Speaking Up for Small Businesses

By Dan Levy, Facebook VP Ads and Business Products

December 17, 2020

If the entrepreneurs and creators who run these businesses can’t rely on efficient and effective advertising to make money, they’ll be forced to turn to other ways to stay afloat: things like charging people for a subscription or in-app payments. When they do this, you’ll see many of the apps and websites that were once free start charging people for services or disappearing completely. Paying for content may be fine for the well off, but many people just don’t have room in their budget for these fees.

While it’s difficult to quantify the impact to content creators and publishers at this point with so many unknowns, in testing we’ve seen publishers experience more than a 50% drop in revenue when personalization was removed from mobile app ad install campaigns. Publishers and developers have clearly taken notice.

This affects not just app developers, but also small businesses that rely on personalized ads to grow. Here’s why. Small businesses have small budgets. For these small budgets to work, they have to be targeted at the customers that matter to small businesses. It doesn't do a local wedding planner any good to reach people who aren't planning a wedding. Likewise, it doesn’t do a small ecommerce outfit selling customized dog leashes any good to reach cat owners. Put simply, by dramatically limiting the effectiveness of personalized advertising, Apple’s policy will make it much harder for small businesses to reach their target audience, which will limit their growth and their ability to compete with big companies.

Case in point, our studies show that when running ads on the Facebook family of apps to drive sales on their websites, small business advertisers saw a cut of over 60% of their sales, on average, for every dollar they spent when they weren't able to use their own data to find customers on Facebook.1 We don’t anticipate the proposed iOS 14 changes to cause a full loss of personalization but rather a move in that direction over the longer term. For example, currently a local book store could spend $50 on a relevant and personalized ad and may win five sales. Without the use of their own data to personalize an ad, that business would spend $50 and may win only two sales.

And yes, there will be an impact to Facebook’s diversified ads business, but it will be much less than what will befall small businesses, and we’ve already been factoring this into our expectations for the business.2 Many small businesses won’t grow, continue hiring or even survive as a result of an impact of this magnitude.

And right now small businesses need all the help they can get. During the COVID-19 pandemic, small businesses have used personalized advertising to find customers and to help them survive. A new Deloitte study found that 44% of small to medium businesses (SMBs) in the US started using or increased their use of targeted advertising on social media since the pandemic began, and the SMBs that used targeted advertising were twice as likely to report higher revenues. Apple is taking away one of small businesses’ key tools to survive this pandemic.

We believe that personalized ads and user privacy can coexist, without the collateral damage iOS 14 will bring. We, and others in the industry, are investing deeply in solutions that increase privacy while still enabling businesses to thrive online. Unfortunately, Apple is making far-reaching changes without input from the industry and the businesses most impacted. Why? As far as we can see, Apple has another strong motive.

If these changes go through, established businesses with large marketing budgets will have the advantage — once again — taking us back to the age of TV advertising. But the big business that benefits the most is Apple.

The Reality Behind Apple’s Policy: It’s More About Profit Than Privacy

Apple announced the new iOS 14 AppTrackingTransparency policy under the banner of increased privacy for people, while actually pushing businesses and developers into a business model that benefits Apple’s bottom line — in two ways:
  • Apple tax: If content creators have to turn to ways to make money outside of advertising, such as charging people for a subscription or in-app payments, those fees are subject to an Apple tax ranging from 15% to 30%. And this is big business: as Apple’s hardware sales are slowing and they have to pivot to their services business, its App Store platform grossed around $50 billion in 2019. With these changes, Apple stands to profit even more from the App Store. In short, Apple’s update changes mean more money for Apple and less free stuff for people.
  • Apple’s advertising business: Apple’s policies leave very limited options for app developers to find customers through effective advertising, and conveniently, Apple’s own advertising products is one of them. That’s right, Apple’s own personalized ad platform is exempt from the new prompt requirement they’ve imposed on other companies. By default, Apple uses data it collects — including in-app purchase data that Apple collects from within apps owned by other companies — to improve the efficacy of Apple’s own ads products. And, if people don’t want Apple using their data for ads, they’ll have to go find the control deep within their iPhone settings.

The truth is, these moves are part of Apple’s strategy to expand their fees and services business.

Our Response

We disagree with Apple’s approach and solution, yet we have no choice but to show Apple’s prompt. If we don’t, they will block Facebook from the App Store, which would only further harm the people and businesses that rely on our services. We cannot take this risk on behalf of the millions of businesses who use our platform to grow.

We are doing what we can to prepare our partners and mitigate the impact of Apple’s policy and changing guidance. We’ve provided more detailed guidance for our clients here.

We believe Apple is behaving anti-competitively by using their control of the App Store to benefit their bottom line at the expense of app developers and small businesses. We continue to explore ways to address this concern.

For example, Facebook is committed to providing relevant information in the Epic Games litigation regarding how Apple’s policies have adversely impacted Facebook, and the people and businesses who use our services. Facebook agrees that it is critical for the Court to understand the broader implications of the unfair policies that Apple imposes on iOS developers, among many other businesses.

We will continue to work with industry bodies — including within the World Wide Web Consortium (W3C), the Partnership for Responsible Addressable Media (PRAM) and World Federation of Advertisers (WFA) — to develop and implement new standards that further protect people’s privacy, but do so in a way that keeps content free for people and enables businesses to grow. We hope Apple will collaborate in these efforts with the industry and leave regulations to governments.

Facebook is committed to standing with small businesses and their use of personalized ads to bring people free content. Join us in supporting small businesses by learning more about Apple’s iOS 14 policy impact and speaking up

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