AdtechMobileTalk of the town
With more revenue and increased control, Apple is set to be the dominant global marketing player.
Roland Eisenbrand & Scott Peterson 9/15/2022
By 2026, Apple could push its ad revenue north of USD 30b
Four billion US. That's how much Apple has supposedly increased its annual advertising revenue to since the company returned to marketing in 2016. At the same time, Apple has solidified its spot among the top advertisers globally. And with the recent ATT restrictions and forays into live sports and app ads, its position of power goes well beyond mere revenues. Apple appears to be hungry for more and planning to nearly double the workforce in its own advertising division, while also expanding its in-house technology and inventory. Today, OMR is breaking down the plans and providing some insights into the power struggles going on between the big four out of the public eye.
It was just a routine internal restructuring, but one that nevertheless seems to be a sign of things to come. According to a report by Business Insider (€), Apple overhauled the management structure of its services division earlier this year. That division, lest you forget, bundles services such as the App Store, Apple Music, iCloud, Apple Pay and also advertising sales. The restructuring included the promotion of Todd Teresi, who had been in charge of Apple's advertising business for more than a decade. Now, Teresi will report directly to services chief Eddy Cue. "The Services portfolio is too big now, with too many other growing segments. The ad business is big enough to live on its own," an anonymous source at Apple told BI.
Search ads inventory on the up and up
A decade ago, you would have been hard-pressed to foresee this coming. Apple had failed spectacularly with its first foray into the digital advertising market. If you recall, back in May 2010, the company launched a network for marketing in-app advertising under the name iAd.. Apple saw a great deal of potential in the project, initially charging advertising a minimum of USD 1m. A year later, the company slashed its ad rates by 70 percent; and in 2013, iAd was suddenly pared down to merely providing the infrastructure for advertising in Apple Music. In June 2016, the plug was pulled entirely.
Since then, Apple has used iAd technology to run display ads in Apple News and its own Stocks app. On the other end of the importance spectrum are its Search Ads, which are paid ads for apps in the App Store; they went live in October 2016. Search Ads started with the keyword ads on the results pages, just as we know from search engines such as Google and Yahoo. Soon after the App Store ads arrived, where, for example, if you were to search for a dating app like Tinder, Apple would show you an ad from a competitor dating app. In 2021, Apple then expanded its inventory to include ads on the search page. According to U.S. media reports, the company recently announced that it would also display search ads on the App Store home page and on app product pages, i.e. the box with recommendations under "you might also like".
Around 650% growth by 2026?
The company has not yet reported separately how much money it earns from advertising. According to an August report by Bloomberg annual revenue is up to USD 4b. And Teresi has been lobbying within Apple to expand the business significantly. According to internal sources cited by Bloomberg, Teresi reportedly wants to push revenue into the double-digit billions, which would more than double its current figure.
Various analysts—even some before the Bloomberg report—had emphasized the massive revenue potential in Apple's advertising division. In fact, back in July an analyst at Bank of America analyst predicted that ad revenues in Cupertino could rise to USD 9.8b in 2023 and up to USD 20b by 2026. Consulting firm Evercore recently went even further, tapping Apple's advertising revenue to explode to USD 30b over that period.
The potential revenue growth of Apple's advertising division, according to consulting firm Evercore (Graphic: Financial Times)
Apple wants to develop a demand-side platform
Apple itself has apparently already taken the steps necessary for such growth, including expanding its workforce. Currently, the company has 206 open positions on its "Ad Platforms" team on its own careers page. The Financial Times claims to have discovered at the beginning of September that Apple would thus almost double the number of employees in the advertising business as there were 216 open positions—almost twice as many as currently work for the team (On Linkedin there are about 250—although Linkedin did show 347 employees when we searched for "Search Ads" among Apple employees).
Apple is also looking to expand its technology infrastructure for advertising marketing. One of the job listings states that Apple is looking for an "Engineering Director, Ads Demand Platform", to help "build the most privacy-friendly and technologically sophisticated Demand Side Platform [sic.] in the world." The fact that Apple wants to develop a DSP, a platform that advertisers can use to buy ad space, has caught the attention of those in the adtech space.
Will Apple soon sell third-party advertising inventory?
One of the questions this flurry of activity raises is that if after iAd Apple will now use this DSP to market inventory outside of its own services and apps? The company did not answer a corresponding inquiry from Digiday. Back in April 2020, Apple added the new parameters "supplySource" and "adChannelType" to the campaign interface for Search Ads. Mobile marketing expert Eric Seufert considers this to be a hint that Apple could enter the marketing of third-party inventories.
Most feel it is a near certainty that Apple wants to further increase its own advertising inventory—beyond pure "search ads" for apps. As Bloomberg reported, Apple is already considering playing out ads in the iOS app Maps. Apple Maps got off to a bumpy start in 2012, but in the past four years Apple has overhauled the app and given it a makeover Bloomberg journalist Mark Gurman also speculates that Apple could add search ads to other digital "storefronts" like Apple Podcasts and Apple Books.
Apple advertises during live sports
Furthermore, Apple is also expanding the inventory for Apple TV+, its Netflix competitor, by buying up sports broadcasting rights. In March, Apple secured a rights package for Friday MLB games. Right after launching in April, they started running ads during broadcasts, U.S. insurance company Geico, Budweiser, Subway and other major corporations. Then in June Apple announced that it had signed a ten-year deal with MLS, which gives Apple rights to broadcast every MLS games on Apple TV+ beginning in 2023.
If Apple succeeds in increasing its own advertising revenues to 30 billion through the sum of this measure, then the group would possibly have moved up to fourth place behind Alphabet/Google, Meta and Amazon in the ranking of the advertising platforms with the highest revenues. That's assuming Microsoft's growth in this business segment doesn't accelerate significantly.
USD 16b in lost revenue due to ATT?
But Apple's status as a top player on the global advertising market cannot be measured purely on the basis of its own marketing sales and market share. With the iPhone and its iOS operating system, Apple controls an extremely desirable environment in a more affluent target group than Google does with Android. And just how uncompromising Apple can be in this context has been demonstrated in the past two years by the "App Tracking Transparency" standard. Since April 2021 and iOS 14.5, app developers have had to ask users for consent if they want to track their behavior outside of their own app, (i.e. access to the "Identifier for Advertisers" - IDFA).
As many consumers do not grant this consent, it makes it very difficult on advertising platforms like Meta's, which are largely mobile and rely on an IDFA for measurement, personalization and ad optimization: In its Q1 2022 earnings call Meta CFO Dave Wehner said the company expected to generate USD 10b less in revenue this fiscal year as a result of ATT. In Q2, Meta then reported a decline in revenue for the first time in the company's history. But platforms such as Snap and Twitter have also been affected. Data management platform provider Lotame predicts, that Apple's opt-in layer could cost Facebook, YouTube, Snap and Twitter USD 16b in revenue this year—with Facebook losing USD 13b alone.
Apple wanted a share of Facebook's revenue
For iPhone users, ATT may be a welcome innovation. But from a marketing point of view, what's happened in the past few months is cause for concern. For starters, app install ads, with which advertisers want to generate app downloads, are or were also a lucrative business for Meta. According to a report from last October by mobile attribution tool Branch, a significant portion of these budgets migrated from Meta to Apple after the introduction of ATT. Apple Search Ads' share of all installs reportedly more than tripled, while Meta's were trimmed by more than half. In the words of mobile marketing expert Eric Seufert, "Apple robbed the mob's bank."
Shares of different advertising platforms in app install campaigns as measured by Branch (Source: Branch / Graphic: Financial Times)
The second reason that the events of the past few months have left a bad taste in many mouth is that Apple previously appeared to be lobbying to get a share of Meta's/Facebook's revenue behind the scenes. As the Wall Street Journal reported, "while Facebook's products were among the most popular apps on the iPhone, they didn't generate sales for Apple. This was a persistent frustration for some Apple executives, according to the people familiar with the matter." Apple reportedly "proposed" some arrangements to Facebook, such as Facebook offering an ad-free version of its service on a subscription basis and Apple sharing in those revenues. However, the two parties reportedly did not reach an agreement.
Is Google paying Apple USD 20b?
Google, on the other hand, has apparently been forking over considerable sums to Apple for years. As Bloomberg reported, documents relating to a court case between Oracle and Google have revealed that Google appears to have paid USD 1b to Apple in 2014 to have Google be the default search engine on the iPhone. Estimates suggest, that this amount has continued to rise over the years: from USD 3b in 2017, USD 9b in 2018, USD 15b in 2021 to somewhere between USD 18b and USD 20b this year.
During this period, there were no shortage of rumors that Apple wanted to launch its own search engine— its own crawler has already been leaked. Today, the assumption is that Apple has continued working on a search engine as a means of keeping Google's willingness to pay a premium. Regardless of whether or not Apple does launch a search engine, the continued popularity of the iPhone figures to leave Apple in prime negotiating position regardless. For example, the market share in the U.S. for the iPhone overtook that of Android phones in June, topping 50 percent. However, Apple is now threatened by possible antitrust proceedings in the USA as a result of the search engine deal with Google.
Apple puts the squeeze on the attribution of app downloads
In the meantime, Apple's power on the digital advertising market is poised to increase further. There are indications that targeting, i.e. the targeted playout of advertising, will be controlled more "on device" (i.e. directly on the respective end device) moving forward, as opposed to user data stored on external servers. For example, with the phasing out of third-party cookies (now slated for the second half of 2024) Google has said it will rely on a so-called "privacy sandbox" and "Topics." "With Topics, your browser determines a handful of topics, such as "Fitness" or "Travel & Transportation," which represent your top interests for that week based on your browsing history," the announcement says. "The topics are selected entirely on your device, with no outside servers, including Google servers, involved."
Apple is already exercising a lot of control over the attribution of app downloads and other ads. The company has its own attribution solution, the "Storekit Ad Network" (SKAdnetwork or SKAN) and has so since as early as 2018; but it has been relatively underutilized for a long time. However, given that ATT has made it much more difficult to measure the success of advertising campaigns in the iOS environment, SKAN has become the primary mechanism for measuring and optimizing advertising, according to Adexchanger.
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Roland Eisenbrand & Scott Peterson
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