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Apple Is an Ad Company Now

There’s a side to Apple most iPhone owners don’t know. There’s Apple the hardware company, the one that has spent the past several weeks showing off new phones , a more rugged Apple Watch and some confusing new iPads . Then there’s the other, quieter Apple, focused on something of a dirty word: advertising.

And that part of Apple is getting bigger by the day. Apple has sold ads inside Apple News and the App Store since 2016 but in recent months has shown a new determination to muscle into an industry dominated by Google, Meta, and Amazon. In June, Apple expanded the ways companies could pay to get in front of its customers’ eyeballs, allowing them to buy ads on the front page of the App Store .

In August, Apple job postings suggested it was building a self-service platform for businesses to book ads to be served to customers through Apple products. This month, reports surfaced that Apple was courting potential buyers for ads on Apple TV+. What form those ads would take, such as pre-roll spots like those on YouTube or traditional TV commercials, is unclear.

Those moves all suggest Apple’s users will begin to see more ads inside its services and that the company will shift into more direct competition with ad-supported rivals such as Google and Meta. “Everybody’s been letting Google and then Facebook take all this money,” says Michael Cusumano, a professor at MIT Sloan School of Management. “For Apple to step in and say ‘I want a piece of this too’ kind of makes sense.

” With smartphone innovation barely budging and sales slowing, it also makes sense that Apple would chase alternative sources of revenue. The company’s expanding subscription business in news, video streaming, and fitness scratch the same growth-hungry corporate itch. Cusumano believes Apple may have been partly inspired by the success of Amazon’s ad business, which displays adverts for products alongside search results.

It has grown more than tenfold since 2016, reaching $31 billion in revenue in 2021. Insider Intelligence, a market research firm, estimates that Apple brings in $4 billion a year from ads. Apple’s ad adventure risks irking loyal customers.

Pushing paid messages on people is a break from the company’s usual pact with consumers, who have been trained over decades to pay steep prices for Apple products that present a refined, if closed-off, experience. CEO Tim Cook has previously argued that ad-driven business models are inherently invasive of privacy , seemingly in reference to Google and Meta. Apple’s recent interest in ads has also drawn antitrust scrutiny, due to a privacy feature added to iOS that has damaged digital ad revenues at its Big Tech rivals.

Apple’s App Tracking Transparency , or ATT, introduced in April last year, requires people to opt in to sharing data that companies such as Meta use to track users online. One third-party estimate believes that Meta has lost $13 billion in ad revenue as a result of the changes. German regulators are investigating the feature as potentially anticompetitive, because Apple’s personalized ads, which can be targeted by age and gender , aren’t subject to the same rules.

Apple spokesperson Shane Bauer declined to answer WIRED’s questions on how the company’s business is changing, the role of advertising in that, or whether ATT was related to its ad plans. “A user’s data belongs to them, and they should get to decide whether to share their data and with whom,” Bauer says. ATT’s rules apply equally to all developers, including Apple, he says, and the company “never tracks users.

” That doesn’t mean Apple’s existing ad revenue won’t keep growing. “It definitely could become a significant part of their business,” says Peter Newman, director of forecasting at Insider Intelligence, who specializes in tracking Apple. “They want to make themselves significantly less dependent on pure hardware sales.

” Newman points to monthly subscription services such as Apple Music and Apple TV+ as places that would comfortably accommodate ads. The company’s video streaming service is notable, he says, because after Netflix’s launch of an ad-supported tier, Apple is now one of the only major video streaming services without an ad-supported version. (In April, Apple signed a deal that would serve ads on Major League Baseball coverage through the streaming service, though those ads were sold by MLB, not Apple).

How big Apple’s ad business could become is far from certain. Newman sees plenty of room for growth but can’t see the company rivaling the largest digital ad giants. “I can see Apple becoming something on the level of Microsoft, maybe a little larger, but significantly behind the likes of Google and Meta,” he says.

That would mean ad revenue in the tens rather than hundreds of billions. Microsoft says its ad revenue is about $10 billion a year; Google, the world’s top digital ads platform, made nearly $210 billion last year, with Meta in second place with $115 billion. Newman says that while Apple’s devices and services provide plenty of potential ad inventory, they don’t provide the scale or lucrative opportunities of Google’s search engine, Meta’s billions of social app users, or Amazon’s everything store.

Though if persistent rumors Apple is building its own alternative to Google search prove true, the project could open lucrative new ad opportunities. And the company’s privacy pledges could limit how far it can go with ad targeting. Investment bank Evercore ISI estimates Apple will have a $30 billion ad business by 2026.

That’s about the size of iPad sales in 2021, or a bit under half the company’s services revenue. Apple is hiring lots of people in pursuit of advertising riches. A job ad for an ad tech engineering manager cites the company’s “complex and ever-growing platform needs that help deliver highly optimized advertising content to consumers.

” As of September, Apple had around 250 employees working on its ad platforms, according to an analysis of LinkedIn data by the Financial Times , with job listings suggesting plans to nearly double that number. Apple seems sensitive to how being seen to meddle too much in digital ads could tarnish its brand or attract regulatory pressure. It paid for a study, published in April, by a Columbia Business School professor that threw cold water on the idea that ATT helped it compete with the internet’s ad giants.

But Reinhold Kesler, a researcher at the University of Zurich in Switzerland, has found that ATT has helped Apple. The feature led some app developers to shift business models from being free but with ads to paid models, sometimes including in-app payments. That was to the benefit of Apple, which takes a 30 percent cut of such payments, though it’s understood that some companies have negotiated better rates.

Cusumano of MIT says Apple’s greatest challenge may be balancing its previous reputation for privacy against the data grab that digital ad businesses create. “Apple is a carefully manicured walled garden, not this advertisement-intense ecosystem like Google,” he says. Preserving that distinction while also growing ad revenue could be tricky.

“Apple users are very loyal and forgiving,” says Kesler. “But if they push this to match their forecasts, I’ll be wondering whether users can overlook it. ”.


From: wired
URL: https://www.wired.com/story/apple-is-an-ad-company-now/

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