The past few weeks have seen a number of major players report their earnings for the quarter. What’s been interesting about this, is this is the first quarter that Apple’s AppTracking Transparency has been available for the entire quarter.
There have been winners and losers as these reports have been released, and we’re starting to see the true impact of how this is playing out for advertising. Let’s take a look at 5 companies to see what exactly happened.
Google saw only modest losses to it’s revenue for Youtube, as seen in the following exchange:
Doug Anmuth, JP Morgan: Thanks for taking the questions. I have two. First, I was just
curious if you’re seeing any impact at all from the Apple iOS changes in your business and
perhaps particularly in YouTube. And then second, given retail, the biggest driver of services growth, and, of course, you’re really just touching all parts of the economy, any more commentary on how you’re thinking about supply and labor shortage dynamics in the fourth quarter and if you’re perhaps seeing anything thus far there? Thank you.Ruth Porat, CFO Alphabet and Google: Thanks for the question. Starting with the iOS 14
changes. So, overall, as we’ve said, we’re pleased with the strength across our business. In the third quarter, it was broad-based, it was global. In terms of the iOS 14 changes specifically, they had a modest impact on YouTube revenues – that was primarily in direct response. I think, as you all know well, focusing on privacy has been core to what we’ve been doing consistently. And let me have Philipp take you through some more on that.Philipp Schindler, SVP and CBO, Google: Yeah. So from our standpoint, we see ATT as one aspect of the many broader ecosystem changes that are underway. And we’ve been investing in privacy-preserving technology for many years. Our focus is on supporting developers, small and large advertisers, creators, publishers so that they’re able to mitigate impact to their businesses. And we really see the future of digital advertising being built on advances in privacy-preserving on-device technologies which support the free and open Internet and, obviously, a robust ads ecosystem.
https://abc.xyz/investor/static/pdf/2021_Q3_Earnings_Transcript.pdf
It turns out that having access to desktop traffic, Chrome and all of Android actually helped blunt the impact of AppTrackingTranspency for Google across most of it’s lines of business. What will be interesting however, if this trend continues to hold when Android adopts similar mechanics to AppTrackingTranspency next April.
Snap Inc.
Snap missed projections due to the iOS 14.5 release impacting it’s business more than expected. This caused Snaps shares to slide in excess of 25% at the news. The stock presently sits at -26.72% for the past 30 days.
Jeremi Gorman, Snap’s Chief Business Officer had this to say during the earnings call:
We are continuing to work through the ongoing changes to digital advertising driven by Apple’s app tracking transparency framework, which was introduced as part of iOS 14.5. We saw meaningful adoption in June and July when Apple pushed all of its users to update to the new version of iOS. Broadly speaking, these changes have upended many of the industry norms and advertiser behaviors that were built on IDFA, Apple’s unique device identifier for advertising over the past decade, which now require a double opt-in by users in order to access directly. As part of these changes, Apple rolled out SKAdNetwork or Scan as a proprietary solution to allow app-based advertisers to continue measuring their advertising on iOS. The initial results we observed using Scan were generally aligned with prior industry standard solutions and we were among the first platforms to lean into this solution and push for widespread industry adoption. However, over time, we saw Scan measurement results diverge meaningfully from the results we observed on other first and third party measurement solutions, making Scan unreliable at a stand-alone measurement solution.
Furthermore, as our advertising partners have explored and tested Scan solutions, they have serviced a variety of concerns about its limitations. Every advertiser has their own unique fine tune perspective on the optimal parameters to measure ROI for their business, but Scan requires them to use Apple’s fixed definitions of advertisers success. For example, advertisers are no longer able to understand the impact of their unique campaigns based on things like time between viewing an ad and taking an action or the time spent viewing and ad. Additionally, real time campaign and creative management is hindered by extended reporting delays and advertisers are unable to target advertising based on whether or not people have already installed there app. As a result, we have accelerated our focus on developing additional first-party privacy-based solutions to help our advertising partners measure their campaigns effectively.
https://www.fool.com/earnings/call-transcripts/2021/10/21/snap-inc-snap-q3-2021-earnings-call-transcript/
Snap is clearly experiencing challenges imposed by AppTracking Transpency. They expect to invest in 1st party data solutions going forward but from the rest of the report believe that privacy preserving solutions will be required going forward.
Something else worth mentioning and something I have heard from other platforms is the delay imposed by the Apple reporting (randomized delay for reporting) makes it challenging to fine tune campaign performance. Certainly, this will likely to continue to be a challenge for advertisers going into Holiday 2021.
Facebook announced that Apple’s privacy changes would be headwinds affecting their advertising business and likely take multiple years to correct. Which you can see in this exchange:
Brian Nowak: ….just a little more question on Apple and the ATT changes. I
appreciate the color on accuracy and measurement improvements.Any more specifics you can share about where you’ve made the most progress from your investment to date and sort of some of the areas where you’re seeing more challenges, you need to continue to invest to really improve to navigate through this more challenging environment? Thanks.
Sheryl Sandberg: Yes. I can take that. I mean when you start at the top of this, you really have to think about what personalized ads are. And we think they’re better for people and businesses, and they’re especially important to small businesses. They also can be delivered, can be done in a very privacy safe way.
There are two big challenges coming from this iOS changes. The one is targeting and one is measurement. I’m taking the second one first. On measurement, we think we can address more than half of that underreporting by the end of the year and make more progress in the years ahead.
We estimate we’re underreporting iOS web conversions. We believe that real-world conversions like sales and app installs are higher. And so we have to do the work to help clients measure these properly in order for them to really understand the outcomes they’re getting and improving performance. And again, we think we can get a good chunk of that done this year and more in the next year.
Targeting is a longer-term challenge. Our direct response products are built on user level conversions. And as a result of the iOS changes, we don’t see the same level of conversion data coming through.
So we have to rebuild our targeting and optimization systems to work with less data. So this is a multiyear effort. We are developing privacy-enhancing technology to minimize the amount of personal information we learn and using more aggregate or anonymized data while still allowing us to show those relevant personalized ads and measure ads effectiveness.
In order for this to really work and benefit all businesses, it can require some cross-industry collaboration and more commerce tools, and those are going to be longer-term efforts.
https://s21.q4cdn.com/399680738/files/doc_financials/2021/q3/FB-Q3-2021-Earnings-Call-Transcript.pdf
So, while Facebook acknowledges advertising spend was negatively impacted, it believes it can solve the challenges through data modeling and enhanced targeting and optimization. The second part (targeting) is going to continue to get more difficult as regulation and technical changes to browsers occur, so I do wonder if they’ll be able to adapt fast enough to support marketers and their campaigns in light of the reduced ability to target and measure on mobile.
Twitter started off the question portion of their earnings call by speaking about AppTrackingTranspency directly.
Ned Segal Twitter, Inc. – CFO Let me also spend a moment on ATT. We continue to see opportunities around personalization on Twitter as we better leverage our unique signal to improve people’s experience and show their more effective ads across both brand and direct response. The revenue impact we experienced from ATT in Q3 increased on a sequential basis but remains modest. The impact of ATT is likely to vary across ad platforms given the unique mix of ad formats, signal and remediations on each as well as other factors, the mitigations we put in place and the speed with which we’ve adopted new standards like the SKAdNetwork and resulting changes across our technical stack have contributed to minimizing the impact to us. Since the launch of ATT in April, we’ve invested in supporting SKAdNetwork, opening up 30%-plus more inventory and scale on iOS and launch support for view-through attribution and SK Campaign ID management features in the Twitter ads manager. It’s still too early for Twitter to assess the long-term impact of Apple’s privacy-related IOS changes, but the Q3 revenue impact was lower than expected, and we’ve incorporated an ongoing modest impact into our Q4 guidance. We’ve seen our revenue product development, both related to and distinct from ATT, improved the performance of our products, and we expect that to continue
https://s22.q4cdn.com/826641620/files/doc_financials/2021/q3/Q3_2021_Twitter_Earnings_Transcript.pdf
Twitter wasn’t as optimistic as Facebook, but also didn’t fare as badly as Snap Inc. as a result of the ATT rollout. They also said it’s to early to tell the full impact, and that they have adjusted their Q4 guidance as a result.
Apple
In contrast to the other companies above, Apple sells devices and services. As a result AppTrackingTransparency was addressed, but in a much different context.
Krish Sankar — Cowen and Company — Analyst
Yeah. Hi. Thanks for taking my question. I have two of them too.
And Tim, I will give you a reprieve from the supply chain questions. I have two on services. The first one is on your new ATT, the App Tracking Transparency feature. And all the headlines it has garnered recently, I’m curious, the feedback you’ve seen or received from the advertisers and users and how they’ve also impacted search ads in your own ad business.
Give us, you know, a feedback and then I have a follow-up.
Tim Cook — Chief Executive Officer
The feedback from customers is overwhelmingly positive. Customers appreciate having the option of whether they want to be tracked or not. And so, the — there’s an outpouring of customer satisfaction there on the customer side. The reason that we did this is that, as you know, if you’ve followed us for a while, we believe strongly that privacy is a basic human right.
And over — and we believed that for decades, not just in the last year or so. And we’ve historically rolled out more and more features over time for — to place the decision of whether to share data and what data to share in the hands of the user, where we believe that it belongs. We don’t think that’s Apple’s role to decide and we don’t think that’s another company’s role to decide, but rather the individual who owns the data itself. And so, that’s our motivation there.
There’s no other motivation.
https://www.fool.com/earnings/call-transcripts/2021/10/29/apple-aapl-q4-2021-earnings-call-transcript/
With that said, Apple’s own services business (which includes advertising) did manage to exceed estimates by some $700 million, so it clearly benefited from the spend shifting that occurred following iOS 14.5’s deployment.
So what does this mean?
It would appear based on the above, that being a mobile exclusive service (Snapchat) hurt far more than the other services which had other avenues to mitigate the impact to Apple’s mobile devices specifically. Certainly, if other brands find that Apple’s own SKAN offering is lacking this will continue to cause spend to shift to platforms they can actually measure on, which brings us to Google.
It’s clear that between Search, Chrome and Android, that Google is fairly well protected from the time being, With that said, AdWords, Search 360 and Display & Video 360 all made updates to support AppTrackingTransparency, but with the sheer amount of 1st party data Google has access to, it seems they could still target advertisement fairly effectively, and have already been hard at work building data modeling to account for the new privacy first world we find ourselves in.
As for Facebook, despite the full page ad campaigns they took out ahead of the release, it seems they didn’t fare badly from a earnings point of view (despite the scandals they are dealing with). From the transcript however, it does appear they are some number years behind Google in being able to overcome the challenges posed by ATT, particularly when it comes to targeting of ads.
Twitter fared better then they expected, largely, they say because of a focus on branding and contextual advertisement. Still, they believe this will be working against them at least in the near term as they continue to attempt to understand the full impact to their advertising business. This style of marketing may end up being the way forward for brands seeking to minimize the impact of ATT and like requirements.
Apple’s services likely saw a surge, I would suspect, from the fallout of mobile advertising becoming more difficult. It’s very likely advertisers switched from mobile ad networks to purchasing ads directly on the AppStore. It’s not clear from the call if this was a winning strategy for those advertisers, but time will tell.
The Financial Times estimated that collectively, Snap, Facebook, Twitter and Youtube lost an estimated nearly $10bn from the ATT rollout, and that’s not including the holiday season, where traditionally marketing spend ramps up. The impact to next quarter could very possibly be worse for brands that rely extensively on targeted advertising.
It is clear however, that having more 1st party data is better, and I suspect we’ll see spend continue to shift and consolidate on the platforms that have the best 1st party data available to target against, which as you may expect – means Google will win at the cost of the ad industry overall at least in the short term.
We’ll need to see if other services follow Facebook’s lead and attempt to build their way to a solution. Even if multiple services decide to take this road – there’s no telling how well the final product will be, nor how long it will take to get there. Marketers should prepare now for the Android changes in April, as advertising is going to get more difficult going forward.