Will Apple prioritize privacy over revenue growth?

David Raphael
Feb 18 · 6 min read

Apple first declared an ambition for advertising revenue when Steve Jobs announced iAd in 2010.

iAd was to be an advertising network which would integrate directly with iOS apps and offer developers 70% of ad revenue. While Steve Jobs predicted that iAd would reach 50 percent of the mobile advertising market, it never broke 5 percent.

Apple initially went after the large brand advertisers and saw iAd as a way to steal brand dollars from TV, requiring a minimum $1,000,000 ad commitment.

As this approach failed to gain traction, Apple pivoted to smaller advertisers and cut the minimum budget commitment by 99.99% — from $1,000,000 to $50 — but demand still languished and ad fill rates were extraordinarily low.

One of the key reasons for the lack of demand was the tension between privacy and monetization; chiefly, Apple’s unwillingness to share data with advertisers.

In an interview, Stefan Bardega, ZenithOptimedia’s chief digital officer, observed:

iAd has long been a story of unfulfilled potential. Apple has unique customer-level data that is hugely interesting to advertisers but has struggled (despite talented sales teams) to access that data in a way that doesn’t conflict with the core business.

In 2016, iAd was shuttered after failing to gain traction and unseat Google’s entrenched AdMob network.

In the wake of this failure, Tim Cook has come out as one of the only big tech CEOs swinging in favor of consumer privacy.

In a 2018 interview, he threw Apple’s business model in sharp relief against ad-fueled rivals like Google and Facebook.

The truth is, we could make a ton of money if we monetized our customer — if our customer was our product. We’ve elected not to do that.

The iPhone’s product marketing has shifted in this direction as well, highlighting the iPhone’s ability to protect your data with powerful encryption and privacy features.

Apple.com/privacy

With iOS 10, Apple released Limit Ad Tracking and nearly 20% of users have already opted-out.

This creates a blind spot for digital marketers because all mobile attribution systems rely on tracking the IDFA to associate ad exposure with app install. Without IDFA tracking, mobile marketers are forced to use significantly less accurate, non-deterministic methods of tracking like device fingerprinting

How mobile app advertising attribution works via AppsFlyer

The Rise of Apple Search

As Apple has leaned into championing privacy and demonizing advertising, Apple’s core iPhone business is facing existential headwinds. In 2019, iPhone revenue will shrink for the first time in history.

Now Apple is forced to look for growth from new business lines and advertising has emerged as a bright spot.

In a January 2019 call with investors, Apple CFO Luca Maestri focused his narrative on the 19% growth in Services revenue, now the fastest growing and second largest driver of overall revenue for the world’s most valuable company.

This included $500M in revenue from advertising — that is, nearly $500M in pure profit.

And so at least the first half of Tim Cook’s earlier observation became true: Apple was making a ton of money monetizing its customers.

Even though iAd failed as an ad network, the underlying technology was used to build something much more effective for advertisers and profitable for Apple.

Launched in October 2016 only months after iAd’s demise, Apple Search was informed by its predecessors’ failure. Unlike iAd, Apple Search didn’t seek to intermediate the relationship between the app developers and the advertisers. Instead, Apple chose to monetize the App Store itself and charge advertisers to bid directly on app keywords.

Apple Search is most analogous to Google Search, which is a hundred billion dollar profit center for Google. But when iOS users want to download an app, they don’t go to Google Search — they go to the App Store.

Alongside Facebook and Google, Apple Search now constitutes an essential marketing channel for every mobile app advertiser.

By auctioning off the first position of every App Store search result, Apple has effectively forced app developers to adopt Apple Search. If you don’t pay extra to defend your brand keywords, competitors will simply steal your users.

The Rise of Apple Search

As iPhone growth sputters, Apple is doubling down on Apple Search. There are two major initiatives Apple is taking to push advertiser adoption of Apple Search.

The first is internationalization. While Apple Search originally only offered advertisers access to the United States storefront, it has progressively rolled out access to more and more country storefronts. In June 2018, Apple Search became available in France, Germany, Italy, Japan, South Korea and Spain — joining the United States, Australia, Canada, Mexico, New Zealand, Switzerland and the U.K., which were already available.

The second is bifurcating Apple Search into two modes: Apple Search Basic and Apple Search Advanced. Apple is aggressively pushing non-advertising apps to try Apple Search basic with a free $100 ad credit.

The goal is to onboard advertisers into a more mindless and automated system wherein they select their daily budget and cost per install target and allow Apple to make all the decisions. Apple hopes advertisers will automatically spend money each month without needing to actively manage their account.

Apple Search Basic interface via Apple

But few advertisers should be using Apple Search Basic. Apple Search ‘Advanced’ is actually a fairly basic advertising platform and is significantly simpler to master relative to Google Search or Facebook.

If you’re interested in learning more about Apple Search marketing strategy and campaign architecture, check out my follow-up post highlighting how advertisers should approach setting up Apple Search for their app.

Will Apple Choose to Use Data?

Apple Search is a necessary traffic source for 100% of app advertisers because of the nature of the App Store ad inventory, but Apple Search is a terrible advertising platform.Apple Search was after all built on the ad tech bones of iAd, a platform which failed in large part because advertisers preferred to spend their budgets on platforms like Google’s AdMob, which empowered them to increase ROI with sophisticated targeting and attribution data. iAd’s data-poor legacy lives on in Apple Search.

Let’s first examine the competition. Facebook and Google are experts at ingesting all manner of data from advertisers and using the magic of artificial intelligence to automatically optimize campaign performance on behalf of advertisers. Advertisers spend more and more as ad performance improves and both Facebook and Google make billions.Apple Search doesn’t accept any data from the advertiser and can only report on ad clicks and app installs. This renders Apple unable to determine how well or poorly their ads are performing for their customers. Without performance data, Apple is incapable of automatically optimizing campaign performance for each advertiser.

Apple is increasingly stepping into its role as the champion for data privacy while shrinking iPhone sales continue to drag down profits. Apple will grow increasingly reliant upon their rapidly growing advertising business, which is projected to grow from $500 million in 2018 to $2 billion by 2020.

Will Apple continue to champion data privacy and position the iPhone as the necessary protection against an increasingly data insecure world?

Or will Apple choose to prioritize the growth of their advertising business by tracking user data and increasing advertiser ROI?

I suspect Apple will summon the cognitive dissonance to service both sets of customers.

David Raphael

Written by

I compete in the endless auction for digital attention.

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