- Meta reported its second successive quarter of revenue decline this week.
- Meta executives pointed towards recent changes from Apple as a major culprit of the decline.
- Apple this week updated its terms to require Meta cede 30% of the sales of some ads to the iPhone maker.
Mark Zuckerberg doesn’t pull his punches these days when asked about Apple’s threat to Meta’s ads business.
“You see dynamics like what Apple has done with ATT and continues to do in some ways with the policy that they announced yesterday, which are obviously big risks and we see as issues,” Zuckerberg said on Meta’s earnings call this week. The company posted its second successive quarter of revenue decline and again pointed to Apple as a major culprit.
Several key changes Apple has made to its privacy settings — the aforementioned ATT app-tracking transparency feature — developer terms, and its own in-house advertising offering have struck at the heart of Meta’s core advertising business. Apple rolled out the ATT feature in 2021, forcing apps to ask users’ permission to track them.
And just this week, Apple revised its App Store Review Guidelines. Apple now states that purchases of ads, such as those that “boost” a post in a social media app, should be treated as in-app purchases, and are therefore subject to its 30% commission.
Many creator-focused and dating apps — from Facebook to Twitter, and Bumble to Tinder — make it easy for individuals to purchase ads through the apps themselves to “boost” their profiles, live streams, or other content to reach more people in social feeds. Most advertisers purchase app ads through separate, dedicated ad manager applications or on desktop websites, so these sales wouldn’t be treated as in-app purchases.
Apps such as Twitter, Bumble, and Tinder already treat “boost” posts as in-app purchases, mobile marketing analyst and investor Eric Seufert told Insider. Those companies declined to comment for this article.
Meta has been a holdout, Seufert said.
The Wall Street Journal reported in August that the pair of companies once held discussions about whether Apple should be entitled to a percentage of Facebook’s sales from boosted posts but never came to an agreement.
Apple’s use of the language “sales of ‘boosts’ for posts in a social media app” in its updated terms likely wasn’t a coincidence.
Mobile ad experts told Insider they believe boost posts bought on the Facebook and Instagram iOS apps probably only generate a negligible amount of revenue for Meta. The company doesn’t disclose this information in its financial statements and there’s little data out there about how much of the mobile ad market is derived from these sorts of ads.
But according to analysis from the data-management firm Lotame, Apple could realize as much as $90 million in additional fees for each percentage point of Facebook advertising bought from within its app.
An Apple spokesperson said in a statement that the App Store guidelines have made it clear that the sale of digital goods or services within an app must go through the in-app purchase process. Similarly, the new terms state that it also treats sales of non-fungible tokens as in-app purchases.
“Boosting, which allows an individual or organization to pay to increase the reach of a post or profile, is a digital service — so of course In-App Purchase is required,” the spokesperson said. “This has always been the case and there are many examples of apps that do it successfully.”
Apple has become a major disruptor of the advertising industry
Between its privacy changes that have throttled targeting and measurement, through to the quiet expansion of its own advertising business, Apple has been a disruptive force in the ad industry in recent years.
Apple’s services unit, which houses its small but high-margin advertising business, has become increasingly important to the company as its hardware sales have slowed.
“If Apple wants growth in advertising, it’s not afraid to scorch some earth to get it,” said Mike Woosley, chief operating officer at Lotame.
By Lotame’s analysis, Apple’s 2021 ATT privacy update is expected to wipe almost $16 billion from Facebook, YouTube, Snap, and Twitter’s revenues this year. Meanwhile, Apple’s own ad division is expected to grow by 43% to $5.3 billion in the same period, according to a separate analysis from research firm Omdia. Just this week, Apple introduced two new ad formats to its App Store and some experts think the company intends to grow a larger ad network over time across more apps and services.
“Apple continues to evolve its policies to grow their own business while undercutting others in the digital economy,” said a spokesperson for Meta in a statement. “Apple previously said it didn’t take a share of developer advertising revenue, and now apparently changed its mind.”
Speaking at The Wall Street Journal’s Tech Live conference this week, Apple’s senior vice president of software engineering Craig Federighi said the company’s own push into advertising was “zero part of the motivation” in rolling out its app-tracking transparency changes.
To be sure, Apple’s ad revenue is currently largely derived from search ads within its App Store, which don’t necessarily directly compete with Meta’s social ads. Meta is also grappling with the wider economic downturn that is causing advertisers to pull back spending and increased competition from the likes of TikTok.
Some industry observers have quietly shared fears that the new “boosts” policy is a precursor to Apple setting up more toll booths within the iPhone app-advertising ecosystem. Other experts said that would likely pique the interest of antitrust authorities.
“Trying to get its beak wet on all ad spend would not only be more difficult to implement, it would be much harder to justify to app developers and much trickier to defend in front of competition authorities,” said Ratko Vidakovic, founder of the adtech consultancy AdProfs.
