of its users by requiring all apps to ask permission from each individual person in order to access their data. If agreed to, Apple then sends a unique code to the app called the advertising identifier, or IDFA. This then makes it easier for any given app to use that information to present targeted ads to the user and create a more likely situation where engagement with the ad is more likely. Currently, Facebook simply collects this data in order to connect users with businesses that would be specific to the interests and habits of said user without providing the option to opt out. Apple’s privacy update does precisely that.

In 2018, 98.5% of all revenue that Facebook made came directly from advertising. More specifically, it is calculated by the number of impressions or engagements by users with those ads. So, when selling space for advertising from other companies, the price of that advertisement is based on various factors involving the information of the user and how well their profile matches up to the product potentially being advertised to them. This is done through Facebook’s rigorous matching algorithm. The algorithm is built to create the largest possible amount of engagements on these ads, so the information on who will see it, specifically age and location, will be the most vital. For businesses buying advertising on or through Facebook, knowing that the ad space bought will be specifically for users in a location where patronizing their business is possible and to a demographic that would be interested, makes a vital difference. 

Facebook has an advertising system called Audience Network, which essentially connects businesses with a user base that would be most interested in their products through the vast collection of data that Facebook has at their disposal. Those businesses then run targeted ads directed at those users with specifications to age, location, and other information in order to maximize the possibility of engagement. However, with Apple’s new privacy update, the revenue generated through the Audience Network could drop as much as 50%.

In 2016, Audience Network was responsible for an estimated $1 billion in revenue for Facebook, so the potential drop off in revenue could be more than $500 million. With Audience Network being specific to targeted advertising done on other apps, this is not quite as significant as it may seem, given the company’s massive size and scope. 

As of 2019, Facebook’s total revenue on the year was in excess of $70 billion. This means that while the drop due to Apple’s new updates may be large, it would still only make up about .7% of its total revenue in a year. Facebook generates an overwhelming majority of its revenue on Facebook-owned entities such as the core Facebook app and Instagram. These apps require a direct log in which would then allow Facebook to collect data and information without having to go through Apple to receive it. So, even with the massive downfall in Audience Network revenue, Facebook is still projected to see a 4.9% increase in total ad revenue this year.

Who could suffer the most from this Apple update? Most likely, the answer is small businesses that use Audience Network’s information to buy ads that utilize their money to the most efficient degree by connecting those ads with targeted users. Given that many people will choose to opt out if presented with the option, the businesses that relied on targeted ads to increase engagement will be losing out. Facebook, which has billions of logged-in users, will feel very little of this fallout. In fact, Facebook even announced on Wednesday that Audience Network would not be used at all on products with iOS 14.

While this may not directly affect Facebook’s bottom line, Apple’s iOS 14 update will have some effects on the other businesses involved. It is still uncertain how deeply this will affect the businesses which use Audience Network or if users are more likely to use Apple products knowing that their privacy is protected.

About the Author

Thomas Price

Tom Price is a writer focusing on Entertainment and Sports Features. He has a degree from NYU in English with a minor in Creative Writing. He has been previously published for Washington Square News, Dignitas, CBR, and Numbers on the Boards.

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