A feature in iOS that led to a vast ecosystem of advertising-supported apps is going away. Here’s what we’re doing to prepare for this change.
Over the past several years, there has been much controversy in society, specifically about the disagreement about user data’s legality used in advertising without the clear user’s consent.
The entire mobile advertising market is built because the products generally provide entertainment and communication services on smartphones transmit part of the data to advertising companies, who pass them to advertisers. The aggregation and analysis of these data allow more targeted ads to a particular user, thereby improving its effectiveness, which has made it the standard of marketing, where any other formats exist as accompanying ones rather than primary.
This process was not immediate, neither even within a few years, it has been evolving over the past 20 years, starting back with web browsers, but over the past ten years, the pace of development has acquired signs of an exponent, making mobile apps first billion-dollar companies and then one of the most expensive and influential companies in the world. Aggregating hundreds of trillions of user actions and events every day, regulators have had thoughts and actions to control how companies dispose of them. First, in Europe, there appears a law on the protection of user data, “General Data Protection Regulation (GDPR),” which obliges to request the user’s consent for the collection of personal data, as well as allowing the user to delete and dispose of the data they have already passed as they want. Last year a similar law was enacted in California (CCPA), and there is no doubt that it will eventually be enacted throughout the United States.
However, these laws practically did not limit in any way the possibility of transferring data to advertisers, they only required a formal consent of the user for this, and there is little that has changed because no one ever reads the user agreements that are falling on us every day from absolutely different technological products.
The Back Story
In summer 2020, Apple revealed that it would allow users to block in a targeted way the transfer of information about them to advertising companies in iOS 14.
Further on, we will talk about how we have got ready for the iOS update to version 14.5, how the economic model of iOS users, and the adaptation of the traffic buying process will change based on our data.
All written below is relevant for products that primarily use monetization via in-app ads rather than in-app purchases. We present the data in the context of our flagship product, iFunny — a community for meme lovers and viral memes around the internet, being one of the top ten most popular entertainment apps in the US.
In the end, we will share our thoughts on the future of the mobile market after introducing the IDFA request.
Getting prepared for IDFA blocking
The implemented approach in the current version of iOS 13 is radically different from what will be in version 14. In iOS 13, it is not required that the user confirms the use of IDFA. Anyone who owns an iOS device can prohibit IDFA in the privacy settings if they want to. But AppsFlyer estimates that only 15% limit in settings the IDFA tracking.
It is expected with the transition to opt-in notification that the share of users blocking the tracking can exceed 70% and reach up to 90%.
First of all, let’s take a look at the standard version of the pop-up:
To get a starting point, we tested this case on a small group of users without any add-ons — we asked new users for access right after the request for push notifications, and the final conversion was at a low of about 15%.
As a result of months of A/B testing, we came to roughly this kind of pop up, which consists of a header with a message and a system pop up:
The message is under further testing, and we can’t show it, but this version of the pop-up already gives a 25–32% conversion rate depending on the message that will motivate the user to take action.
We think that after a series of further iterations, we will achieve a conversion rate of 45+% of users who gave access to IDFA, but achieving the initial results (~90%) is not possible.
Economics model analysis after the release of iOS 14.5
Our primary income is showing ads in the app, so the model is based on that.
We have primary data on the amount of revenue that each user brings. According to our statistics, users without IDFA have 80–85% less ARPU (average revenue per user) depending on the season.
Among all users, about 40–45% already use Limit Ad Tracking.
By calculating the percentage of permissions, based on the tests, we found on average, the ARPU of an iOS user can be reduced by 30–50%.
This is a very significant reduction in the iOS user’s margin, which cannot but affect the buying process of the user, about what we will talk about in the next section.
How we’ve changed the purchasing process in advance
According to StatCounter, the distribution between iOS and Android devices in the U.S. is 60% to 40%, therefore ignore the iOS platform, when your primary market is the United States, is impossible, but with iOS 14.5 leaving the purchase at the same level is a direct way to reduce the profitability of the business, if your primary income is advertising.
We decided that we will redistribute the budget towards the purchase of Android users. Previously the budget distribution in the U.S. was 50/50, but now 75% of the budget goes to Android users’ acquisition.
The budget distribution was not just because of the possible reduction in profits from the iOS device, but because of the Cost Per Install indicator — the fewer users you attract, the lower the CPI is.
The future of the advertising market
If we talk about monetization, we will face some drawdown in iOS users’ revenue because advertisers will not fully track LTV rates per user (even with SkAdNetwork) and apply return mechanics in the form of retargeting. With the decline in revenue per iOS user, in the future, we’ll see more situations where MVP is first launched on the Android system than on iOS as it is now.
It will also affect the market of advertising purchases. Budgets will start to be redistributed towards Android users’ purchases, which will likely positively impact Android users’ ARPU.
Perhaps, like at the beginning of the launch of iOS and Android platforms, we will again see different monetization types depending on the forum: iOS users will be monetized more often by the Premium model (access to the product subscription or one-time purchase). In contrast, on Android, we will see the monetization of products through advertising.
On a final note, it’s interesting to contemplate how the impact of this change highlights the powers now vested in major tech platforms to manage multi-national economies and how developers and advertisers will adjust in the long run.