Why Facebook is worried about Apple IDFA change: Insiders

Facebook CEO Mark Zuckerberg.

Andrew Caballero-Reynolds | AFP | Getty Images

For the past few weeks, Facebook has been running an advertising campaign in defense of personalized ads, arguing that targeted advertising is the key to the success of small businesses.

The catalyst for this campaign has been the constant battle between the social media company and Apple Pal. This battle focuses on a unique device identifier on every iPhone and iPad called IDFA. Facebook and others that sell mobile ads rely on this ID to help users target ads and evaluate how effective they are.

With the next update in iOS 14, apps that want to use IDFA will have to ask users to opt in to tracking when the app first launches. If users dislike it, it will make these ads much less effective. Facebook has warned investors that the change could hurt its advertising business in all three quarters.

But Facebook has been vocal about how damaging the change is, with competitors such as Twitter and Snap saying the change would be good for user privacy and could also benefit their business. Google, the leading advertiser on the web, has said little about the changes, while simultaneously introducing its own privacy-related changes to its Chrome browser and promising to stop tracking individual users altogether.

CNBC spoke to a handful of former Facebook employees who have worked on the company’s ad products and businesses and why the social media giant is making such a big fuss about Apple’s upcoming transformation.

How Facebook changes

The most serious stakes for Facebook are what are known as view-through conversions. This metric is used by ad-tech companies to measure how many users have seen an ad, not immediately clicking on it, but later making an ad-related purchase.

Think of view-through conversions like this: You’re tapping through your Instagram stories and you see an ad for a pair of jeans. You wouldn’t tap below the ad for more information because you’re busy checking out what your friends are up to, but the jeans were beautiful. A few days later, you go to Google, search for the jeans you saw on Instagram and buy them.

After the purchase is made, the retailer records the user’s IDFA of the jeans buyer and shares it with Facebook, which can determine if the IDFA matches the user’s view of a jeans ad. This shows the retailer that their Facebook ad works.

Losing that kind of size could be a big blow to Facebook. If advertisers are unable to accurately measure the effectiveness of their Facebook and Instagram ads, they may be forced to shift more of their budget to other apps and services where they can see a definite return on investment for their ads.

Facebook is the number one recipient of ad online ads, behind Google. One particular threat is that advertisers will pour more money into Google’s search advertising business, which cannot duplicate Facebook, and which target users at the time of conversion.

In the case of specific businesses, the IDFA change will particularly hurt its Aud Dians network.

Facebook ience Dians Network provides ads in applications other than Facebook, and uses IDFA numbers to determine the best ads to show each user based on Facebook’s data. For instance, the soft drink maker may decide to target gamers between the ages of 18 and 34 in the San Francisco Bay Area with a new promotion. The company can use the Facebook ience Dianes network to place those ads in front of the right audience in mobile games; Facebook will split ad makers with game makers.

But if users dislike IDFA tracking, all that personalization created by Facebook will be irrelevant outside of the company’s own apps. In August Gust, Facebook acknowledged that Apple’s next iOS 14 could cut its ience Dianes network advertising business by more than 50%.

Almost all of Facebook’s revenue comes from advertising, but Facebook’s ience dianes network contributes a small part of it – less than 10% of the company’s net revenue, a person familiar with the number told CNBC.

In addition to view-through conversions, Facebook can lose valuable data about what iPhone-based users do on their devices when not in Facebook-owned apps. Already, Facebook collects a lot of data about its users from its apps, including Facebook, Instagram, Messenger, WhatsApp Tsp and others, but each additional data makes its algorithms better than what they do, including advertising targeting. Included.

However, Apple Pall lets users decide if they want to opt in to IDFA tracking, it will still allow app-builders and advertisers to collect some data through its SKAdNetwork API without explicit user permission. But the information shared will be much less granular – Facebook has warned in developer documents that it will not, for example, support the breakdown of activity in buckets such as region, age or gender.

Why all the noise?

Facebook knows it won’t be able to persuade Apple to change its mind about IDFA, but it has moved forward with the campaign in support of small businesses. Why

Reputation repair can be a cause. Facebook’s reputation has been in the gutter since the Cambridge Analytica scandal in March 2018, in which a data firm improperly accessed the data of 87 million Facebook users and used it to target Donald Trump’s ads in the 2016 presidential election.

Since then, Facebook has endured numerous scandals, excluding Democrats and Republicans, and has fought a never-ending battle against misinformation about its services.

Considering the moral high ground and saying it is a standing ovation for small businesses, the IDFA debate presents an opportunity for Facebook to recreate goodwill, even if it is on the part of the general public.

Also, IDFA tracking doesn’t go away – users have to choose to allow it. This means that Facebook and other app developers will have the opportunity to argue their case for each Apple Pal user.

Facebook’s marketing campaign is a key part of its case. The company wants users to combine device tracking with personalized ads and support for small businesses. “Don’t choose Facebook, do it for the coffee shop that cares for you,” is the gist of the message.

In a small subset of its users, Facebook has started showing signs telling them to opt in to IDFA tracking. This is what is known as A / B testing. Among tech companies, A / B testing is a popular strategy for finding the most effective way to do something. In this case, Facebook can show different prompts to different users to determine which prompt would be best to convince most people to opt in to IDFA tracking.

Most small businesses should not pay attention

Asked if the IDFA change would really affect small businesses as former employees gave mixed answers, according to Facebook’s claim.

With less tracking data available at its disposal, Facebook and all of its customers, including small businesses, will not be able to effectively target the ads they once made. So in that sense, yes, small businesses will be affected.

However, for many small businesses, change may not be all that noticeable.

For example, if you’re a small coffee shop in Texas Stin, Texas, you don’t need much data to target your ads, said Henry Love, a former employee of Facebook’s small business team. Such businesses typically limit their targeting to fairly broad categories – for example, a range of age and distance from a specific pin code, allowing Facebook users to target ads near them. This is the kind of data that Facebook will be able to collect from its own apps without the need for IDFA to track user activity elsewhere on its Apple Plus devices.

“If you talked to any restaurant owner anywhere and asked them what IDFA is, I don’t think any of them would know what it is,” Love said. “It’s affecting Facebook on a scale. Not small businesses.”

Some small businesses that may experience the effects of the IDFA change are start-ups backed by Venture Capital Money, which has hired professionals with the skills to target sniper-accuracy users, Love said.

“People who only target mobile, web and Facebook ience dines networks, they’re not really small business.” “They’re sophisticated, VC-backed startups. They’re not your typical SMB.”

Also, this spring is not ready to change until early Tuni, Facebook has known about it for a long time, and is bringing many alternative solutions for businesses.

Most notably, the social media company launched Facebook Shops and Instagram Shops in 2020. These features make it possible for brands to list their product catalogs directly on Facebook’s most popular apps and sell goods directly on Facebook and Instagram. If the sale takes place within the walls of Facebook, IDFA tracking will not be necessary.

You may already encounter some brands selling directly on Facebook and Instagram. Expect to see more going forward.

Megan Graham contributed to this report.