Apple made a change that is hitting internet companies like Meta

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Written by Kate Conger and Brian X. Chen

AppleThe vision of a more private web is not necessarily more profitable for Internet companies that depend on advertising revenue.

That lesson was made clear Wednesday in an earnings report from Meta, the company that Mark Zuckerberg founded as Facebook. Meta said privacy features introduced by Apple last year could cost Zuckerberg’s company $10 billion in lost sales this year.

The news, coupled with increased spending as Meta tries to focus on the new idea of ​​a metaverse, reduced Meta’s share price by more than 26% on Thursday morning. Zuckerberg said on Wednesday that Apple’s changes and new privacy regulations in Europe represent “a clear trend where less data is available to deliver personalized ads.”

Meta’s warning and stock price decline were reminders that even among tech giants, Apple has extraordinary clout because of its control of the iPhone. And the technology industry received clear notice that a long-planned change in the way people’s information can be used online was having a dramatic impact on Madison Avenue and the Internet companies that have spent years building businesses around selling ads.

“People can’t really be targeted like they used to,” said Eric Seufert, media strategist and author of Mobile Dev Memo, a blog about mobile advertising. “That breaks the model. It’s not just an issue that can be fixed with a couple of tweaks. It requires rebuilding the foundations of the business.”

Other Internet companies that rely on ads also felt the tremors. But the smaller teams seem to have been more agile than Meta in their response to Apple’s changes.

Shares of Snap, which reported fourth-quarter results Thursday afternoon, fell about 17% earlier in the day. But prices recovered after the company said it made its first profit. Share prices of Twitter and Pinterest also fell after Meta’s earnings report, but rebounded on Thursday after Pinterest reported better-than-expected earnings.

The changes have far-reaching repercussions that can hurt consumers’ wallets, Seufert said, even though consumers overwhelmingly choose not to be tracked. While Meta and other big media companies have come up with new ways to target people with ads, some smaller brands, whose ads can no longer reach new customers, have found a different solution to the problem: raising prices.

Apple made significant changes to its mobile operating system’s privacy settings last year, allowing iPhone users to choose whether advertisers could track them. Ever since Apple introduced the feature, the vast majority of iPhone users have opted to block tracking.

Only 24% of iPhone users worldwide have consented to being tracked by advertisers, according to data released in December by analytics firm Flurry. That means a wide swath of iPhone users is avoiding the personal tracking preferred by advertisers.

It’s been a daunting change for advertisers, who for years have been tracking people online to determine how many sales their customers were making. Advertisers also rely on tracking to resurface products that consumers have viewed but not yet purchased, reminding them that it might be time to buy. But for privacy activists, the change is a welcome check against surveillance that puts power back in the hands of everyday users of the technology.

“We believe that the impact of iOS All in all, it’s a headwind for our business in 2022,” Dave Wehner, Meta’s chief financial officer, said during a call with analysts on Wednesday. “It’s in the $10 billion range, so it’s a pretty big hurdle for our business.”

Google he has also made moves that are disruptive to the advertising industry. Last month, he announced a proposal on how Chrome, the world’s most widely used web browser, could eventually do away with traditional tracking mechanisms for serving ads. He introduced a new system, Topics, that would tell advertisers about a user’s areas of interest, such as “fitness” or “cars and vehicles,” based on the user’s last three weeks of web browsing history.

Meta’s estimated loss due to these caps is comparable to what the company is losing in the metaverse. Meta said his turn to the metaverse, which could in theory help him move away from Apple’s influence, was eating away at his profits. The company sees the metaverse as the next generation of the Internet, in which people will share virtual experiences. It lost more than $10 billion in 2021 building the virtual reality goggles and smart glasses that will allow users to access the metaverse.

Although Meta said revenue was up 20% in the three months ending December, to $33.7 billion, compared to the same period a year earlier, the company’s quarterly profit fell 8% to $10.3 billion.

Wehner added that Apple’s iOS changes boosted Google’s ad business, which doesn’t depend on Apple for ad data.

Snap, maker of the Snapchat app and Spectacles augmented reality glasses, said in October during its third-quarter earnings report that Apple’s privacy changes were having an unexpected impact on its business. But the company is adapting, Snap said in its fourth-quarter earnings report on Thursday, and the biggest impacts of Apple’s turnaround may be behind it.

“We’re making solid progress,” said Jeremi Gorman, Snap’s chief business officer. The company offers its own measurement tools to advertisers to gauge the impact of their ads, and those tools are used by more than 75% of its direct response advertisers, Gorman said.

In its earnings report, Snap said it had beaten analysts’ expectations for revenue and user growth. In the last three months of 2021, Snap’s revenue was $1.3 billion, an increase of 42% from the same period a year earlier. Daily active users grew to 319 million, an increase of 20%. The profit of the company was 22.5 million dollars.

Snap’s stock price rallied after the news, surging more than 50% in after-hours trading on Thursday.

In the last three months of the year, Pinterest’s revenue rose to $847 million, up 20% from the same period a year earlier, the company said Thursday. Its profit was $175 million, a 16% drop from 2020. Pinterest’s stock price was up 29% in after-hours trading.

In the past, Twitter has said that Apple’s privacy push caused minimal disruption to its business because much of its advertising came from brand awareness campaigns and big events, such as the Olympics, rather than targeted advertising. Twitter is set to report its fourth-quarter earnings on February 10.

But Apple, which reported its fourth-quarter earnings last week, indicated that privacy was profitable. Despite supply chain disruptions, Apple said iPhone sales totaled $71.6 billion, up 9% from a year earlier. The smartphone maker reported an 11% increase in revenue and a 20% increase in profit.

Apple has made privacy a key part of its marketing for the iPhone and other products, giving customers the ability to opt out of tracking and providing steps to make tracking more difficult in its browser, Safari. But Apple has continued to allow apps like Facebook to track users in the aggregate, as long as they don’t seek to identify them personally.

Last year, Apple CEO Tim Cook, making his company’s message clear, said the advertising industry had become an ecosystem of “trackers and peddlers just looking to make a quick buck.”

This article originally appeared in The New York Times.

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