Apple's Privacy Push Will Hurt Facebook's Tracking. Again.

"We rely on data signals from user activity on websites and services that we do not control in order to deliver relevant and effective ads to our users," Facebook (NASDAQ: FB) wrote in the risk factors section of its most recent quarterly filing. "Our advertising revenue is dependent on targeting and measurement tools that incorporate these signals, and any changes in our ability to use such signals will adversely affect our business."

This week, Facebook reiterated those risks, warning developers and advertisers that changes in Apple's (NASDAQ: AAPL) forthcoming iOS 14 could utterly crush its ad network. iPhone displaying app privacy interface

Image source: Apple.

Crippling Facebook's ad network 

Audience Network is Facebook's expansive ad network that allows developers to incorporate ads in third-party, non-Facebook apps that are powered by Facebook's sophisticated ad-targeting algorithms.

At WWDC this summer, Apple outlined plans to improve privacy around Identification for Advertisers (IDFA) identifiers, a unique alphanumeric string that is used to identify devices for ad-targeting purposes. iOS 14 will give users greater control over how IDFA data is shared between apps, proactively prompting users for "permission to track you across apps and websites." When the choice is put in such plain language, there's a good chance that a lot of people will simply decline, crippling ad targeting in the process.

Facebook will stop collecting IDFA data for its own apps, a strategy that it believes will be more predictable for Facebook and its partners.

"This is not a change we want to make, but unfortunately Apple's updates to [iOS 14] have forced this decision," Facebook cautioned. "We know this may severely impact publishers' ability to monetize through Audience Network on iOS 14, and, despite our best efforts, may render Audience Network so ineffective on iOS 14 that it may not make sense to offer it on iOS 14 in the future."

The social networking tech juggernaut noted that it has observed a gut-wrenching 50% decline in Audience Network publisher revenue in its testing when personalization is turned off. In fact, the ultimate impact to Audience Network could even be worse than getting cut in half.

Facebook's notes that it expects less of an effect on its own advertising business, so the change will weigh more heavily on third-party developers that monetize their apps with Audience Network. Apple had previously shut down its iAd network, which similarly used to offer ad monetization to third-party app developers, at the end of 2016.

There's more where that came from

This isn't the first time that Apple's emphasis on privacy has conflicted with Facebook's tracking, nor will it be the last. Last year's iOS 13 included more controls over access to Bluetooth data, which Facebook would use to triangulate location data in conjunction with Wi-Fi and/or cellular signal information. Facebook penned similar warnings then, too.

Furthermore, Apple isn't giving up on its privacy crusade anytime soon. The Mac maker continues to roll out increasingly stringent privacy controls every year, underscoring the risk that Facebook has always faced due to its dependence on mobile platform operators. The related risk factor legalese has evolved over time to become more specific, but that's what happens when a privacy-infringing company relies on a privacy-defending company for access to consumers. That fundamental conflict is only going to keep escalating over time.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Facebook. The Motley Fool has a disclosure policy.

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