Contributed by Edwin Doyle, Global Security Strategist, Check Point Software. 

With 86% of small businesses using Facebook for advertising, use of the social media network makes a significant difference in a marketing strategy. But now, Facebook says that many of these 10 million advertisers will see a major drop in business because of an Apple iOS update.

The War of Words and Actions

The situation came to a boil on January 28th, when Apple’s CEO, Tim Cook, called for greater scrutiny of businesses that depend on misleading users and exploiting data. “The fact is that an interconnected ecosystem of companies and data brokers, of purveyors of fake news and peddlers of division, of trackers and hucksters just looking to make a quick buck, is more present in our lives than it has ever been,” said Cook.

Earlier in the day, Apple announced the rollout  of their new privacy feature, which is known as App Tracking Transparency (ATT). The opt-in requires developers to ask for permission to track iOS 14 users in ad targeting campaigns. ATT will go live in the next iOS 14 beta, “starting with the beta versions of iOS 14.5, iPadOS 14.5, and tvOS 14.5.” It seems that no piece of information is too private or personal to be surveilled, monetized, and aggregated into a 360-degree view of your life…When ATT is in full effect, users will have a say over this kind of tracking,” said Cook, talking about the privacy prompt.

The new privacy policy was announced in June of 2020 and was supposed to roll out with iOS 14, but Apple delayed its implementation to give developers more time to make necessary changes.

Facebook has not been shy of a word when it comes to Apple’s changes. The social network’s leadership have made statements accusing Apple of hurting the little guy with their iOS 14 update.

In a statement, Facebook’s CFO Dave Wehner said that they “continue to face significant uncertainty” in 2021. Talking about ad-targeting, he said that they expect to face more challenges, including “the impact of platform changes, notably iOS 14, as well as the evolving regulatory landscape.”

Mark Zuckerberg commented on ATT, repeating his previous position in a post-earnings call: “Apple has every incentive to use their dominant platform position to interfere with how our apps and other apps work, which they regularly do to preference their own,” he said. “This impacts the growth of millions of businesses around the world, including with the upcoming iOS 14 changes, many small businesses will no longer be able to reach their customers with targeted ads. Apple may say that they’re doing this to help people, but the move clearly tracks their competitive interests,” he added.

In response to the update, Facebook announced that it will show a new prompt on its mobile app for the iPhone and iPad. The prompt is designed to urge users to allow ad tracking so the social network can personalize ads.

The Numbers Game

Facebook has also put a number on it in its ads, stating that “Without personalized ads, Facebook data shows that the average small business advertiser stands to see a cut of over 60% in their sales for every dollar they spend,”.

The Facebook page also states that “Apple’s latest update threatens the personalized ads that millions of small businesses rely on to find and reach customers.”

Facebook says that the 60% figure mentioned in the ad comes from comparing the Return On Ad Spend (ROAS) for campaigns that leveraged personalized information with those that weren’t able to do so.

According to research published by the Harvard Business Review, there are several issues with the statement made by Facebook. One of the main issues is that ROAS does not tell you anything about the “revenues caused by advertising. ROAS does not indicate whether it was the ad that and generated the revenue or the fact that the customer was well-targeted. Another problem is that the number is much higher than what’s seen in randomized controlled trials comparing personalized advertising with no advertising.

Another stat that Facebook floated is that 44% of small to medium businesses began to use or increased their use of personalized social media ads during the pandemic. This information was based on a Deloitte study, but Facebook was incorrect about the percentages, adds the HBR report: “The industry with the largest increase was Telecom & Technology, but the increase was only 34%. Other industries had much smaller increases.”

Facebook’s concerns are obvious when you consider the potential revenue loss for the social network. According to a recent report from The Information, some internal estimates predict the opt-in rate on iOS to be less than 20%. To put the impact of iOS opt-out in perspective, let’s look at some key Facebook revenue stats by S&P Global: In Q4 of 2020, Facebook’s advertising revenue was $27.19 BN, and advertising made up around 97% of its consolidated revenue. According to one advertising blog, Facebook could see a 7% drop in revenue in Q2 of 2021. He also expects this drop to “continue due to marketers spending less on ads as more iOS users opt out.”

With Apple’s global market share of close to 12% and broad popularity among mobile users, Facebook is focused on the impact to its bottom line from ATT’s implementation. But, the result of this Apple-Facebook tussle isn’t likely to be as gloomy for small businesses as anticipated by Facebook.