Analysis: Apple Can Succeed In Ads Without Sharing Data

Apple is reportedly headed once more into the fray with the launch of a contextual ad network that could include inventory from Pinterest, Snap and a collective of other apps in the App Store.

The move, first reported by The Wall Street Journal, may seem strange in light of macro events like Facebook’s data scandal and the General Data Protection Regulation, which just landed in Europe, not to mention Apple’s own ill-starred history with ad tech.

One of the primary reasons iAd, Apple’s now-defunct mobile ad platform, failed is that buyers couldn’t do much with the data, which was kept behind Apple’s garden walls. After six years of trying, Apple disbanded the iAd sales team in 2016 and shunted the whole operation to direct deals and third parties.

So, what’s different now?

Nothing and everything.

Apple has long positioned itself as a privacy-conscious company. CEO Tim Cook’s standard soundbite on this (“When an online service is free, you’re not the customer, you’re the product”) is uttered so often you could turn it into a drinking game.

The company isn’t likely to change its stance on privacy to make a few bucks on advertising services, but it doesn’t necessarily have to.

As consumer concerns about privacy rise, brands are moving away from their reliance on third-party ad networks. One way for advertisers to stay on the right side of history and of GDPR is to focus more on contextual advertising and search than behavioral targeting.

“You can understand a lot about what someone is trying to do by what the context is around them without having to resolve identity,” said Bill Magnuson, CEO of mobile marketing automation platform Braze (formerly Appyboy).

Apple’s pitch to partners is said to include context- and search-based targeting options, like surfacing a ticket-reseller app if, for example, a Snap user searches for a sports-related term.

Even so, “without data, ad value is minimal,” said Jonathan Yantz, senior biddable manager and US social lead at M&C Saatchi Mobile, and “given Apple’s vocal advocation of privacy and their limited use of data within their own walled gardens,” any move to the contrary would be surprising.

Can Apple turn a lack of data, which is what hamstrung its ad platform efforts in the past, into an advantage?

“There is an opportunity for Apple to introduce a product that addresses the key challenges advertisers are facing around transparency, ad fraud and the quality of in-app advertising,” Yantz said.

Anything Apple releases will have to go toe to toe with Facebook and Google, both of which are behemoths in the digital ad space. But Apple could differentiate itself on privacy and brand safety, Magnuson said.

“Apple owns the platform, the operating system and the device,” he said. “If they can deliver an ad product experience that brings native to bear and combine that with contextual targeting, that is going to really help them compete.”

But to create an alternative to Google’s AdMob and Facebook’s Audience Network, if that’s even the goal, Apple will need to either bring in third-party measurement or offer something of its own.

In March, Apple quietly released an API for iOS 11.3 called SKAdNetwork that allows buy-side players to attribute installs directly from the App Store without having to use an attribution vendor.

“They can provide a differentiated ad network offering, but at the end of the day, they have to back it up through ROI and measurement,” Magnuson said. “They have to invest in a tools ecosystem around it if they really want to make a play, and SKAdNetwork does look like it could be a step in that direction.”

Hardware is also getting harder

While Apple is unlikely to make a major ad tech push, the company is paying more attention to services revenue as growth slows in its core hardware business.

Last year was the first time smartphone unit shipments didn’t grow, according to data from Morgan Stanley cited in Mary Meeker’s most recent internet trends report. To compensate, Apple aims to grow its services business – streaming music, payments and App Store revenue – to $50 billion by 2021, the company told investors in April.

Apple’s services revenue grew more than 30% year over year in Q2 to $9 billion.

Reality check

Apple’s dalliance with a new mobile ad network is not the second coming of advertising at Apple, nor is it proof of an overarching strategy.

Despite its swing and a miss with iAd, the company has a healthy search ads business in its App Store. Search ads bring in nearly $1 billion for Apple, according to an estimate cited by The Wall Street Journal. If accurate, Apple makes more from ads than The New York Times.

Apple also supports advertising and third-party measurement across its Apple News app.

It’s also worth noting that Apple is known for playing around with ideas that don’t necessarily pan out into product, especially in the ad space.

“We do see Apple dabble a lot, so it’s hard to know what’s happening here, since they’re a very private organization,” Magnuson said. “They often do a lot of research and make a lot of exploratory investments.”

Apple hosts its annual Worldwide Developers Conference on Monday.

This post was syndicated from Ad Exchanger.