The Financial Times on the Effects of App Tracking Transparency on Small Businesses

Patrick McGee, reporting earlier this week for The Financial Times, under the headline “Small Businesses Count Cost of Apple’s Privacy Changes”:

Small businesses are cutting back marketing spending due to Apple’s sweeping privacy changes that have made it harder to target new customers online, in a growing trend that has led to billions of dollars in lost revenues for platforms such as Facebook. [...]

Many small companies that are reliant on online ads to attract new customers told the Financial Times they did not initially notice the full impact of Apple’s restrictions until recent months, when price inflation squeezed consumer demand in major markets worldwide.

(The FT’s paywall confuses me — I can read this article but I’m not sure if you’ll be able to. McGee posted a thread on Twitter summarizing much of it. Even better, the full article has been syndicated by Ars Technica.)

The two paragraphs above encapsulate a lot of the skepticism I expressed yesterday regarding the economic profoundness of ATT. I think only a fool would argue that ATT has had no effect on the surveillance advertising business. But I think the other extreme — the argument that everything we’re seeing in the financials for Facebook, Snap, Twitter, and YouTube is attributable largely, let alone solely, to Apple’s App Tracking Transparency rollout last year — is nearly as foolish. I think ATT is being scapegoated, and is, at best, one significant factor among many.

ATT went into effect with iOS 14.5, which launched at the end of April 2021. Famously, iPhone users tend to upgrade to the latest iOS versions promptly. By the end of 2021, over 95 percent of iPhone users were running iOS 14 or 15.

Isn’t the price inflation we’ve seen in 2022 — inflation we haven’t seen in 40 years — a more likely proximate cause of the effects that are only being noticed “in recent months” than the iOS app tracking privacy change that was adopted by a majority of iPhone users in May of last year?

When the economy takes a turn for the worse — a recession, a bad stock market, global supply chain shortages, high inflation — the advertising industry is always the first to feel it, because ad budgets are always the first budgets to get cut. Low unemployment is, for obvious reasons, good for society — but it’s not good from the perspective of small businesses. Wages are up, cost of goods are up, and so ad spending goes down.

Shelly Cove, an apparel company in North Carolina, laid off its four-person marketing team last month when its cash reserves dried up and it realised spending more money on Facebook ads would not ramp up sales like it used to.

“In prior years, you could throw money into Facebook — you’d put $1 in, and $2 comes back,” said Shelly Cove founder Matt Schroeder. “That just doesn’t exist anymore.”

This gets to my longer-standing support for ATT on privacy grounds. Being able to spend $1 on ads to get $2 in business sounds too good to be true — or perhaps, too good to be honest. If something sounds as lucrative and easy as a Ponzi scheme, it’s generally a sign that it’s actually a Ponzi scheme or otherwise dishonest.1 I’ll repeat my oft-used analogy: Facebook complaining about Apple’s ad-tracking privacy controls are like pawn shops complaining about the police cracking down on a wave of burglaries. Privacy belongs to users; Facebook was taking tracking information that wasn’t theirs to take without permission or knowledge. Small businesses that benefited by buying these ads — in some cases with business models that hinge entirely on the precision targeting afforded by Facebook’s user tracking — are downwind from the crime, but that doesn’t make their success from these ads legitimate.

ATT is making targeted surveillance advertising more expensive, to some degree. But I don’t think it’s clear how much. Nor am I convinced that it’s suddenly having a dramatic effect 15 months after it debuted, when so much else is going on in the global economy.

What I think makes ATT a tempting scapegoat is that it creates a great story. Apple enacted a change in the name of privacy and that change has adversely affected both Facebook and small businesses that relied on Facebook. That’s a dramatic, captivating storyline, with two rivals, both corporate behemoths, on opposing sides.

And it’s obviously a true story. What I question is whether blaming ATT alone paints an accurate picture of the overall situation. If ATT did not exist, is it plausible that Facebook (et al.) would not be facing some sort of ad revenue reckoning right now anyway? Inflation, supply chain shortages, recession concerns, a strong U.S. dollar, the rise of TikTok as the hot new thing for younger people — those factors are also all undeniably real.

  1. My point here, most assuredly, is not to argue that advertisers should not expect a positive return on their ad spends. You don’t spend $1 intending only to make $1 back, unless you’re First Citywide Change Bank. My entire business, aside from Dithering, is about selling sponsorships for this website and my podcast, and I genuinely believe those sponsors get back more than they spend, and that the proof is in how many return for repeat sponsorships.

    But this quote — “In prior years, you could throw money into Facebook — you’d put $1 in, and $2 comes back” — is not about advertising in general. It’s about advertising on Facebook in particular. There’s an oft-cited adage attributed to the famed Philadelphia department store magnate John Wanamaker: “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” That’s the conundrum surveillance-based advertising seemingly solves. It lets advertisers know which ads generate which business, with high accuracy. It seemingly turned an unpredictable art into a very predictable science. And now, these advertisers are finding, allocating ad dollars is regressing back towards an unpredictable art. Gold rushes inevitably end. Another quote from Wanamaker seems apt: “You can never ride on the wave that came in and went out yesterday.” ↩︎