Apple’s advertising business probably does more harm than good

Apple’s advertising business generated about $4 billion in the company’s most recent fiscal year. That’s a lot of money, of course, but I think there’s a risk that ad sales could cost the company more than $4 billion in damage.

Let’s start by putting that number in context. By most standards, it’s a huge sum of money. That’s as much as AstraZeneca has made in a year of COVID-19 vaccines, for example. But for Apple, it accounts for around 1% of its annual sales for the year…

However, if it were “free money” — money the company can just reach out and take with no downside — then of course Apple would be crazy not to take it.

But I would argue that is not the case. It is becoming increasingly clear that the money is anything but free: it is bought with growing damage to reputation.

Apple seems to recognize this. While previous reports suggested Apple was looking to triple its ad revenue, a new report yesterday suggested the company is now taking a more cautious approach.

That’s a step in the right direction, but I honestly think there’s good reason for Apple to pull out of advertising altogether — for three reasons.

The advertising business is risky

In the printing days, the ad sales model was simple. A newspaper or magazine offers to sell ad space, companies buy it and submit their ads. The publisher knows who they’re selling to, so they can reject ads from shady companies, and they can see the ad artwork before it’s published.

Online advertising is a very other business. Some direct sales are made, but most ads are sold through ad networks like AdRoll. A web publisher strikes a deal that allows ad networks to sell space on their websites. The publisher does not know who is buying these ads or what the ads are for.

In fact, with programmatic advertising, not even the ad network may know who is buying a particular ad slot. It’s an automated process where advertisers’ computers make offers on how much they will pay and publishers’ computers on how much they will accept, and matches are made without human intervention. In some cases, an ad space can be sold a fraction of a second before it is displayed.

The best thing a publisher can do is partner with reputable networks. Still, some sketchy ads will come through and need to be removed manually.

Apple has already suffered from this. When the company offered two new ad slots on the App Store, developers quickly found that ads for gambling apps were showing alongside their own unrelated apps. In at least one recent case, an ad for a gambling app was shown alongside RecoverMean app that helps gambling addicts to break their addiction.

If you’re a publisher and ads foot the bills, it’s an occupational hazard. But when you’re selling premium hardware, and the ad revenue is just a very small drop in a very big ocean, it seems like an entirely unnecessary risk.

It opens up new antitrust proceedings

When Apple introduced App Tracking Transparency — which requires app developers to ask permission before collecting the data needed to display personalized ads — it was universally welcomed by the company’s customers.

However, developers protested as free apps paid for through in-app advertising saw a sharp drop in income. This is because generic ads are worth significantly less money than targeted ones. Facebook owner Meta has been particularly vocal, claiming that not only is this hurting its own ad business, but Apple is hurting small businesses by making their ad spend far less effective. No one believed Facebook cared about anything other than its own business, but the accusation was widespread.

So far no problem. But as Apple App Tracking Transparency and then started to increase its own ad sales, it left the company vulnerable to accusations that it intentionally made in-app advertising less attractive to give its own ad business an unfair advantage. Even more so when Apple doesn’t ask permission for tracking within its own apps.

Unsurprisingly, this has led to the company facing another front of antitrust investigations. That’s really the last thing Apple needs.

Worst of all, Apple loses a USP

A unique selling proposition for Apple used to be that the company served the interests of its customers rather than advertisers. CEO Tim Cook has emphasized this more than once:

When an online service is free, you are not the customer. You are the product.

That’s a strong selling point compared to companies like Meta and Google.

But now it’s the same for Apple. As a product, Apple may use them a lot less than its competitors, but it still does. This makes a black and white difference more of a gray area.

“What happens on the iPhone, stays on the iPhone” is a powerful message. “What happens on iPhone mostly stays on iPhone” not so much.

Well, personally, I broadly believe in Apple’s privacy promise. But that is not the point. Now Apple customers have to decide for themselves whether the company is on board really unlike companies like Google, or is it just a matter of degree – that Apple is just less worse than Google.

A report in The information yesterday did not help. It describes how Apple’s ad sales business does the same things as its competition — like selling targeted ads and allowing companies to sell ads when they find competing products — but uses softer language to describe that fact.

Rather than using the term “targeting” to describe the company’s ability to serve Apple search ads tailored to users’ tastes, Apple is asking its ad vendors to say “audience refinement,” according to three people familiar with the business […]

Also emerging was “conquest,” which refers to an advertiser’s practice of buying ads that appear when users search for competing brands, people said. “Competitor keywords” and “brand defense” are acceptable substitutes.

That just makes Apple look hypocritical.

Apple’s advertising business just isn’t worth it

All this for 1% more sales? It’s just not worth it. And the more Apple increases its ad revenue, the worse the problem gets.

Ultimately, Apple is putting its brand reputation on the line by criticizing ad-driven business models like Facebook’s, while doing exactly the same thing, just on a smaller scale.

If I ran Apple, I would shut down the advertising business altogether. Become the company that protects customer data again Completely – not only most of timelooking for some extra money.

That’s my view; and with you? Please take our poll and share your thoughts in the comments.

Photo: Rishi/Unsplash

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