Don’t cry for the platforms

Despite Apple’s privacy changes impacting social platform revenues in Q3, walled gardens will still win with advertisers.

With a handful of Big Tech companies and media platforms reporting earnings this week, a picture is emerging of how Apple’s privacy enhancements are impacting the online advertising ecosystem.

Despite raking in more than $9 billion in profit, Facebook missed revenue expectations for Q3 and lowered its Q4 projections due in part to “the significant uncertainty we face in the fourth quarter in light of continued headwinds from Apple’s iOS 14 changes,” CFO Dave Wehner said on the earnings call Monday.

Snap’s revenue growth also slowed to 57% in Q3 to $1 billion, falling short of analyst expectations and sending its stock plummeting almost 25% in after-hours trading.

CEO Evan Spiegel blamed the slowdown on, you guessed it, Apple’s privacy features, specifically its privacy-compliant SKAdNetwork, which “did not scale as we had expected, making it more difficult for our advertising partners to measure and manage their ad campaigns for iOS.”

Google also said Tuesday that Apple’s privacy updates had a “slight impact” on YouTube, particularly its performance marketing features. Twitter also felt a more muted impact, but CFO Ned Segal noted “it's still too early for Twitter to assess the long-term impact of Apple's privacy-related iOS changes.”

Apple has rattled the online ad ecosystem by making it harder to track what users do once they leave a platform. This visibility is one of the key reasons social media platforms have been able to command the control over the digital ad ecosystem they have today.

So what happens now this capability is impacted? I would argue not much at all will change about how advertisers allocate their media dollars. In fact, Apple’s privacy changes will likely make walled gardens even stronger compared to publishers on the open web.

If advertisers can no longer track users across sites and apps, they will further concentrate spending on scaled platforms where they can track performance within their walls. Social platforms can still collect consented, first-party data and do sophisticated targeting and analytics on millions (or in Facebook’s and YouTube’s case, billions) of consumers without that data leaving their ecosystems.

Certain types of advertisers will be more impacted than others. App install campaigns, for instance, a market projected to hit $118 billion in 2022, per AppsFlyer, will be less trackable and therefore could push advertisers toward new platforms. Although where they’ll go, I’m not so sure. Maybe, ironically enough, Apple is the answer?

But as digital advertising continues to skyrocket, there’s not a shot that decelerated revenue growth will lead to decreased investment in social platforms.

eMarketer predicts U.S. digital ad spend will grow more than 25% to $191 billion this year, and it’s a safe bet marketers will allocate those dollars to platforms with the largest audiences that drive the most performance and are easiest to track — despite Apple’s impact.

Investors agree. According to Youssef Squali, analyst at Truist Securities, Apple’s changes are “transitory, not structural,” for social platforms, and for Facebook in particular, which is “not shy about leveraging its fortress balance sheet with $58 billion to invest in talent and technology to solve these issues,” according to MarketWatch.

I’ll wager that, minus a temporary stock hit, the walled gardens will continue to attract advertisers at higher investment rates than the rest of the web. As Mobile Dev Memo’s Eric Suefert told Axios’ Sara Fischer in a recent article, "They can re-architect — it will just take time."

It’s open web publishers that should be most worried — especially smaller, local outlets, already struggling to attract advertiser dollars in a fragmented ecosystem. Because if Big Tech is being rattled by iOS 14, you can bet digital publishers are facing the same challenges with far fewer resources to throw at the problem.

So pour one out for Big Tech this week if you feel so inclined. But these digital giants are still best positioned to eat up the billions of dollars that will be invested in digital media in years to come. They’ll adjust their systems, reset advertiser expectations and still have richer and more scaled first-party data than the rest.

As for the open web, the garden walls are only growing higher and more impenetrable.


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