Are "Open Display" ads bad?
Tim Cook claims App Tracking Transparency is for the good of society. But who will it really benefit? (Part 2)
This is Part 2, see Part 1, Part 3 and Part 4.
Introducing its new App Tracking Transparency (ATT) measures against “tracking”, Apple has been scant on the detail, but vocal as to why it is doing it. Speaking virtually at the Computers, Privacy & Data Protection Conference, Tim Cook, the Apple chief executive said:
“The fact is that an interconnected ecosystem of companies and data brokers, of purveyors of fake news and peddlers of division, of trackers and hucksters just looking to make a quick buck, is more present in our lives than it has ever been.
…it has never been so clear how it degrades our fundamental right to privacy first, and our social fabric by consequence.”
Cook draws a direct line connecting the “tracking” that Apple now seeks to block, to disinformation online and the fractious politics in democracies and societies in general.
But the likely impact of what Apple is doing belies the reason Cook has given. Curtailing tracking will have varying degrees of impact on parts of the internet advertising ecosystem. And it will likely significantly decrease the revenue of commercial institutions that support journalism, along with many other services, good and bad, that rely on it.
The decline of “Open Display” advertising
When we say “On Platform” ads, we mean ads served by the same entity that provides the audience and - increasingly and more significantly - also hosts the destination service or shop.
As I explained in detail in the previous newsletter, bar Amazon’s On-Platform ads, there will be some negative impact in terms of the efficacy of digital advertising almost across the board when advertising to iOS users going forward.
But the damage will be particularly great for so-called “Open Display Advertising”. This is advertising where the ads are often served by a different entity than that that provides the audience, and where the service advertised runs elsewhere.
And it is the kind of advertising on which everybody, except a few large digital platforms and a few niche operators of digital classifieds, relies. Of course, the platforms, especially Google, have a big hand in many aspects of the “Open Display” market too.
Google and Facebook (and recently Amazon), have been progressively increasing their share of the On Platform digital advertising market over the years. In 2019, the UK’s Competition and Market Authority already estimated the yawning gap for Britain: The “Open Display” advertising market was less than half the size (£1.8 billion) of those of the “On Platform Display” markets, (£3.8 billion). Initial evidence is that the pandemic has greatly accelerated this trend where On Platform advertising is growing, also on Amazon, while Open Display stagnates.
But whether Open or On Platform, Display advertising itself is not the biggest segment of the digital advertising pie. That honour goes to Search based advertising, which in 2019 was still significantly bigger than the other two combined (£7.3 billion), and in which Google has about a 90% share in the UK. Search will also be largely unaffected by the new Apple measures.
The smallest digital advertising segment in 2019 was classifieds (£1.4 billion), think services like Autotrader, Yelp, Gumtree, Trip Advisor. Classifieds tend to be “On Platform”, so should not be impacted by Apple’s new measures much either. Classifieds used to be a very big part of newspaper income so this disintermediation is yet another much less commented on reason why the news media industry is struggling in the digital era.
It is worth recapping why “Open Display” advertising is struggling in the first place and why they are likely to struggle more now. Ironically Jane Horvath, Apple’s privacy chief, put their finger on it. She according to the Financial Times argued in January that the “accumulation of large troves of data primarily benefits big businesses with big data sets”. Apple is now likely to accentuate this advantage by harming smaller businesses ability to have comprehensive data sets.
The hundreds of media properties that rely on “Open Display” ads simply do not have the behavioural data that the big platforms have, making their targeting ability weaker, and their ad prices lower. To augment this ability, this vast network of digital properties use ad networks that aggregate data to create profiles of the users of devices to target.
Apple’s ATT will mean that Apps running on iOS will not be able to access these ad network profiles, and neither will these apps be able to feedback data to these networks, making these networks less effective even outside of iOS apps.
While on the one hand, because it is On Platform, Amazon’s burgeoning advertising business will feel no direct impact and may well benefit, smaller businesses reliant on advertising (think publishers, games companies, even a business like Twitter) will most likely experience the greatest loss of revenue. Somewhere in the middle are the large platforms like Google and Facebook, which will feel some pain, particularly in the ad networks they run. But they may benefit in the long run.
If advertisers lose faith in the efficacy of Open Display advertising they will spend more On Platform and Search ads. And here Facebook and Google will remain big players, waiting for the Open Display refugees.
The fraying social fabric - what role do ads play?
If you follow this newsletter, you will note that the degradation of the public sphere by misinformation has also been a major concern. Let’s put aside factors like the shock of the global financial crisis and its unsettling of the liberal post-1990 consensus and the erosion of trust in experts and government. I have a hypothesis why this age of polarised politics may be happening: namely the erosion of the share of voice (reach) and authority of mainstream media gatekeepers.
A further shift of revenue away from “Open Display” advertising towards “On Platform” due to Apple’s measures will on the face of it exacerbate this problem, as it will further erode the revenue on which journalism relies. In other words, Cook seems to be making worse the problem he claims he wants to address.
All this is happening as the apparent duopoly that Google and Facebook hold over digital advertising is coming under increased scrutiny from regulators across the world. The figures above come from a 2020 report from the UK’s competition authority (CMA) into exactly that. It occasioned a recommendation to the UK government to create a new Digital Markets Unit (DMU) that will have increased powers with respect to measures against technology platforms. And just the last week the CMA announced further investigations into “whether Facebook might be abusing a dominant position in the social media or digital advertising markets through its collection and use of advertising data”.
Key questions regulators need to ask include, what is the social and economic value of advertising? Are there more socially desirable business models for media businesses? Does advertising help or hinder the start-up ecosystem? Are all kinds of advertising the same? should advertising systems be open or closed? Is consolidation really happening and to what extent is this a bad thing? All issues I will explore in the next newsletters.