What Apple’s IDFA Change Means for Advertisers

What Apple’s IDFA Change Means for Advertisers

Read Time: 5.5 Minutes

This past June, Apple sent shock waves through the advertising world by announcing a change in the IDFA (Identifier for Advertisers) setting on its new iOS14 mobile operating system. Originally scheduled to go into effect in September, the change would result in a pop-up window appearing on users’ screens asking to allow a requested app to track them for advertising purposes.

Previously, opt-in was the default and opting out required going into settings and blocking the alphanumeric IDFA code — a process that most users probably never bothered with, perhaps because they were unaware the IDFA existed.

After a barrage of complaints, Apple decided to delay the switch until early 2021. To be sure, Apple’s change burnishes its image in the area of privacy protection, but it challenges advertisers. To find out how e-marketers are coping, GLG met with marketing expert Ben Legg, Founder and Chief Executive Officer of Digital People International. Earlier, Legg was the managing director of Ola UK and CEO of Ad Parlor. Excerpts of the conversation, edited for clarity, follow.

Why has having access to the IDFA been so important to marketers?

Even though the IDFA doesn’t provide information such as the Apple user’s name or address, having it allows a marketer to check which ad networks they frequent, enabling a marketer to retarget them elsewhere. You can also learn how often they revisit your site.

So if users start to opt out en masse after the changeover, what will advertisers retarget?

The goal, of course, is to find a way to get your users to log in so you have access to their email. You can require login to access your site or maybe to gain access to some extra functionality. If you can’t get them to log in, you need to resort to the next-best approach, which is looking at their behavior on the app. That tells you who is a frequent ad clicker, who’s a heavy user, their language setting, the device they’re on and their location, for example. You can then go a bit old school and supplement the information with focus groups of users to get a bit of extra color.

How many users do you think will opt in after the change?

Let’s assume the worst, since Apple’s tone thus far has been relatively grumpy and anti-advertising. Many believe the wording Apple will use in its pop-up will be something like, “This app wants to track you. Do you agree?” Most people, obviously, would get spooked by that and opt out. There’s a sense in the advertising industry that 70% to 100% of people will opt out. If at some point Apple allows the app to use its own language or if Apple comes up with more nuanced language along the lines of, “This app would like to capture your data in order to retarget you with useful messages or tailored messages,” you might well get a much lower opt-out rate. But my best guess is about 70% will opt out.

If opt-ins are only about 30% of users, who will that affect most?

Most advertisers do a good job of capturing customer data, so they have email addresses and won’t be too affected. Users of platforms such as Facebook can ask them to match a segment of the platform’s database that have interests in common with their own database and serve up that segment. So if you want to reach, say, females age 18 to 29 who live in a major city and have an iPhone, that won’t be affected either. The main difference will be some areas of retargeting, particularly by midsized advertisers who are sophisticated enough to do retargeting but not big enough to get users to log in.

What about the outlook for free-to-play and non-login shopping?

I don’t want to be a total doom-monger, because I’m sure some apps will find a way to pivot, but some will go bust. Trying to survive by doing just ad-based targeting, which accounts for about 25% of revenue at most apps, is going to become much harder because CPMs on those apps could fall by half. And if customer lifetime value goes down, you can’t afford to bid in the app stores anymore, so you end up in a vicious cycle of having users who aren’t worth much that prevent you from bidding much to win new users. This problem also applies to non-logged-in publishers and news sites.

How do you think the change will affect ad pricing overall?

For Facebook, the impact will be somewhere between zero and 2%. Here’s why. Using our spending habits, which I think are broadly indicative, about 40% goes for custom audience targeting based on email addresses, so there’s no impact from the change there. About 10% or maybe 15% is look-alike; again, no impact. About 30% is demographic targeting using Facebook data; no impact. What’s left is the retargeting bucket, which accounts for about 20% of our Facebook spending. About 10% of that 20%, so about 2% of revenue, is desktop. That’s not affected, because it’s based on cookies. That leaves you with approximately 18%, and about half of that is Android, which is not affected. So only about 9% of our spending is affected.

When IDFA goes away, that doesn’t mean Facebook loses 9% of revenue. They’re still going to serve an ad. They just won’t serve the ads that use IDFA for targeting. So what you get is basically a CPM. So then the question is, what happens to CPM pricing when the top bidder on a retargeting ad has dropped out or all the IDFA bidders drop out? Based on my experience at Google, my gut says Facebook’s CPM pricing probably will drop around 10%. So if they got a 10% hit to CPM on 9% of spend, that would be a 0.9% hit to revenue. But other advertisers would probably be attracted, so the drop probably would be more like 0.5%. In fact, it could be one of those things nobody even notices because of all the other noise.

Overall, does all this mean a boom for Facebook, Google, Amazon, and the like?

In general, anything that restricts data or restricts the ability of smaller players to use data benefits the big platforms that have more data. So from that perspective, the walled gardens are in a strong position while smaller publishers and start-ups are in a weaker position. But the Apple change only confirms a longstanding verity: advertisers, publishers, and platforms that are focused on building a relationship with their users, and get email addresses and permission to target them, are in a good position. The walled gardens and other well-run companies have good relationships with their customers, not just walled gardens.

About Ben Legg

Ben started his career as a Captain in the British Army’s Royal Engineers, leading various military engineering organizations in Germany, Canada, Cyprus, Northern Ireland, Poland, and Bosnia (including relieving the Siege of Sarajevo in 1995). Following three years as a strategy consultant at McKinsey, Ben moved into senior leadership roles at Coca-Cola spanning Training & Development, Sales, Marketing & Distribution — culminating in leading 12,000 salespeople in India covering 1 million customers and 300 million active consumers. Ben returned to the UK to become COO of Google UK, Benelux & Ireland, and then COO of Google Europe. In this role, he wrote the blueprint for Google’s monetization approach — developing, launching, and optimizing many of the most impactful ads products for Search, YouTube, Mobile, Hotels, SMBs, and eCommerce. As an expert on digital marketing, Ben took on a variety of global C-suite roles at technology companies and authored a book, Marketing for CEOs: Death or Glory in the Digital Age, on what best-in-class marketing looks like.

This advertising industry article is adapted from the September 8, 2020, GLG teleconference “Apple Dismantles IDFA: Impact to Advertising.” If you would like access to this teleconference or would like to speak with advertising industry expert Ben Legg, or any of our more than 700,000 industry experts, contact us.

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