In 2006, British mathematician and entrepreneur Clive Humby said that data is the new oil. Some agreed and some, to this day, argue that data isn’t the new oil. Either way, the process of extracting data is reserved for those with the proper tools.
In December 2020, Facebook publicly criticized Apple’s iOS privacy changes in full-page newspaper ads. Apple was planning to launch a new feature called App Tracking Transparency, which requires applications to ask permission if they want to track a user’s activity across other companies’ apps and websites. Peter Drucker, “the man who invented management” according to BusinessWeek magazine, once said that you can’t manage what you can’t measure, and this Apple feature was a direct hit on advertisers’ ability to measure the performance of their Facebook ads.
When Apple shared the news about the tracking feature most advertising experts focused on ad attribution but there’s another crucial component of not being able to continue to track users – you start to know less about them. Facebook, now Meta, knows the users who are part of a Facebook Mexican food group but once they can’t track them outside of their platform they can’t distinguish between the ones who love to browse Mexican food recipes and others who love to order Mexican on DoorDash. These two user groups share the love for Mexican food but an online ad for a mortar and pestle will not have the same conversion rate when presented to both groups.
“Like others in our industry, we faced headwinds as a result of Apple’s iOS changes,” Meta COO Sheryl Sandberg said on a call this month following the company’s fourth-quarter earnings report. “As we described last quarter, Apple created 2 challenges for advertisers: one is that the accuracy of our ads targeting decreased, which increased the cost of driving outcomes; the other is that measuring those outcomes became more difficult.” And these challenges have an impact on Meta’s revenue according to CFO David Wehner. “We believe the impact of iOS overall as a headwind on our business in 2022 is on the order of $10 billion, so it’s a pretty significant headwind for our business.”
As Meta is still trying to figure out how to overcome the obstacles Apple set in front of them, Google, this week, announced plans to phase out cross-app ad trackers on Android smartphones. Currently, people using Android devices have an advertising ID, a unique identifier that advertisers eventually use to place targeted ads. But when the new changes are implemented, the advertising ID will be phased out in favor of alternative targeting mechanisms that Google says will be more favorable to user privacy. “Today, we’re announcing a multi-year initiative to build the Privacy Sandbox on Android, with the goal of introducing new, more private advertising solutions,” wrote Anthony Chavez, a Google VP. “Specifically, these solutions will limit sharing of user data with third parties and operate without cross-app identifiers, including advertising ID.”
Search is Google’s most lucrative unit. In 2020, the company generated $104 billion in “search and other” revenues, making up 71% of Google’s ad revenue. In 2021, that figure climbed to nearly $149 billion while still accounting for ~71% of total advertising revenue. When your advertising model is based mostly on consumer intent, measurement is not as crucial. But when your model relies on manufacturing interest (Facebook), the ability to measure the outcome is extremely important for advertisers.
While the ultimate impact of these privacy changes is yet to be determined, many advertisers have expressed the importance of having a first-party data strategy. First-party data is information a company collects directly from its customers. Here’s an example: Imagine a home insurance company that also happens to sell furniture. The company is made aware when a flood destroys a policyholder’s couch and they later use that piece of information to email the policyholder with an ad for a new couch.
First-party data has been trending before these privacy changes came into our lives but it wasn’t known as ‘first-party data.’ Instead, companies simply referred to it as ‘unique data.’ At least once a month, I receive an email from Credit Karma with a car insurance offer that happens to be lower than what I pay. On the other hand, my car manufacturer also sends me frequent emails with an “attractive” car insurance rate (on behalf of Liberty Mutual), but the rate is actually higher than my current monthly premium. The difference is that Credit Karma actually knows how much I pay for car insurance but my car company doesn’t. This allows Credit Karma to present relevant ads while Liberty Mutual, through the car company, is shooting in the dark.
One newspaper ad that Facebook took out said that the company is standing up to Apple “for small businesses everywhere.” Big brands can get away with being generic but small businesses need a personal approach to grow and targeted ads give them the ability to reach a specific audience with a specific message. When you think about it, companies such as Lemonade and Root are considered small businesses compared to the likes of State Farm and Progressive, and the recent Apple privacy changes and upcoming ones by Google will have a greater impact on smaller companies looking to make every advertising dollar count. One obvious solution is seeking out partners (aka the ones with first-party data) but the most lucrative partners will gravitate towards the most lucrative offers, which gives major insurance companies the upper hand.
The ultimate digital advertising promise of reaching anyone, anywhere, anytime is proving to be more complex now that some platforms are putting up gates and smaller companies will need more than just data folks to drive positive marketing results.