Why Facebook is so upset about the Apple IDFA change: Insiders devers

In recent weeks, Facebook has been running an advertising campaign to defend personalized ads, claiming that targeted ads are the key to the success of small businesses.

The catalyst for the campaign was an ongoing battle between the social media company and Apple. The battle focuses on a unique device identifier on each iPhone and iPad called IDFA. Facebook and others who sell mobile ads rely on this ID to help target their ads to users and to estimate how effective they are.

With a future update for iOS 14, apps that want to use IDFA will need to ask users to opt in to tracking when the app is first launched. If users quit, these ads will become much less effective. Facebook has warned investors that these imminent changes could affect its advertising business immediately after this quarter.

But while Facebook has said out loud how harmful this change will be, rivals like Twitter and Snap have said the change will be good for users’ privacy and could even benefit their businesses. Google, the main advertiser on the web, didn’t say nearly as much about the changes, while introducing its own privacy changes to the Chrome browser and committed to stop tracking individual users completely.

CNBC spoke with a handful of former Facebook employees who worked on the company’s advertising products and business and explained why the social media giant is so furious about Apple’s future change.

The most critical criticism for Facebook is what is known as indirect conversions. This value is used by advertising technology companies to measure the number of users who saw an ad, did not immediately click on it, but subsequently made a purchase related to that ad.

Think of indirect conversions like this: tap your Instagram stories and see an ad for a pair of jeans. Don’t touch the bottom of the ad for more information, because you’re busy checking out what your friends are doing, but your jeans were cute. A few days later, go to Google, search for the jeans you saw on Instagram and buy them.

After making the purchase, the retailer registers the IDFA of the user who purchased the jeans and shares it with Facebook, which can determine if the IDFA matches a user who saw an ad for the jeans. This shows the retailer that their Facebook ad worked.

Losing this type of measurement could be a big blow to Facebook. If advertisers aren’t able to accurately measure the effectiveness of their Facebook and Instagram ads, they may be forced to move more budgets to other apps and services, where they can see the exact return on investment for their ads. .

Facebook is the number two recipient of online advertising dollars behind Google. A special threat is that advertisers will invest more money in the Google search advertising business, which Facebook cannot duplicate and which targets users at the time of conversion.

As far as certain businesses are concerned, the change in IDFA will particularly affect its public network.

The Facebook audience network offers ads in non-Facebook applications and uses IDFA numbers to determine the best ads to show to each user based on Facebook data. For example, a soft drink maker might decide to target players between the ages of 18 and 34 in the San Francisco Bay Area with a new promotion. The company could use the Facebook audience network to place those ads in front of the right audience in mobile games; Facebook would share advertising revenue with game makers.

But if users give up on IDFA tracking, all that personalization that Facebook has built will be irrelevant outside of the company’s own applications. In August, Facebook acknowledged that Apple’s future iOS 14 could lead to a 50% drop in its advertising activity on the Public Network.

Almost all of Facebook’s revenue comes from advertising, but Facebook’s audience network contributes only a small portion of it – far less than 10 percent of the company’s net revenue, a person familiar with the numbers told CNBC.

In addition to indirect conversions, Facebook can lose valuable data about what its iPhone users do on their devices when they are not in Facebook-owned applications. Already, Facebook collects a lot of data about its users from its applications, which include Facebook, Instagram, Messenger, WhatsApp and others, but each additional bit of data improves its algorithms to what they do, which includes targeting ads.

Although Apple allows users to decide if they want to opt for IDFA tracking, it will still allow app developers and advertisers to collect some data through its SKAdNetwork API without the user’s explicit permission. But the information shared will be much less granular – Facebook has warned in developer documents that it will not support the breakdown of bucket activity such as region, age or gender, for example.

Facebook knows it will not be able to persuade Apple to change its mind about IDFA, but it has promoted this campaign in support of small businesses anyway. Why?

Reputation repair could be a reason. Facebook’s reputation has been in the throes of the March 2018 Cambridge Analytica scandal, in which a data firm improperly accessed the data of 87 million Facebook users and used them to target ads for Donald Trump in the presidential election in 2016.

Since then, Facebook has endured numerous scandals, alienated Democrats and Republicans, and fought an endless battle against misinformation.

Taking the moral high ground and saying that it supports small businesses, the IDFA debate is an opportunity for Facebook to rebuild goodwill, even if it is only with a part of the general public, said a former Facebook employee.

In addition, IDFA tracking doesn’t go away – users will simply have to choose to allow it. This means that Facebook and other app developers will have the opportunity to plead their case with every Apple user.

Facebook’s marketing campaign is an essential part of his case. The company wants users to associate device tracking with personalized ads and support for small businesses. “Don’t opt ​​for Facebook, do it for the cafe you care about”, is the essence of the message.

Within a small subset of users, Facebook began posting requests asking them to opt for IDFA tracking. This is what is known as A / B testing. Among technology companies, A / B testing is a popular strategy for finding the most effective way to do something. In this case, Facebook may display different requests to different users to determine which prompt will be best to persuade most people to opt for IDFA tracking.

Asked if the IDFA change will actually have an impact on small businesses, as Facebook claims, the former employees gave mixed answers.

With less tracking data available, Facebook and all of its customers, including small businesses, will not be able to target their ads as effectively as they once did. So in this regard, yes, small businesses will be affected.

However, for many small businesses, the change may not be visible at all.

For example, if you’re a small cafe in Austin, Texas, you may not need too much data to target your ads, said Henry Love, a former employee of Facebook’s small business team. Such a company typically limits its targeting to fairly broad categories – for example, an age range and distance from a particular zip code would allow them to target ads to nearby Facebook users. This is the type of data that Facebook could collect from its own applications without the need for IDFA to track a user’s activity elsewhere on their Apple devices.

“If you talked to a restaurant owner anywhere and asked them what IDFA is, I don’t think any of them would know what that is,” Love said. “It affects Facebook on a large scale. Not small business owners.”

Among the few “small business owners” who could feel the effects of the IDFA change are venture capital-backed start-ups that have hired professionals with the skills to accurately target sniper users, Love said.

“The only people targeting the mobile audience network, the web and Facebook are not really small businesses,” he said. “These are sophisticated VC-supported startups. They’re not your typical SMEs.”

In addition, although the change will not take place until early this spring, Facebook has known about it for a long time and has launched a number of alternative solutions for companies.

In particular, the social networking company in 2020 introduced Facebook Shops and Instagram Shops. These features allow brands to list their product catalogs directly on the most popular Facebook applications and sell goods directly on Facebook and Instagram. If a sale takes place inside Facebook walls, IDFA tracking will not be required.

You may have already met a few brands that sell directly on Facebook and Instagram. Wait to see more moving forward.

Megan Graham contributed to this report.