Apple’s iOS changes could hurt Facebook in 2021

With nearly 3 billion users, Facebook (NASDAQ: FB) is one of the most popular websites in the world. Facebook not only attracts billions of users every month, but also collects large amounts of data based on user profiles. The company has brilliantly turned its vast treasury of users and data into a gold mine for advertisers.

However, the golden age of Facebook advertising may be drawing to a close. This is because Apple (NASDAQ: AAPL) is rolling out changes that will limit the data advertisers will have to track online user behavior. Specifically, Apple will change its Advertising Identifier (IDFA), which is a key tool for targeting users for advertising purposes.

Will Apple actually kill Facebook’s golden goose?

Image source: Getty Images

What is changing Apple

The IDFA is an identification code assigned to every single iPhone, iPad, Mac and Apple TV. By tracking the IDFA, marketers can know which websites a device has visited, which apps have been downloaded from a device, and which advertisements have clicked on a device. This allows advertisers to precisely target products a user would likely be interested in based on their past online behavior.

Historically, Apple has provided advertisers with virtually unlimited access to the IDFA. However, with the upcoming update to iOS 14, iPhone users will have to agree to allow advertisers to access their data. The activation request will ask users to grant access to their usage data to each mobile app that requests access. Switching from a default IDFA login to an opt-in is expected to result in many users choosing to opt out. This could make targeting with IDFA far less relevant than it used to be.

Online advertising companies such as Facebook have based much of their advertising tools on targeting users through the use of IDFA. Therefore, the changes Apple is making could end up damaging the entire online advertising ecosystem. The changes are likely to be a clear win for the consumer, as they will have the impact of strengthening privacy and security for iOS users. Perhaps it shouldn’t come as a big surprise that what’s bad for Facebook is sometimes good for the average consumer.

What Facebook risks losing

Facebook does not disclose the size of its iPhone advertising business. However, we know that, as of the most recent quarter, Facebook generated 40% of its revenue in the United States, with essentially all revenue coming from advertising. Furthermore, around 45% of smartphone users in the United States use an iPhone, according to eMarketer data. Therefore, it could be said with certainty that the changes to the IDFA will impact a large chunk of Facebook’s user base, which could represent many billions in annual advertising revenue.

Facebook won’t let its business suffer. The company continues to look for innovative ways to improve its advertising, with or without IDFA. For example, Facebook encourages websites to enter code that will report to the Facebook advertising network when users have taken actions (such as downloading an app or making a purchase). If a sufficient number of websites report user behavior on the Facebook network, their own alternative identifier can be developed.

In some ways, Facebook benefits from the IDFA changes. The IDFA is mainly useful because it helps Facebook to identify user activity that occurs outside the Facebook platform. Even without the IDFA, however, Facebook is still able to track what users are doing on its platforms. This could make Facebook’s proprietary data more valuable than it used to be because there are fewer data points available to use for targeting.

The disruption of Facebook’s advertising activity could also incentivize the company to promote its non-advertising business lines. The company has launched a small business e-commerce initiative called Facebook Shops which allows merchants to sell products directly from their Facebook pages. Facebook could turn lemons into lemonade by building new businesses.

Of course, Facebook is in a unique position because it has such a large user base and a huge amount of capital to invest in new solutions. Smaller websites that don’t have deep pockets could see their advertising revenue decrease if their ads become less effective. Even brands that have successfully found their customers on Facebook are at risk of losing if they no longer believe mobile advertising is a productive channel.

Looking forward

The changes Apple is making to its mobile advertising tools create a degree of uncertainty for Facebook in 2021. However, Facebook is a scrappy and nimble company that, at least historically, has done a great job of adapting to its environment. For example, several years ago, the company successfully restructured from being desktop-focused to being mobile-first. I wouldn’t bet against Facebook finding a way to make its advertising business work on the iPhone even without the IDFA.

Through: www.fool.com

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