Apple’s seismic change to the mobile ad industry is drawing near, and its rocking the ecosystem – CNBC

Apple is making a huge change to settings on users’ iPhones in the name of privacy, and it will fundamentally change the way apps track your data in order to create targeted ads.

But many in the mobile ad ecosystem have said that Apple hasn’t given them clear guidance or communication along the way as they retool their apps to comply with the new rules related to the tracking systems known as Identifier for Advertisers (IDFA).

Some have lambasted the change, saying it will hurt the ecosystem’s small, independent players. And even if certain players violate Apple’s guidelines, it’s unclear how that behavior would even be discovered, or whether they’d be kicked out of the App Store for violating the rules.

Apple’s change, which was supposed to launch earlier this fall but was delayed to give app makers more time to retool their advertising systems to comply, will take a privacy option that was previously buried deep in users’ phones and put it front and center when they open an app.

With the change, iPhone users will see a pop-up window in each app. The pop-up warns users that an app is tracking their data for advertising purposes, and gives them the option to block the app from doing so. For Facebook, for example, it would read, “Facebook would like permission to track you across apps and websites owned by other companies,” with an option to allow tracking or ask the app not to track. App owners also have a bit of language they can tailor themselves, but they only have a limited area to do so. 

The fear among app makers is that many users will turn off the ad tracking capabilities of an app when they see the pop-up warning and blow up their business model of letting advertisers effectively target and measure ads and their effectiveness on the iPhone. Facebook already warned in August that the change could shave off 50% of Audience Network revenue for publishers

The response to Apple’s change has been messy at best. A recently released survey from marketing trade organization MMA Global and mobile attribution company AppsFlyer found that 37% of respondents, made up of the trade group’s membership base, claimed to have little or no understanding of the IDFA rules.  

When Apple announced the new IDFA rules in June, app makers who rely on targeted mobile ads started scrambling to figure out what was going on.

Apple “dumped 10,000 puzzle pieces on the floor and walked away” after first announcing the change, says Eric Seufert, an analyst and owner of website Mobile Dev Memo. “After some of that time, some of them have been combined, so the picture is a little clearer.”

But he said Apple was still slow at first about any kinds of clarifications. 

“In the absence of clarity and instruction from Apple, the ad tech industry just ran away with these insane fantasies about how they were going to be able to sidestep this,” Seufert said. He said many companies didn’t make any progress in the course of months where they didn’t have clear enough direction. Apple did issue a number of clarifications this fall about what would not be allowed. 

Apple declined to comment on its communication with the industry or on other specific questions about the guidelines and how they should be interpreted. 

After a slew of complaints, Apple ultimately decided to delay enforcement of the changes, which were supposed to go into effect with the release of iOS 14 in September. The rules will now go into effect early next year, giving industry players more time to make their apps and methods compliant.

The fact that users will need to opt in to sharing their IDFA to have apps track them will likely mean low opt-in rates. As a result, advertisers would have much less of that definitive data to work with.

That’s led some in the industry to ponder whether players could use other methods to determine the identity of users or their devices to target that advertising or link behavior like a download to advertising. But Apple has indicated some of those methods won’t comply with the rules.

And if tech players do track without permission, that means bad news for the apps they work with. Apple’s senior vice president of software engineering Craig Federighi said last week that starting in 2021, Apple will remove apps from its App Store that track users in ways that could be shared with other companies without receiving permission from the user.

The changes may still be full of intricacies and question marks, but with such severe consequences, some are erring far on the side of caution. 

Mike Brooks, SVP of revenue at WeatherBug, wrote recently about how much responsibility app publishers have in the post-IDFA world. He said publishers bear the entire risk of iOS 14 violations, with severe punishments like App Store removal on the table.

Many in the ad industry had expected an IDFA change as tech companies have recently focused on privacy as a feature of their products. Nevertheless, when it was announced at Apple’s WWDC event in June, the industry started assembling their Plan B’s. 

For one, industry players said they expect an abysmal rate of people opting in to share their IDFA when prompted to do so by an app.

“When you look at how Apple is actually implementing the popups with iOS 14, you’d have to be insane to opt into advertising personalization and tracking,” said Ana Milicevic, principal and co-founder of management consultancy Sparrow Advisers.

Companies have been trying to figure out how to communicate with users before that prompt to show users how valuable opting in is for the company. But there are some methods Apple won’t allow. The company has said developers can’t try to incentivize users to agree to allow tracking, and they also can’t say the app is functional only if they agree. 

And if opt-in rates are indeed small, companies that make money through apps won’t be able to use that data in more granular ways. Apple has its own solution for digital advertisers who feel like they’re out of options. The company recently revamped its “SKAdNetwork,” which will be available for advertisers through Apple. But it won’t provide data that’s as granular as what they’ve received before, and as it stands many advertisers aren’t keen on what it can offer. 

“Apple has almost withdrawn its support to third-party ad monetization without offering a solid replacement to publishers and marketers,” Sergio Serra, a product manager at mobile adtech company InMobi, said in an email to CNBC. “While SKAdNetwork is a good attempt to mitigate the issue, it cannot be a scalable response as it lacks many important aspects.”

Facebook, for instance, said in August that in testing it saw more than a 50% drop in publisher revenue through its Audience Network, which allows mobile software developers to provide in-app ads targeted on Facebook data, when personalization was removed from mobile app ad install campaigns. 

Facebook has also accused Apple with its iOS changes of moving the free, ad-supported internet into paid apps and services, where Apple can take its 30% cut, and crushing small businesses’ ability to do personalized advertising.

The broader marketing industry has also pushed back. A global group of marketing leaders wrote a letter this summer to the company about their concerns, including competitive issues posed by the change, as well as asking for the company to work in collaboration with the industry to come up with standards.

Another group, the Partnership for Responsible Addressable Media that combines a number of top ad trade groups, asked Apple in its own letter for a meeting to address the changes and answer questions. The group had a preliminary meeting with Apple, but industry parties were still hoping for more commitments from the company, Travis Clinger, SVP of addressability and ecosystem at LiveRamp, which is a member of the Partnership, said last week.

One major theme for the ad industry is the potential impact on companies that offer free apps supported by advertising. Though consumers may be annoyed by ads, would they be willing to shell out money to use every app they use? And if not, will those apps survive?

Apple’s Federighi responded to “outlandish” claims in last week’s speech, saying that companies were making false arguments to maintain the “privacy-invasive status quo.” 

It all comes alongside a broader march toward more consumer privacy. Google is making a huge change of removing support for third-party cookies in its Chrome browser, which are used to track users across multiple sites to target ads and see how they perform. Some in the industry also expect Google to follow Apple with its own mobile advertising identifier on Android devices next year. Google declined to comment on the potential of changes to that identifier. 

The change leaves app developers and the companies that help those developers make money through ads to figure out how to pivot or risk the future of their business. Several industry players told CNBC they have hoped for more clarity from Apple, while some have turned to industry Slack groups to piece together answers by communicating with competitors. 

Some methods clearly won’t fly. When Apple first announced the change at its WWDC event in June, it suggested that it would limit fingerprinting, a method that can be used to track users and target ads to them as they browse the internet and use apps.

“But then they let these ad tech companies tell their clients, ‘We’re going to be able to fingerprint,’ and spread that message,” Seufert said. “It muddied people’s understanding of what was going to be allowed.”

Seufert said he believes most companies today understand fingerprinting won’t be allowed. 

Certain methods that use signals from a consumer’s phone to measure or analyze but aren’t strictly referred to as fingerprinting can get into a grayer area. Apple says in its policies that companies can’t derive data from a device for the purpose of uniquely identifying it. Some in the ad industry see any potential workaround that could still identify a device as a potential violation of Apple’s new policies.

But some players say they are still trying to identify devices with methods that are privacy-conscious enough or anonymous enough to follow the guidelines. Some industry players say their methods will comply with Apple guidelines because they are only using that data for their clients and aren’t selling that data or using it for other purposes, or because they’re using algorithms to examine broader campaigns and not specific users.

It’s still unclear how Apple will police those methods, leaving the window open for companies attempting any kind of workaround to face consequences or pushback from Apple.

InMobi’s Serra said while Apple wants to regulate and enforce new policies, it can basically only control what happens on the platform, like the IDFA. But when it comes to information like IP or carrier-level data, that may go beyond their jurisdiction. 

“Since they realize they cannot enforce directly such practices, a psychological Reign of Terror is starting to materialize within the ecosystem,” Serra said. He added that advertising platforms are afraid of going against Apple’s wishes for fear of being banned by the App Store or Apple’s own SKADNetwork program.  

Data company LiveRamp is using a different method, what it calls its “Authenticated Traffic Solution,” which it says involves consumers opting in to gain control of their data, and on the other side, brands and publishers being able to use that data. That solution can use encrypted emails or phone numbers that allow publishers to connect their own first-party data.

Apple says if someone has not opted into tracking, a hidden email address or phone number can’t be used to track that user. But LiveRamp says its solution doesn’t use device data or let any data to be mapped from the device to a consumer “identity.”

Some players in the ecosystem are looking at new ways of forging ahead amid the change. 

WeatherBug’s Brooks said his company is looking to the future, investing in areas like direct sales, ways of leveraging first-party data and contextual advertising.

Some companies are looking to invest more heavily in that area of contextual targeting, which is advertiser speak for targeting on the environment a user is in, and not the user themselves. That would mean trying to determine whether the audience of one app would generally be interested in downloading another. If a company could determine that users of one game would be likely to download a dating app, they could focus investing that way. 

Some players are looking to target on factors like a user’s battery level or whether they have a strong network connection. Those do use information on an individual’s device, but purport this wouldn’t attempt to connect the identity of that user specifically to target.

The enforcement of the IDFA changes is likely an existential moment for businesses in the space. Some companies may go away completely if they can’t figure out how to move forward in a way that aligns with the way privacy standards are heading. 

And it won’t be easy, when so many companies in the space have been built on advertising standards of yore.

“It’s kind of like I’m renovating this house and the foundation is rotten and probably needs to be replaced, but I don’t have the time for that or the money for that,” Milicevic said. “So I invest in new cabinets and track lights and hope for the best. And then the foundation crumbles and you don’t have a house anymore.”