In a couple of weeks, Apple is expected to release iOS 14, and the mobile operating system update will effectively retire the use of the Identifier for Advertisers (IDFA). That identifier is used to determine which mobile users downloaded an app or game in response to an ad, which enables game developers to measure how well targeted their advertising is. While some predict the loss of IDFA will have a big impact on the industry, others aren’t sure because there are still so many unknowns.
[Update: Apple confirmed it is delaying the change until early next year. In a statement, Apple said, “We believe technology should protect users’ fundamental right to privacy, and that means giving users tools to understand which apps and websites may be sharing their data with other companies for advertising or advertising measurement purposes, as well as the tools to revoke permission for this tracking. When enabled, a system prompt will give users the ability to allow or reject that tracking on an app-by-app basis. We want to give developers the time they need to make the necessary changes, and as a result, the requirement to use this tracking permission will go into effect early next year.”
Apple will start requiring apps to ask users for permission to collect and share identifying data, and very few people are expected to opt into being tracked if asked directly. I’ve interviewed a few experts about this issue in recent weeks. Opinions vary, but Consumer Acquisition CEO Brian Bowman sees the development as dire.
Analysts like Michael Pachter of Wedbush Securities aren’t sure the worst will come to pass, as he believes mobile game companies will adapt to a broader kind of advertising instead of tying payment to how successful an ad is at getting a single user to take a specific action. He also said in a research note that he thinks ad rates could fall, enabling game companies to reap more profits. But we won’t cover all the conflicting viewpoints today, instead focusing on Bowman’s concerns.
Sounding the alarm
By getting rid of the IDFA, Apple will prevent advertisers from learning much about the habits of anonymous users, which is supposed to make us all feel better. This could hurt companies whose business model relies on knowing a lot about users, such as Facebook and Google. But the IDFA controversy isn’t about a fight between Apple and two other tech superpowers.
The elimination of IDFA is going to have a broader impact, according to Bowman. The changes Apple is making with iOS 14 will “massively hurt mobile app advertisers,” Bowman wrote today in a blog post. That includes companies that focus on mobile ad measurement, mobile marketing, user acquisition, ad networks, and ultimately those who advertise, including game companies.
Apple signaled in June that this shift was coming, and mobile game publisher N3twork COO Dan Barnes raised an alarm for game developers at the Game Developers Conference Summer event in early August. But the launch of iOS 14 in September will still send shockwaves through the gaming industry.
Apple is responding to privacy regulations such as the General Data Protection Regulation (GDPR) and the California Consumer Protection Act. Privacy regulations have given platform owners a pass in the past — as long as they weren’t using actual user names and identities. Trusted measurement firms got access to data and tracked ads, measuring whether a particular ad prompted a user to take an action, like downloading a game.
Apple was fine with that for years and never disputed the notion that a game company could know lots of things about its own users. But Apple has assumed a more active and prominent role when it comes to sharing user data with other parties. Now Apple will do the measurement third parties once did, Barnes said. The company is shifting the industry to its SKAdNetwork and won’t give out user-level data anymore. It could take as long as 24 hours for Apple to send data about users, and what it sends won’t be what it used to be. On the plus side, some fraud might disappear.
“The result is companies are going to have to get better at messaging to their users and level up the creativity of their ads so they work better,” Barnes said.
Facebook sounded its own alarm about how the IDFA change will shake up the industry last week. It could cripple mobile measurement and marketing companies like AppsFlyer, Adjust, and Singular. It could hurt user acquisition companies, such as N3twork, Tilting Point, and Consumer Acquisition. By making it hard to track the efficacy of mobile advertising, it could also result in fewer downloads, less efficient advertising, and layoffs at mobile game companies — affecting a multibillion-dollar ecosystem.
This week, Aristocrat’s Big Fish Games mobile games division announced it would lay off 250 people. It didn’t blame the move on Apple, but Bowman wasn’t surprised. He thinks more layoffs will happen soon. Apple hasn’t responded to requests for comment on how the retirement of the IDFA will affect game and app advertising. But what Apple has proposed is a vast simplification of the processes the mobile ad industry currently uses to measure whether ads are effective. The user acquisition teams at mobile marketing firms, agencies, game publishers, and game developers won’t be able to do what they’ve done before, so they will suffer layoffs.
Apple plans to use the SKAdNetwork as a kind of replacement for the IDFA. With the SKAdNetwork, Apple will try to measure the success of ad campaigns while maintaining user privacy. The idea is to effectively get rid of cookies in mobile ads, but reports suggest SKAdNetwork doesn’t work well yet. Some industry experts wonder whether Apple plans to internalize the work that has so far been done by the mobile ad ecosystem, but the company has not taken that step yet. And it has provided very little information about the SKAdNetwork, from the view of mobile ad companies.
Bowman hopes Apple will delay the IDFA retirement and SKAdNetwork rollout by six-to-12 months. The Information reported today that Apple is considering such a delay.
“The mobile advertising ecosystem hasn’t had enough time to prepare for the biggest change in 10 years,” Bowman wrote. “Based on countless conversations with ad networks, mobile measurement partners, and CTOs, Apple’s [SKAdNetwork] product isn’t ready for prime time.”
Bowman believes a delay would give companies a grace period to transition to other forms of performance advertising and give Apple time to improve its own mobile marketing tech. He stresses the magnitude of the transition, as all businesses touching iOS will have to change.
Layoffs on the horizon
Bowman said if Apple follows through with its plans to retire the IDFA, “layoffs will happen industrywide to mobile app advertisers of all sizes by the middle of November.” This is in spite of the fact that mobile gaming is booming during the pandemic as folks turn to gaming while sheltering in place.
Bowman warned that the layoffs won’t be restricted to a vertical like gaming or ecommerce, or to marketing staff with expertise in a single network, like Facebook or Google. In preparation for iOS 14, Bowman said “all CFOs I know are adjusting down revenue projections and refining P&Ls by fully loading costs for marketing and user acquisition teams and factoring in salaries, rent, benefits, etc. to get a ‘true cost’ of advertising profitability and then comparing against external solutions from agencies and third parties.”
The result will be that user acquisition teams will be downsized, driven by uncertainty and disruption to the lifetime value (LTV) models they’ve gotten used to. (The lifetime value of a user is how much money the user will bring in over the course of playing a game or an app.) If you can’t track spending on a user level, then you no longer know what that user’s LTV will be or how to remarket to that user.
The anticipated layoffs will be fueled by automation of tasks that user acquisition experts ordinarily do, and media buying will be handled by automated Google and Facebook ad programs, including Google UAC and Facebook’s Automated App Ads. But Facebook will lose things like the timeliness of its knowledge of user monetization histories after iOS 14 launches.
Beyond bracing for layoffs, mobile game companies are taking proactive measures ahead of the change. Zynga is trying to amass a huge number of its own users it can cross-advertise to without any restrictions. That drove its recent decision to acquire hypercasual game maker Rollilc, Zynga CEO Frank Gibeau said in an interview with GamesBeat.
Advertising budgets will be cut for mobile app advertisers, but more steeply in medium to smaller companies, Bowman wrote. The big companies may have to sacrifice ad budgets for their older titles in favor of driving growth for their primary titles. Marketers will have to focus on the creative side of ads in order to optimize spending across networks. Agencies that are good at this kind of work will grow, Bowman said.
“We believe market data is more valuable than ever,” App Annie general manager of analytics Ron Thomas said in an interview with GamesBeat. “You have to do more than just go deep on every single user acquisition and look at LTV on an individual basis. You have to understand what the ad performance is like on a much more macro level.”
Companies like Facebook currently target at the user level using event histories. After iOS 14, Facebook will have to target much broader segments of users with demographic and interest data. That means Facebook’s customers, including mobile app and game makers, will generate less revenue from their Facebook marketing. In testing, Facebook has seen a 50% drop in Facebook Audience Network revenue for publishers when personalization was removed from mobile ad install campaigns.
Facebook said it is working on strategies to deal with the changes. Consumer Acquisition is seeking to hold talks with companies in the mobile ad ecosystem to figure out what to do. There could be a real shift to Android, but as Epic Games recently pointed out, two-thirds of the profits in mobile games are on iOS.
A small percentage of iOS users are expected to opt into sharing their data. But when it comes to asking users how they want to be tracked, “looking at the iOS 14 beta, the wording is not friendly,” Barnes said.
Google would do well to watch what happens here.
Updated: 10:08 a.m. Pacific on September 3 with Apple’s confirmation of a delay.
In reaction to the update, Matt Barash, senior vice president at AdColony, sent the following statement:
This announcement is a stunning development that changes the market outlook for the remainder of 2020 — not just for the mobile economy but the advertising industry at large. It will allow for business continuity through the end of the year.
Historically, with the release of a new version of an iOS, Apple has provided partners with strong technical documentation to support their philosophical statements. In this case, many industry players were left struggling to connect the dots based on interpretation and left feeling as though the expected support from Apple was absent. That led to an unprecedented industry-wide feeling of uncertainty heading into the anticipated mid-September release.
While privacy advocates may see this as Apple capitulating, the decision will ultimately benefit consumers, as developers now have a greater opportunity to balance the user experience with enhanced user privacy initiatives.
Apple has an obligation to get consumer privacy right on the first try and was faced with a realistic possibility that many users’ favorite app developers could be forced out of business, or apps removed from the App Store due to compliance issues. This would have been a public relations disaster. There is tremendous pressure for all involved to be mindful and design around the delicate value exchange between user and publisher while not completely destroying the user experience. The impending delay will allow proper time for developers to build their product and monetization strategy properly, rather than cobble together something more “right now” than “right.”