The Open Web isn't dead... yet
But Apple's App Tracking Transparency is a major shot in the arm to the forces of digital consolidation (Part 4)
This is Part 4, Part 1, Part 2 and Part 3.
In the halcyon digital days, Jeff Jarvis gave advice to digital business in his book, “What would Google do?”. One of his many Google inspired rules was, “do what you do best, link to the rest”.
Then, he wasn't wrong. Initially, platforms focused on their main business concern and were happy to hand off users to other companies to provide other services. In many cases, this handoff was a feature. As the gateway to the open, linked web, Google became emblematic with its search engine.
Apple’s new App Tracking Transparency (ATT) is a dramatic departure from this earlier web. Consequently, the internet is likely to become less open and more consolidated. This trend, however, is part of a broader one that has gained momentum for some time, as I will explain.
Already in 2010, Wired Magazine declared the Web dead. Chris Anderson named the chief culprits. Native apps and us, the users. Because “as much as we love the open, unfettered Web, we're abandoning it for simpler, sleeker services that just work.”
That was hyperbole. The Web is still very much alive more than a decade later. For example, for various reasons, most e-commerce still occurs via the web, not apps (for now). Meanwhile, HTML 5, launched in 2010, and programming paradigms like Node-JS have made web-based apps more native app-like: powerful, responsive and user-friendly.
It has never mattered so little what users want and do in the digital sphere. In today's world, what Big Tech does is more important. And driven by the centralising logic of data and network effects, the big platforms have been consolidating: building economies of scale and scope.
As a result, platforms have been moving things they used to hand off to others internally for over a decade. “Do what you do, and also the rest.” is the new motto.
So Google search has been competing with an increasing number of websites it used to link to by providing answers to some queries directly in its interface. And as I explained here, this strategy of Google is reaching new levels of sophistication as it muscles in on other services like banking. Amazon, in turn, had been moving into advertising. Its “On Platform” ads came out of beta way back in 2012.
And Apple has tried its hand at advertising a few times — and often failed. Its new ATT measures, even in the highly unlikely case they are not designed to do so, will benefit its own On Platform ads as its competition suffers.
Resistance is futile?
When Facebook launched its e-commerce offering in the US in August of last year, it mentioned that it was a response to Apple’s ATT tracking measures. In truth, Facebook and Instagram had been moving in the direction of hosting shops themselves for some time before then; Apple just vindicated and provided urgency to the strategy.
Be that as it may, Apple just gave retailers another good reason to rather open a Facebook or Instagram shop if they don’t have an Amazon one already rather than start their own on the open web.
The reason is simple. As with retailers on Amazon, Apple’s new tracking rules won’t impact the targeting ability as much of Facebook or Instagram shops that also use Facebook or Instagram advertising. That’s because they are end-to-end ‘On Platform’. In other words, the audience, the ads and the destination service are all inside the same service.
To be sure going “On Platform” will have a downside for these retailers. Like when having an Amazon shop, Facebook retailers will have little control over the user experience. But more importantly, they will receive minimal data about who is buying their products - they will not, for example, have the email addresses of their buyers.
It is the retailer who will make the sale, while Facebook will collect the data and know who your customers are. However, the alternative may be more detrimental. In digital, one of the biggest pain points is being discovered and seen. Effective advertising is essential. What is the point of resisting?
This trend of hoarding more data by big platforms is not new either. In the name of privacy, platforms have been building moats around the data they have been generating for some time. Remember the Facebook API? Around 2012, award-winning digital experiences were built interfacing with it. Intel’s Museum of Me, which created a personal gallery from a user’s Facebook experience, was one such effort.
It did not last. First, Facebook selectively cut competitors Twitter and Instagram out of parts of their API, making onboarding more cumbersome. Then Cambridge Analytica’s misuse of the Facebook API was the reason Facebook gave when depreciating much of its API functionality for everybody.
A new era of consolidation is beginning with Apple's ATT.
ATT, consolidation and the rise of “Content Fortresses”
Apple’s ATT rules expressly permit companies with multiple digital properties to share data for tracking purposes. Why did Apple leave this huge loophole in its rules?
Apple no doubt wants to grow its own On Platform advertising (I discuss that here), and it has many services that sit across several applications. Aware it is being watched by regulators, it is keen to show that it treats other services like it does itself (it doesn’t - a subject for another post). Hence this exception.
Yet this single rule is likely to have massive unintended consequences and further online consolidation. And it seems to have already started. The Financial Times reports that:
“The belief that “bigger is better” is already driving consolidation. Glu Mobile, a California maker of games such as Kim Kardashian: Hollywood, realised in July 2020 that it needed to go on an acquisition spree, or be acquired, to “combine scale to address the business model challenges posed by the pending release of an Apple iOS update”, according to details in its most recent annual filing. Within a few months it was acquired by Electronic Arts for $2.1bn.
Christian Selchau-Hansen, chief executive of Formation, a software specialist for personalised marketing, says “gaming M&A has spiked” as companies have realised that advertising across a portfolio of games will deliver “an incredible advantage over someone that has a single gaming app.”
Others point at the acquisition by Applovin, the mobile ad platform and games publisher, of Adjust, the Berlin-based mobile advertising attribution company. It is putting all the pieces into place to have its own advertising ecosystem.
Meanwhile, in a post in response to Apple’s App Tracking Transparency, digital ad expert Eric Seufert warns about the rise of “Content Fortresses”. He points to Zynga, who “in its Q4 earnings call last week, mentioned two new initiatives that signal its desire to construct walls around its first-party properties in an attempt to build an autonomous ecosystem: cross-platform play, and building an advertising network.”
Some game publishers now consider ditching advertising as a business model.
A change of business models?
Other services will look at new revenue streams that do not rely on advertising. It is in this context that Twitter’s new premium paid-for features should be viewed.
How Shopify, the huge platform that powers many independent shops respond, will be interesting to watch. To maintain ad targeting capabilities, shops on its platform may consider moving to Amazon or Facebook's ecosystems.
Shopify shops are already on one giant platform, albeit with a highly flexible and customisable interface. Shopify may be tempted to offer a platform-wide search engine, and if so, Shopify On Platform Ads and a Shopping Portal iOS app may not be far behind?
Another sector to watch is publishers. Expect a mixture of consolidation and closures. Some might try and output higher quality content (a good thing) to be able to charge directly for their content. But I suspect only a few publishers, especially generalist news providers, will be able to emulate the New York Times and successfully launch paid-for models.
So we can expect more bloodletting.