Apple making the IDFA opt-in: privacy power move or cash grab?

In iOS 14, Apple is making the IDFA opt-in. Is this a privacy power move or a cash grab?

In other words, is Apple doing this primarily to increase privacy, or because what’s bad for advertising — which many app developers rely on for monetization, but doesn’t put any dollars in Apple’s pocket — might be good for in-app purchases and subscriptions … which Apple takes a 30% cut from?

The IDFA is a device identifier that advertisers use to know who’s engaging with their ads. It also helps ad networks target ads. In previous version of iOS, the IDFA has been default on, but users can turn it off. In iOS 14, keeping the IDFA on now means that each app must ask individually for permission to use the IDFA.

That’s probably good for privacy, but it’s tough on marketers and advertisers.

In this episode of TechFirst with John Koetsier, we chat with Abhay Singhal and Sergio Serra from InMobi, an ad network, about their perspective.

One note: Apple has delayed full implementation of iOS 14’s privacy moves until early 2021.

Get the full audio, video, and transcript of our conversation below …

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John Koetsier: Apple is killing the IDFA. Is this a privacy power move? Or is it a cash grab?

Welcome to TechFirst with John Koetsier. In the next version of Apple’s mobile operating system, iOS 14, Apple’s making a device identifier, the IDFA, opt-in. Most experts think the way they’re doing it will cause most people who see it to opt out, and that’s probably a good thing for privacy. But, it has some serious marketing implications and, maybe, it also means some extra revenue for Apple.

To learn more, I’m going to bring in Abhay Singhal and Sergio Serra, they’re with InMobi, an ad network. Welcome, guys!

Sergio Serra: Hey. 

John Koetsier: Good to have you guys. Hey, how does Apple benefit by making the IDFA opt-in?

Abhay Singhal: Very good question there, John. Look, InMobi is all about user privacy, so we absolutely welcome this move that Apple has made to make the user’s data more secure and just the opt-in part.

But the way Apple has approached this particular scenario is something that gives us a bit of shivers on how someone can fundamentally shift the entire backbone of the industry so, so quickly and give probably just a little over three months for the industry to adapt to it. 

John Koetsier: Yes.

Abhay Singhal: So the approach is the issue here, as against to just the thing that they are doing, and I believe there was a better way of doing that for sure. But certainly I think this is going to take us back to what I call as the stone ages of advertising.

People are really talking about contextual is better than precise, and who needs frequency capping, and why is retargeting good.

I mean, all of those things that we learned to understand as the backbone that makes digital advertising digital, are sort of all going out of the window.

John Koetsier: So Sergio, how does Apple benefit by making the IDFA opt-in? Is there a financial incentive for them? 

Sergio Serra: Right. So I think I would take a step back and how we talk about how the publishers can monetize today, right? So the primary way that publishers use to monetize their properties is advertising, as we all know.

And there are multiple studies out there that confirm that roughly these, the main revenue source for 65 to 70% of in-app publishers over that.

But if you forget advertising for a while, then the other options they are given is, actually are — one, the paid apps where, you know, you want to have an app, you go there and you pay, and then you will use the app forever. The other option is in-app purchase or also known as IAP, and you can think about it like, I don’t know, you’re playing a game and you want to buy some special weapon, you want to skip a level.

So usually game developers give you this flexibility, by paying a specific amount you can have access to that. And then lastly, there is another model, which is the subscription model.

So you can think about, I don’t know, Tinder, Spotify, Amazon, all the other apps that in order to benefit from their content you have to pay a monthly/yearly subscription depending on the model. Then there is also some minor source like, I mean, freemium, I consider this to be a subset of subscription, right.

And then maybe data selling.

But going back to the incentive for Apple, so Apple today has a very small stake when it comes to advertising. And if we focus on programmatic advertising, we are really talking about an industry of a hundred billion for 2020. And today, the only way that they try to take a slice of this, a share, is via Apple Search Ads.

But our speculation, at least my speculation, would be that if interestingly you look at their income statements, right, what you can see is that the first line is obviously the iPhone one. And, the second line in terms of revenue contribution is the services line.

John Koetsier: Yes.

Sergio Serra:  Yeah. Now this is a very strategic line for them because, of course, yeah, they have iPhone as a main product, but then you cannot expand forever, right? At some point you will reach a plateau. So services is what will give them the multiplier and they have been investing a lot into this.

Now looking at the components of the services line, the primary one is the App Store. So App Store is, basically speaking, really made of in-app purchases and subscriptions.

Paid apps is also there, but in their revenue is a very small percentage. As a matter of fact, if you look at the top grossing Apple Store apps, I think among the top 200 only one is a paid app. 

John Koetsier: Yes. Minecraft. 

Sergio Serra: Correct, correct. Absolutely.

So, since they are kind of 15 years late to the ad ecosystem, the only way — and this again, me speculating, is rather than try to get everything to advertising, to shift the revenue, the publisher revenue models and the business models to in-app purchases and subscriptions.

Now the upside for them is that for all the transactions their users have to go through the Apple payment system. 

John Koetsier: Mm-hmm.

Sergio Serra: So in this case, Apple gets a 30% fee for all in-app purchases, and for subscription it becomes a $15, sorry, a 15% percentage after the first year. But it’s a very big margin for a company.

John Koetsier: So basically what you’re saying is Apple wants to deemphasize advertising as a means of monetizing apps. And that has grown massively. I mean, it was almost nowhere probably three, four years ago, and grown to, late last year was probably 50% or over 50% of the revenue that developers on average were getting in terms of monetizing their apps.

So Apple, what you’re saying is they want to deemphasize advertising as a mode of monetizing your app and reroute that monetization revenue towards in-app purchases and purchasing apps and subscriptions.

Correct? 

Sergio Serra: Correct. And then I’m also happy to hear what Abhay has to say there, but I think there are speculations also in the market saying, you know, Apple is trying to enforce this because they want to get into the advertising game again and try to get a higher market share.

But I would actually disagree, because for them it’s a much more profitable business to look at the service line, right?

They are able to move the publisher towards that because, let’s face it, when you move away from the IDFA, which they are not officially deprecating, but making it difficult to access for everybody in the chain, then the only viable option for the publisher becomes in app-purchases or subscriptions.

And then I think these are much better strategies for them. 

John Koetsier: Abhay, let’s turn to you for a second and talk about Apple’s ad business. They bought iAD, it’s gotta be six, seven years ago or something like that, right. Now it’s called Apple Advertising, at least that’s what the option is in iOS 14, in settings. And it’s been called Apple Search Ads.

But we’ve seen that Apple Search Ads has been actually placing some ads outside the App Store recently. Talk about what you see there and how you see that growing. Do you see Apple growing that or not caring about that revenue too much?

Abhay Singhal: I don’t know whether they care about that revenue or not because, you know, Apple is bigger than many countries put together.

So I’m sure, you know, at their scale when a billion dollar business or a few billion dollar business is a pretty small chump change.

But interestingly, what is important is that the Apple Search is out there from an advertising perspective, but it is something that I haven’t seen big advertisers latch onto at scale at any point in time. 

John Koetsier: Mm-hmm.

Abhay Singhal: There’s Facebook, Google, InMobi, AppLovin, ironSource …  there are many, many different players that are literally the big players in that ecosystem. Unity’s numbers have just come out, and there are big insights here in this game.

So I don’t know what’s their strategy, but it is certainly, and it feels like an important play where they are making their own Apple advertising ‘on’ by default. They are insisting on a user if they’re gonna use any other sign-on, then they also need to use the Apple ID as a sign-on capability. Payment, if they’re using, they need to use the Apple Pay by default.

So it all feels like a very closed ecosystem that gets created, and a byproduct of such a closed ecosystem is a very effective advertising medium. Is Apple going to really do that? How far they’re going to go in the process of doing that? Only time will tell. I mean, Tim Cook had come out in 2019 and he said that, ‘Look, you are not our product. We don’t sell your data.’

But then, you know, we’ve seen these viewpoints change over the period of time for large corporations.

John Koetsier: Yes. It’s interesting, I recently upgraded to the iOS 14 beta and so I just took a look recently at what it takes to look at Apple advertising. So this is a screen share I literally made this morning.

You scroll down to …  there’s privacy, right? And interestingly, it’s not one of the main ones, it’s not at the top, it’s at the bottom, doesn’t even have an icon. I’m going to move back to that so you could see that for sure. No icon, there’s Apple advertising at the bottom, it’s default on, and if you click on it you see that it will share your data across a variety of different places, right?

Any thoughts on that? I mean, it’s default on for sharing data across App Store searches, Apple News, so it kinda knows what news you’re interested in. Maybe also if you’re a liberal, conservative, maybe if you’re into technology or you’re not, those sorts of things. Also stocks, so if you keep your stocks in Apple stock apps then it sees that. And then of course, some device ID, like the type of phone, language and stuff like that. How does that compare to IDFA access?

Sergio, maybe I’ll throw that question your way first. 

Sergio Serra: Yeah. So I think I will try to break this down in multiple points here. I think if they really wanted to solve for advertising in general, for the world ecosystem, they could have employed much better solutions, right.

And I’m sure we will talk about this later, but SKAdNetwork has multiple challenges over that.

Now, when you look at their, you know, default-on Apple ad setting, that’s true. Yeah, I think it’s arguable, but again, I don’t see this scaling the level that, you know, we are seeing today in the programmatic ecosystem. Just because even that framework doesn’t give you the flexibility that the advertisers are looking for.

So look at players like, I don’t know, Uber, Lyft. So these people are looking at very strict KPIs, like cost per first ride, for instance. But the framework they expose today, will just give you visibility into, I dunno, installs. Which is a very basic event, but if you want to scale and really invest as a marketer over that, heavily, you have to have multiple steps …  which today is not possible.

So I don’t see them as a real, as a really competitive alternative, frankly speaking. 

John Koetsier: Mm-hmm.

Sergio Serra: And I think, you know, in the past, if you look at what Apple did, you were mentioning the IAD, so iAd, it was never a big problem for us as a competitor or everybody in the ecosystem, because I think that the primary strategy of Apple is being a closed innovator.

And this comes with its own challenges, right? Because when you’re approving a [unclear word], of course, you kind of lose the sense of the market. So even in case of iAD, they were only supporting iOS, right? So in that case, you are already writing off, what, 50% of your ad revenue over that?

Especially in markets that are heavily Android driven.

So I think to your question, yes, like this, something that definitely put them in a better spot when it comes to advertising to take a larger chunk of that share, that market, but I still think that this is not their primary strategy. 

John Koetsier: Abhay, let’s talk about SKAdNetwork then, since Sergio brought it up. And you said off the top that, hey, you’re not necessarily against Apple making the IDFA opt-in, you were not happy with the fact that they were doing it unilaterally and giving people literally, I guess two months to get ready for it or something like that.

But Apple has provided SKAdNetwork as a methodology for people to know, hey, that ad campaign worked, to a certain degree, I got an app install from that. That’s good. You get one post-install notification or conversion result, or something like that, within 24 hours or shortly thereafter.

What would you have added to SKAdNetwork? Or what would you like SKAdNetwork 3.0 to add, to make it more useful for the ecosystem.

Abhay Singhal: Absolutely. So look, SKAdNetwork, as good an attempt as it may be to me, it’s a version 0.1 of where the industry is actually at right now from an advertising perspective.

To begin with, the number of entries that one can do in SKAdNetwork is extremely limited, and any good advertisers that you pick up is at any point in time running thousands of different campaigns and optimizing things across, and SKAdNetwork is very limited.

Second, it’s been a well known fact that there is deep optimization that happens across the entire industry on multiple different events that our user is doing post install. Are they active? Are they not active? Have they gone up to level 10? Have they gone up to level 5 of the game? Are they the first ride? Are they not taking the…  like, there are tons of events that happen that helps the advertiser optimize things.

With SKAdNetwork, none of those are possible, at any level.

And above all, I think what it is giving rise to is not a uniform way where the things can work across the board. The entire industry seems to be moving backward towards what they call as fingerprinting. And, you know, as much as I hate it, that’s possibly the only way.

So if you are an advertiser, you would have no definitive way of knowing whether any channel of yours works effectively over a period of time. And that’s a very scary sign for any advertiser, at any point in time.

So much so, that I’m sure you would have seen the Facebook’s announcement that came out today morning, where actually they are now taking a complete single sign-on approach to stitch the entire industry. That’s like another sign of why people are now thinking of solutions that sit one layer above the operating system and trying to bring things together.

Now we’ll all see how it evolves, but certainly the way SKAdNetwork is today, it is so, it is primitive.

And I just hope, you know, as someone who’s been part of this, I just hope that what we are seeing is a version 0.1 and Apple has a plan to come out two, three, four, five new versions in a very quick succession. If they don’t, then, you know, we’re all entering the dark stages. 

John Koetsier: It is very interesting. I mean, SKAdNetwork 1.0 was out last year and this is 2.0, which adds some significant capability. That’s good. I’m sure there will be a 3.0 and 4.0, but I kind of agree with Sergio that advertising is not Apple’s top priority in the world and that they won’t rush it out because it doesn’t matter to them that deeply.

The interesting thing for me is you talked about, you know, having a totally different way of having to deal with the ad ecosystem, for advertisers, right? And so for instance, obviously iOS and Android now completely diverge in how you manage and optimize them.

You also saw, I don’t know if you saw Facebook gave guidance to its top advertisers today. And so there’s like a four page PDF that’s circulating right now, and Facebook says you have to create a new iOS 14 ad account in order to manage your iOS 14 advertising. So you’ll have to have two for iOS, plus one potentially for Android. It becomes a little more challenging potentially. 

Abhay Singhal: Well, absolutely. And that’s the issue that we have.

Google gave everyone two years to adapt to their getting rid of cookies. And I’ve never seen this before, but Google is extremely collaborative in this approach, along with the IAB and everybody else to come out with standards and giving time for the industry to adapt.

John Koetsier: Mm-hmm.

Abhay Singhal: If Apple was serious about the developer making money through this more, they would have actually played this game much, much more in collaboration… 

John Koetsier: Yes, yes. 

Abhay Singhal: …  than how they have done right now. 

John Koetsier: Well, Google is an ad network, so that is a slight small difference there. And Apple has one which they don’t really care about that much, most likely. So, it’s an interesting time.

Project yourself out a couple months. You are an ad network, so obviously you compete with other ad networks and with Apple advertising, such as it may be in the future.

What does the world begin to look like for you? You’ve got to work in this new reality. Fingerprinting is probably against Apple’s regulations as well. You’ve got to be able to optimize campaigns based on one post install notification. At least you do know which ad campaigns worked. You get that one post install conversion information.

What does life look like over the next three months for InMobi? 

Abhay Singhal: Yeah, so over the next three months, we’re working on multiple different scenarios. In fact, you know, it’s the way the life has become. We don’t have one roadmap now, we have all different roadmaps that I think everybody is executing in parallel. You really don’t know which way it is going to go.

If LAT is any example to live by, we know that the monetization capabilities are going to drop substantially.

Users will continue to use the inventory, but it will become very … I don’t know what happened inside that inventory. So it’ll end up, the prices will drop and so on, so forth. If it ends up going in that direction, then there’s one answer.

Then if publishers end up evolving to a single sign-on or a sticky banner kind of approach to continuously remind users, then that’s a different approach. If you have a scenario where SKAdNetwork makes very quick progression in their own optimization and stuff like that, then there’s a third approach.

If you have an Apple that comes out and starts to take a point of view on some of the other APIs that they have access to, which people are really leveraging to make whatever their, you know, probabilistic identity graphs, then you have a fourth approach. So somewhere we’re all entering this extremely uncertain period of time… 

John Koetsier: Yes.

Abhay Singhal: …  for the next six to eight months. And hopefully the first three weeks will be telling because Apple has a generally very quick adoption. So by October-mid, we expect that 60, 70% of the users would have moved to the new operating system, and that will give enough scale for anyone to play with. But Sergio could add specifically if there’s anything else that you want to add. 

Sergio Serra: Yeah, so I think you guys addressed already most of it, but there are two points that I also wanted to highlight, right. So, in all of this, you know, everything is good, yes.

Let’s say a decent proxy to the current attribution system — I’m referring to SKAdNetwork. But we are forgetting the other side of the equation, which are brand campaigns retargeting campaigns, where they don’t care about app install, right? And Apple is taking away IDFA, so, to a point that practically speaking, you cannot even do frequency capping. 

John Koetsier: Yep.

Sergio Serra: So this is also bad for the user, right? Because the user might end up, A, with being, you know, thrown the same ad multiple times, being shown ads that are not relevant to his profile. 

John Koetsier: Mm-hmm.

Sergio Serra: And even in terms of privacy, we at InMobi we absolutely [unclear] the privacy calls, right, and we have always been that. And as a matter of fact, we worked with IAB for you know, TCF 2.0, you know, CCPA approaches. And, you know, Google was there, as Abhay was saying, we were very happy to see who were participating as well.

But the moment you start taking a private and individual approach of privacy then you destroy the consistency that the ecosystem was trying to create for the user.

So now in Europe, for instance, a user might come to a situation where he’s using the app for the first time. It’s asked by the TCF 2.0 framework with a prompt, ‘Hey, can we track you?’ you know, list everything. And then again, it has to deal with the Apple prompt. So I think it becomes very confusing.

Privacy shouldn’t be screen specific or OS platform specific. It should be very consistent.

And with this move, I think we are making a step backwards.

John Koetsier: Interesting. Very, very interesting. Well, there’s a ton of change going on here, and I’m glad you brought out brand advertising, honestly, because — and frequency capping and stuff like that — because I mean, what we have been able to do over the past probably 20 years or so, web and eventually mobile also, is assemble audiences from across the web and across apps that we know are interested in X or Y or something else, right?

And you won’t be able to do that any more. Third party cookies going away, IDFA is going away. Google’s ad ID might follow suit at some point, we don’t know that yet. But you won’t be able to assemble audiences anyway. You’ll be going back to contextual as Abhay was talking about a bit earlier.

That might make some premium publishers’ inventory worth more, because you’re falling back on that as the way of targeting, essentially. And that could also seriously hurt hyper-casual games because how the heck do you know who’s there, right? It could be a 10 year old kid …  it could be an executive at a technology company.

You have no idea, right? So a lot coming up [crosstalk]…  go ahead, Abhay. 

Abhay Singhal: You know the reason I came to digital advertising is because I exactly didn’t like the previous world.

I mean, I didn’t like — somebody used to say this statement, “My 50% of my dollars are getting wasted, I just don’t know which 50%.”

Digital solved that problem, and I loved the digital industry for that purpose. And under no circumstances I would want to go back to that world where you’re continuously relying on doing what you think is working, but not knowing anything about it. So it’s a big concern and I just hope that Apple in this case is understanding the gravity of the situation and is really balancing this thing across.

John Koetsier: Yup. Well, Abhay, Sergio, I want to thank you for your time. Really do appreciate it. 

Sergio Serra: Thank you so much for having us here. 

Abhay Singhal: Thank you.

John Koetsier: Absolutely, absolutely. It’s been a real pleasure to have you. Well, thank you as well for joining us on TechFirst. My name is John Koetsier. I appreciate you being along for the ride. You’ll be able to get a full transcript of this podcast in about a week at JohnKoetsier.com and the story on Forbes will appear after that. Also, the full video will be available forever on my YouTube channel.

Thank you for joining, maybe share with a friend. Until next time …  this is John Koetsier with TechFirst.