Apple has introduced a change to its iOS mobile operating system which forces app developers to give iPhone and iPad users a choice over whether they want to be tracked when they leave the app and roam across the internet. Sam Gilbert discusses what this could mean for businesses, users and the economy.
Privacy changes by Apple have been lauded for upholding individuals’ rights and freedoms. A new feature, called App Tracking Transparency, requires developers to get explicit opt-in consent from the users of their apps to track their internet activity and target them with advertising.
This has some significant downsides for buyers and sellers of digital advertising. Because Apple has effectively changed the default setting for tracking, it is expected that only a minority will opt in, reducing the proportion of iPhone and iPad users who can be tracked and targeted by as much as 80 per cent. As a result, it will become harder for advertisers both to reach the audiences they are interested in, and to measure the effectiveness of their marketing activity. Media owners, meanwhile, will see the prices they can charge for their inventory fall, as a greater proportion of it becomes generic, and therefore attractive only to advertisers focused on the lowest common denominator – online gaming sites, dating apps, and the like.
Few people outside the digital marketing world will feel much sympathy for buyers of advertising, or for the digital media owners who sell it to them. But the economic consequences are worth taking seriously. In general, marketing budgets won’t be able to be allocated as efficiently, with negative consequences for firms’ productivity. Larger advertisers like Disney, Walmart, or HSBC may switch more spend to traditional channels like TV and direct mail, but the costs involved will make that impossible for small-medium sized enterprises, who make up the majority of the 7 million+ businesses who advertise on Facebook and Google. The ability to find niche audiences – particularly via Facebook ads – has been crucial for the viability of “maker” businesses and the growth of many UK tech startups over the past decade. Many of these are struggling to bounce back from Covid; App Tracking Transparency hinders their efforts.
It is also worth considering what Apple gains by making these changes. No doubt its CEO Tim Cook and other executives genuinely believe in the value of data privacy for individuals – but there are several ways in which championing privacy serves Apple’s strategic interests.
The most obvious is that it hurts its rivals – Facebook in particular, as the vast majority of Facebook’s revenues come from mobile ads. Although they don’t compete in the same consumer markets, Apple and Facebook are in competition for investors’ capital – at the time of writing they are respectively the world’s first and sixth largest companies by market capitalization. Concrete moves like App Tracking Transparency, as well as public statements which seek to de-legitimize targeted advertising, create concerns for investors about the long-term sustainability of Facebook’s profits, in turn advancing the appeal of Apple stock.
At the same time, Apple is acutely aware of the threat of anti-trust regulation. Influential politicians like US Senator Elizabeth Warren and EU Competition Commissioner Margarete Vestager have the big tech companies firmly in their sights, and appear sympathetic to the claim of “surveillance capitalism” theory that the use of individuals’ personal data in advertising is the root cause of many of the digital world’s biggest problems. By positioning itself as the champion of data privacy, Apple hopes to convince Warren, Vestager and others that its power is legitimate, because it is wielded in a way that defends the data rights of its users, while other big tech companies undermine them.
That power includes a de facto duopoly with Google in the gatekeeping of mobile apps. To reach users, app developers have no realistic alternative but to list their products on the App Store, in exchange for which they must not only comply with Apple’s rules, but pay Apple up to 30% of the revenue they derive from their apps – an arrangement that can fairly be characterized as rentiership.
Less obvious still is the way public controversy about tracking and targeted advertising distracts attention from other issues where Apple is more vulnerable to criticism. Conditions for workers in the vast facilities in China where Apple components are manufactured and its devices assembled are harsh by Western standards. For workers in mines in Indonesia and the Democratic Republic of Congo where the tin, cobalt, and coltan needed to make iPhones and iPads are extracted, they are positively dangerous. With affluent users in affluent countries, it suits Apple for the defining issue of public debate about technology ethics to be data privacy – rather than hardware supply chains and global justice.
Ironically, the mobile users of the Global South have yet more to lose if App Tracking Transparency brings the era of advertising as the web’s predominant business model to an end. A rarely noted feature of digital advertising is its redistributive effect. The clicks of a European internet user are worth many times more than those of a user in Sub-Saharan Africa, but both users get access to the same set of free services – search, messaging, social networking, and so on. My analysis of Facebook’s financial results in Good Data showed this added up to a transfer of $25 billion of value from the Global North to the Global South in 2018. It is hard to see how a web monetized through subscriptions and in-app payments instead of advertising can preserve these effects.
We have come full circle: Apple’s privacy changes have been lauded for upholding individuals’ rights and freedoms. But for which individuals, and at what cost?
The views and opinions expressed in this post are those of the author(s) and not necessarily those of the Bennett Institute for Public Policy.