July 7th, 2020
Note: As of January 28th, 2021, Apple has changed its policies regarding attribution on iOS 14. Read about that update and Branch’s latest stance here.
When Apple launched the iPhone in 2007, as revolutionary as the device was, it lacked a major component that has since come to define the smartphone experience: third party apps. The original iPhone was a closed device, stocked only with proprietary Apple software. It was not until a year later that Steve Jobs took to a stage and with his usual theatrical style announced the “App Store”, and promised it would change the world. Despite all the bombast, in private, Jobs held more modest ambitions. Chatting at the launch event, Salesforce founder Marc Benioff approached Jobs to congratulate him on the new direction, and also to offer a gift: By a twist of fate, Salesforce owned the web domain “App Store”, and Marc spontaneously promised it to Jobs for free, as a mark of their friendship. As Benioff tells it, Jobs responded “Thanks Marc, but I wouldn’t worry about it. This App Store thing is all PR — no one is ever going to make apps for phones”.
Fast forward, and history obviously played out somewhat differently. The introduction of bite-sized software for smartphones turned out to be one of the greatest catalysts for innovation the modern world has ever seen, and the app economy is now worth hundreds of billions of dollars — larger and more impactful than anyone could ever have anticipated.
One consequence of the unexpected and spectacular popularity of apps is that a lot of the infrastructure used today to underpin the app ecosystem evolved in small fits and starts, rather than being holistically designed. This is especially true of the mobile advertising ecosystem.
When the App Store launched, marketing was not something anyone at Apple considered. Apple provided a shelf for developers to place their products, but they offered no help for developers who might want to advertise their apps to attract new users. This created an analytics blackhole, where advertisers struggled to judge the efficiency of their ads. To the new breed of digital marketers used to working on the web, this lack of transparency was troubling.
A gold rush followed as new companies sprang up to help developers advertise their apps and track the performance of their advertising. After a few years, Apple themselves assisted with the introduction of special identifiers for phones — the ID for Advertisers, or “IDFA” — that would allow advertisers to more easily identify which users were clicking on ads and installing apps as a result. As the app industry grew, an ever expanding array of marketing technology companies refined the ability to track and target and measure ads. And now, by 2020, it would be fair to say mobile advertising has matured, and digital marketers today enjoy incredible visibility over the performance of their ads.
That transparency has created a booming market for mobile advertising, which in turn, has made it possible for millions of apps to exist. The vast majority of apps are free to download, supported only by in-app advertising. The benefit to consumers is hard to quantify, but around the world, every day, billions of people tap into free apps to read the news, talk with friends, share photos, stream video, or do a hundred other things that were beyond our wildest dreams a decade ago but are now things we all take for granted.
From a social perspective, the growth of the mobile advertising industry hasn’t been an entirely one-sided success, however. All of the innovation used to track the efficiency of advertising has also enabled companies to track consumer behavior in more detail than ever before. We now live in a world where the websites, apps, and ads we interact with can potentially track our behavior, our movements, our purchases; our likes and our dislikes. And this data can be merged and shared across many different companies. As awareness of these techniques has grown, people have become wary of what some term “surveillance capitalism”. Many now ask, does advertising tracking amount to an invasion of privacy, and how much is too much?
In this climate, Apple is pioneering a new approach, which seeks to better balance the needs of businesses and consumers. iOS14, coming this September, will make some fundamental changes to the way consumer data is handled. After 12 years of gradual market-led evolution, it seems Apple is now taking the reins and purposefully rethinking how ads and data should work.
Apple is introducing two main changes in iOS14. First, Apple will require all users to explicitly consent to have their data tracked for advertising measurement purposes. If an app developer wishes to access a phone’s IDFA (think of it as a phone’s license plate, or the passport number in your passport), they will have to ask for the user’s permission. If the user accepts, this magical, universal number upon which the tracking and advertising industry has been built, will still be available. But if the user declines, developers will be unable to see that identifier, and a decade worth of tracking technology will be mostly unusable. User-based permissions are not new to the industry. App users routinely grant permissions for apps to access their microphone, camera, and location, for example. However, granting an app permission to track one’s activity “across other companies and websites” (as Apple has worded the request) offers users no immediate benefit in exchange for a perceived loss of privacy. The result: user opt-ins are expected to be rare.
Apple’s second innovation in iOS14 is to provide a “Plan B” for when users decline to be tracked. Finally, 12 years after the App Store launched without support for measuring the effectiveness of advertising, Apple is making a real effort to provide advertising attribution. Apple’s solution is called “SKAdNetwork”. In a nutshell, this new service will allow advertisers to track which of their advertising campaigns ultimately led to new users installing their apps or making purchases; but without disclosing much information about what specific adverts a user has seen or clicked on. The intention is to allow businesses to know just enough about the performance of their ads to be able to continue investing in advertising, while never letting any company acquire a user’s exact details. Apple achieves this by creating a new flow of data, where more of a user’s data is retained on the phone itself. Advertisers are forced to rely on receiving only aggregate information about the success of their campaigns, rather than getting detailed user-level information on clicks and ad impressions. Crucially, as individual privacy is deemed protected in this approach, advertisers will not have to ask permission from users to measure ad efficiency this way.
Collectively, the move to make IDFA available only when users “opt-in”, and the push for advertisers to instead rely on the aggregate data available from SKAdNetwork, represent the biggest technical and philosophical shift in the mobile industry’s decade-and-a-bit lifespan. If these changes become widely adopted, it would re-architect the way data is handled online. Consumers would gain a significant degree of anonymity. And advertisers would lose precision. They would be less able to target individuals based on their past behaviors, and would lose some of their ability to precisely measure which channels are attracting profitable new customers. Those may seem like small sacrifices to pay for a world of greater privacy. However, one recent analysis by Facebook suggests the inability to personalize ads would lower the value of advertising inventory by as much as 50%. Such a massive contraction in advertising revenues would have a profound impact on the survival of most app publishers. In turn, having fewer apps available would hurt consumers.
So will Apple’s quest to enhance consumer privacy upend the mobile ecosystem? A lot will depend on how quickly the industry is pushed to transition away from individual-level data and whether better privacy-centric substitutes for the IDFA will be available. As yet, Apple’s announcements leave a lot of questions unanswered. Some developers hope they will be able to keep the old world order of IDFA tracking alive, by insisting that their users agree to share data in exchange for accessing their “free to play” apps. Others are exploring alternative technologies for tracking advertising efficiency, which do not rely on having access to the IDFA. But there is also uncertainty over whether these alternative technologies are indeed allowed under Apple’s new rules. And this begs further questions – even if some alternative technologies are against the rules, will Apple bother to enforce them? The next 8 weeks, ahead of iOS14’s consumer debut, will be filled with speculation.
Apple has a history of creating new product categories and radically reinventing others. The unbroken line of successful innovations from the iPod to the Apple Watch means it is revered like no other tech company. However, look more closely and one usually finds that Apple products start small, and gradually improve. The Watch is a classic example. Despite a bombastic debut in 2015, the original “Series 1” lacked many seemingly essential features. Indeed, it was only with the release of the Series 5 in 2019 that Apple finally delivered a watch that had enough power and wizardry to actually leave its face powered-on throughout the day. (Earlier versions would hibernate, leaving users with a dull, black rectangle on their wrist). Perhaps we should expect a similar evolution for SKAdNetwork. Released in 2018, we are now on the second iteration. We should anticipate continual improvement. When SKAdNetwork “Series 5” arrives in 2023, perhaps we can fully expect it will be an all-singing, all-dancing, all-bells ringing, privacy-by-design attribution system.
For now though, SKAdNetwork has a number of gaps that marketers will need to work around, and so we at Branch are preparing for a transitory new world order that will embrace Apple’s direction while innovating to fill those gaps. We will employ a hybrid of solutions. We expect some developers to find ways to keep the IDFA alive, for a short while at least. We expect others to embrace SKAdNetwork, and to try to apply statistical and econometric modeling to better understand the performance of their aggregate data. And we also expect advertisers to supplement their data with alternative user-level tracking methods, to better inform their advertising measurement.
The mobile ecosystem has developed beyond the expectations anyone held when the humble App Store first debuted. A dozen generations of hardware, software, and entrepreneurship has reshaped the world and put it in the palm of our hand. Those accomplishments are now taken for granted. The new challenge is to show that these benefits can be sustained and strengthened, while delivering on the increasingly high expectations for privacy.