Apple is starting to build its own ad empire just as the iPhone privacy crackdown is weakening its main ad-supported rivals.
The big picture: In the midst of a broader downturn in the online advertising market, Apple’s move to restrict the way apps track users’ behavior brought competitors like Meta to their knees, even as users embraced it.
Why it matters: Apple has long touted a privacy and security advantage for its products over alternatives like Google’s Android and Microsoft’s Windows. But the simultaneous rollout of Apple’s ad expansion and privacy changes has sparked criticism and could attract the attention of antitrust regulators.
Send the news: Apple plans to significantly expand its advertising business by placing more ads directly on users’ devices, Bloomberg reports.
- The expansion includes adding ads to more of Apple’s own apps on iPhones and iPads, including Apple Maps.
Between the lines: The company has reportedly begun to reorganize its service team — the internal division responsible for monetizing apps, media and other “soft” products — to dampen its operations as hardware sales growth slows.
By the numbers: Last quarter, Apple said it earned $19.6 billion from services such as advertising, the App Store, Apple Music, iCloud, Apple News, Apple TV+ and Apple Pay, accounting for nearly 25% of quarterly revenue.
- In the same quarter five years ago, services represented just 13% of Apple’s total revenue.
- Apple doesn’t disclose how much of its services revenue comes from advertising, but a Bloomberg report suggests the company currently brings in about $4 billion in ad revenue each year.
- Analysts estimate that Apple’s advertising business could reach $6 billion by 2025. In comparison, Snapchat, which made almost all of its money from advertising, brought in $4.1 billion in revenue last year. Twitter made $4.5 billion from ads last year.
Quick update: Apple’s advertising business began to grow after changes it made to its app tracking policy last year, making it easier for iPhone users to not be tracked in other apps on their phones.
- For businesses that rely heavily on that user data, the changes made it much more difficult to efficiently target people with online ads.
- The changes were also devastating for companies like Meta and Snapchat, who rely on that data to power their ad offerings.
Meta fought a massive lobbying campaign against Apple’s changes, arguing that they make it harder for small businesses to find customers.
- But the company has its own reasons for cutting back. Meta executives said they would lose $10 billion in ad revenue this year in response to Apple’s changes.
Between the lines: Apple started pushing privacy a long time ago, but it hit the selling point heavily in the wake of Facebook’s many data breaches and privacy calamities, including the Cambridge Analytica scandal.
- That ‘privacy story’ some are arguing nowit helped introduce its anti-tracking plan without being portrayed as a corporate predator.
Be smart: Apple’s largest source of advertising revenue is search ads. Evidence shows that Apple’s privacy changes have caused ads promoting app downloads from companies like Meta and Snapchat to shift significantly to Apple.
- Analytics firm Branch found that in the first half of the year, Apple’s internal search ads accounted for about 50% of iPhone app downloads due to ad clicks in the first half of this year, up from about 20% in April 2021. before the company rolled out its privacy changes.
What’s next: Until now, regulators have paid too much attention to the problem.
- That’s probably because the biggest voice opposing Apple’s changes right now is Meta, which faces its own plethora of competitive problems.
Go deeper: Apple’s privacy changes are eating up rivals’ businesses