In Its Quarterly Earnings Call, Facebook Discusses the Projected Effects of App Tracking Transparency on iOS

Although App Tracking Transparency only shipped this week as part of iOS 14.5, Apple announced it last year, and it got Facebook all riled up. The company has aggressively campaigned against the feature, arguing that it will harm small businesses because, as Facebook’s Dan Levy wrote, precisely targeted ads bring businesses’ costs down:

This affects not just app developers, but also small businesses that rely on personalized ads to grow. Here’s why. Small businesses have small budgets. For these small budgets to work, they have to be targeted at the customers that matter to small businesses. It doesn’t do a local wedding planner any good to reach people who aren’t planning a wedding. Likewise, it doesn’t do a small ecommerce outfit selling customized dog leashes any good to reach cat owners. Put simply, by dramatically limiting the effectiveness of personalized advertising, Apple’s policy will make it much harder for small businesses to reach their target audience, which will limit their growth and their ability to compete with big companies.

This line of reasoning was thoroughly debunked by Facebook’s ex-employees and the Electronic Frontier Foundation’s Andrés Arrieta who pointed out that behaviourally-targeted ads are often more expensive than more weakly-targeted versions because of the many intermediaries taking their cut. These types of ads produce mixed results for advertisers, have little benefit for publishers, are not very well targeted, and require us to sacrifice our privacy with few ways of opting out.

Then, in a Clubhouse chat with Josh Constine last month, Mark Zuckerberg said that Facebook “may even be in a stronger position” after the introduction of App Tracking Transparency because of Facebook’s uniquely large amount of user data. But that was contradicted somewhat in today’s quarterly earnings report in a comment from CFO David Wehner (emphasis mine):

We expect second quarter 2021 year-over-year total revenue growth to remain stable or modestly accelerate relative to the growth rate in the first quarter of 2021 as we lap slower growth related to the pandemic during the second quarter of 2020. In the third and fourth quarters of 2021, we expect year-over-year total revenue growth rates to significantly decelerate sequentially as we lap periods of increasingly strong growth. We continue to expect increased ad targeting headwinds in 2021 from regulatory and platform changes, notably the recently-launched iOS 14.5 update, which we expect to begin having an impact in the second quarter. This is factored into our outlook.

On the call, Wehner said that the impact would be “manageable” due to the company’s increased investments in e-commerce. How much Facebook’s own revenue will be impacted will, as the company says, be seen later this year. This quarter, however, there are no such worries for Facebook.

Barbara Ortutay, Associated Press:

The company said it earned $9.5 billion, or $3.30 per share, in the January-March period. That’s up 94% from $4.9 billion, or $1.71 per share, a year earlier.

Revenue grew 48% to $26.17 billion from $17.44 billion.

But for the small businesses Facebook ostensibly cares about, things got more expensive:

The average price of ads on Facebook grew 30% from a year earlier, while the number of ads increased by 12%.

Alex Heath of the Information on Twitter:

Takeaway from Facebook earnings:

  • Its pricing power for ads is increasing dramatically as Apple makes cheap ads less efficient

  • The business is becoming more efficient as it grows (43% operating margin!) […]

As is often the case for stories about privacy changes — whether regulatory or at a platform level — much of the coverage about App Tracking Transparency has been centred around its potential effects on the giants of the industry: Amazon, Facebook, and Google. But this may actually have a greater impact on smaller ad tech companies and data brokers. That is fine; I have repeatedly highlighted the surreptitious danger of these companies that are not household names. But Facebook and Google can adapt and avoid major hits to their businesses because they are massive — and they may, as Zuckerberg said, do even better. They are certainly charging more for ads.

That is not to say that we should give up and accept that these businesses destroy our privacy to enrich themselves and their shareholders. If we threw in the towel every time we realized that lawmaking was difficult or that laws would be broken sometimes, we wouldn’t have any laws.

You may have noticed my pivot from Apple’s platform rules to a more regulated approach. That is because I maintain that a legal solution is the only correct one. While I am glad this new control exists in iOS, privacy is not something people should buy. And, pursuant to Facebook’s earnings and forecast, there should not be a benefit from the increased scarcity of data due to better privacy controls.