You could call this the I told you so episode. Apple’s App Tracking Transparency feature has thrown into question the freemium model much of the digital world is built on. 

Hosts: Matt Armitage & Richard Bradbury 

Produced: Richard Bradbury for BFM89.9

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Richard Bradbury: It’s been roughly a month since Apple shook the digital world by allowing its users to opt out of various data collection mechanisms that may be tracking users across other apps and websites. And I’m sensing that there will be some kind of I told you so moment from Matt Armitage in this week’s Mattsplained.

Richard Bradbury: First, let’s clear up one of the fundamentals. Do these changes mean that iPhone users will no longer see ads when they browse or use apps on the device?

Matt Armitage:

• No. You’re still going to see ads.

• To block ads – well, there are other third party services, including VPNs, that do their best to block ads.

• Not just on iphone but on all the OS.

• These changes essentially mean that users have more control over how sites track them and how that data is used.

• So, for ease of use, and because that's the example most people seem to land on, on IOS you get a pop-up when you open an app that tracks you across other sites and apps and asks you if you want to continue to allow that tracking.

• You can also go to the privacy settings in the control panel of the device to see which apps are tracking you and where etc.

Richard Bradbury: Were many of these controls already there, albeit more deeply buried in the settings?

• Yes, So these new changes are called App Tracking Transparency.

• Rather than being buried in menus no one ever looks at,

• they put permission upfront, literally in front of your nose and require you to make a choice.

• Transparency is the key word there.

• Knowing what apps are tracking you and having a better idea of what information they are collecting.

• It doesn’t give you the right to demand that information or ask them to delete what they already have.

• It simply requires them to tell you that they are tracking and to request permission to continue.

Richard Bradbury: Are the giants like Facebook and Google right to be worried , or do you think they’re blowing smoke?

Matt Armitage:

• That's a surprisingly simple question with an amazingly complex answer.

• Or it's probably more accurate to say that it has a large number of complex answers.

• if you take it at surface value, it looks bad for companies that have built business models based on what they call the open Internet.

• Now that term open Internet, although it sounds very accessible, very democratic, is also a little bit misleading.

Richard Bradbury: Are we back to that discussion between walled gardens and public digital spaces?

Matt Armitage:

• In a sense. A company like Apple can exercise a lot of control over the behavior not just of its own users but also to the companies that want access to its systems.

• Hence the legal battles between the makers of apps like fortnite and Apple over the percentages of app revenue the company takes.

• And we've grown used to the convenience of apps on our computers and devices.

• You and I have both recently purchased new computers featuring Apple’s M1 chip.

• One of the selling points for me at least was the fact that I can run iOS apps on my laptop.

• Not every app has an equivalent service that accessible through a desktop app or through a browser.

• So, to say something extremely dull, it simplifies my workflow.

• I don't have to use different apps or services according to what device I'm using.

Richard Bradbury: But having said that, you are the archetypal Apple victim.

Matt Armitage:

• Absolutely. And it's something that I've said to people in the past.

• I've been using Apple products for so long, that it would be cripplingly expensive for me to switch to another platform.

• The majority of apps and services are cross platform, but there are enough that are platform specific to put me off even the idea of switching.

• But even within that walled garden structure, I can still go out to the open Internet.

• I have a whole bunch of subscriptions that I make directly to the manufacturer or provider that don't go through any Apple payment gateway.

• And still allow me to use those apps on my devices. Or access through a browser.

• By the same token though, I'm not sure that it's fair to say that companies like Google and Facebook are a part of the open Internet.

Richard Bradbury: Because they promote their own ecosystems?

Matt Armitage:

• Exactly that. The open Internet has become shorthand for not charging you for things.

• But as we know, Google and FB are not free services.

• Hence the importance of tracking you across multiple sites.

• Because that's the information that data harvesting companies use to create personalized profiles,

• so that they can then offer targeted ads to advertisers that reach you and ostensibly cover the time and cost of you using that service.

• But it's interesting that the discussion has mostly seemed to revolve around the larger players.

• When the news came out that Apple was planning to make this move, we saw it impact earnings calls across the tech sector.

• I think I read on Bloomberg that the dating app Bumble was preparing for up to 80% of its users to opt out of tracking.

• snap incorporated also caution that these changes could have a significant impact on the way they interact with advertisers on Snapchat.

• And Twitter claimed it would have a modest impact on its revenues.

Richard Bradbury: Can you go into that in a bit more detail? You mentioned these platforms will still be able to show users ads. It's more that those ads will become less targeted.

Matt Armitage:

• The modern brand advertising industry is built around this idea of targeted ads.

• The idea that your advert goes to the audience that is most suited to respond to it.

• It’s theoretically more effective, it’s more cost effective than traditional models of advertising.

• Things like running 15 seconds spots on TV or radio.

• Plus, you can also track a measure of the effectiveness of those ads much more closely.

• It was a gamechanger.

• This promise that you could reduce customer acquisition costs, measure your conversions and correlate the success of marketing campaigns to sales performance.

Richard Bradbury: And that value proposition collapses once we revert to normal or less targeted ads?

Matt Armitage:

• That's another interesting question that's a lot broader than it sounds.

• On the surface, yes.

• But we have to look a little bit deeper than that.

• Not every app or website that's tracking you is doing so to serve you ads on their platform.

• Many, particularly the smaller ones, are selling that data to other third parties and aggregators who can then build their own personalization models.

• So, for those smaller players, these changes are essentially turning off the oil that fuels them.

Richard Bradbury: which is less of an issue for a company like Facebook?

Matt Armitage:

• That remains to be seen. Obviously, the iOS market is quite a small overall percentage of that device market.

• I think it’s about 1 billion devices in total.

• In the US it’s half the market but Android dominates in most other countries.

• We should note that there have been reports and rumors that Google is planning something along these lines for Android.

• So, we need to wait until those financial results come out for companies like Facebook to see what the actual impact is likely to be.

• In fact, and we'll get to that after the break, these changes may actually be good for Facebook, Google, Amazon and of course Apple itself, over the longer run.

• One of the more interesting effects of Apple’s action is to open the conversation about how effective those targeted ads are.

Richard Bradbury: In terms of that conversion aspect, or in terms of building revenue generating profiles?

Matt Armitage:

• Mostly the latter, I think.

• There's this fear that without targeted advertising, advertisers will have nowhere to turn.

• Again, this is probably something that's likely to have more impact on smaller companies, certainly in the long run.

• Larger companies might experience some short-term fluctuations in terms of the effectiveness of campaigns and the sales they see as a result.

• But my experience with some of those larger companies suggests that they were already starting to question the effectiveness of targeted ads.

• And again, it's something we've seen in the past,

• Court documents from whistleblowers at technology companies who allege that ads only reach target consumers around 50% of the time.

• We had that running joke on the show for a while, that I was being followed around buy ads for network switches.

• And I have no idea what a network switch is.

• Surely, someone who has no idea what your product is not your target audience.

• Other than the fact the I'm now talking about network switches on radio.

• So, if that was the point of those ads – to get me to talk about them here - it's particularly Machiavellian.

Richard Bradbury: That 50% effectiveness you mentioned before. Presumably, those are percentages that reduce over time as the systems become more effective and more information is gathered?

• Yes, we’d expect performance, system-wide to improve over time.

• There's also a point at which new information is no longer valuable or brings a diminishing return.

• And that's something we've seen in the expansion of Google’s parent alphabet in multiple directions because the kind of information they can gather from us online has a ceiling in terms of value.

• They need other forms of data to monetize.

• If targeted advertising effectively disappears or is limited to within specific apps or platforms, big companies will find other ways to get their message across.

• It's simply an evolution in the business.

• advertising is always looking for new opportunities and it adapts to the realities of the world around it.

Richard Bradbury: When we come back. How big tech may benefit from better privacy.

BREAK

Richard Bradbury: We're looking at changes to Apple's data privacy requirements on MSP today. Before the break we discussed the effectiveness of targeted ads themselves and asked who these changes would really affect.

Richard Bradbury: I guess one of the questions we have to ask: is this really the tumbling of the walls that some commentators are making it out to be?

Matt Armitage:

• You always have to ask yourself: when people answer those questions: who are they and what's their motivation.

• That's just as relevant to anyone listening to me right now.

• If you work for a company that either models this data or specializes in creating targeted advertising for clients, then sure, this could potentially rewrite your business model.

• for a company like Facebook, the impacts may well be relatively modest.

• Again, I think a Bloomberg piece I read, I think derived from research by Bank of America.

• which suggested an impact of around 3% which, given the company's revenue from advertising it's a huge sum of money

• but it's a pretty small percentage of revenue.

• Mark Zuckerberg has said himself in media reports that it could strengthen Facebook's position in the long term

Richard Bradbury: Because they have that dominance in terms of audience and market share?

• They have the user base. They have the data. They can continue to run targeted ads within their own platform to billions of people.

• Zuckerberg has explicitly mentioned in the media that it's the smaller players who may be hit much harder by these changes.

• There was an interesting point that the academic and technology columnist John Norton mentioned in a piece for the Guardian a few weeks ago,

• He mentioned that when you get the tracking pop up on an iPhone, it says

• “Ask app not to track”

• It doesn’t say ‘Tell app not to track’.

• So, you can see where the power dynamic is and where it's intended to remain.

• The question isn't so much about whether those companies, those apps have the right to track you.

• It's that you now have the much weaker right to politely ask them not to.

Richard Bradbury: Are there other ways that companies will still be able to track you?

Matt Armitage:

• Absolutely, what this does is limit the most explicit forms of tracking.

• In the same way that anonymized data can be tracked back to individual users through various fingerprints and watermarks.

• companies will still be able to track us in other ways.

• We may well see a growth through an expansion within those industries to soak up some of the losses in that explicit data gathering industry.

• It's not an end to surveillance capitalism in any way shape or form, is simply a modulation of it.

• The big companies, with the largest pools of data, which have services that are effective at retaining consumers

• Are likely to see more of the digital advertising market share heading in their direction.

Richard Bradbury: You mentioned Amazon as one of the potential winners in this battle for transparency.

Matt Armitage:

• When we think about Amazon and data we tend to think of it as a closed loop,

• that it collects data from its customers simply to sell them other things within its rapidly growing ecosystem.

• We don't necessarily think how important that data could be to external parties.

• If we have a situation why companies like Facebook or Google become less relevant because their users are able to opt out of tracking mechanisms.

• Then that may have knock on effect, as it were, of making that pool of Amazon customers more valuable to third parties.

Richard Bradbury: Is that because Facebook has users and Amazon has customers? Facebook’s users don’t spend money with the company, whereas Amazon’s user base is mostly linked to some kind of retail?

Matt Armitage:

• It doesn’t sound like much but it’s an important distinction.

• What we haven't seen so far is Amazon aggressively pushing into that brand advertising space.

• That may change as its own ecosystem becomes more valuable in relation to its competitors.

• To a value of almost $7 billion. That’s Game Stop, Doge Coin levels of crazy growth.

• It's likely that that continued growth will primarily be within on site adverts, by which I mean properties that are owned by Amazon.

• But we tend to forget the full scale of amazon’s empire.

• Amazon, audible, IMDb, which incidentally is about to launch its own TV app, another potential rich source of data and a mechanism to expose users to advertising.

• AWS. Its Prime Video and music services.

• And many of Amazon’s services are membership or subscription based.

Richard Bradbury: Like a giant loyalty programme?

Matt Armitage:

• Yes. Amazon has more than 200m Prime members.

• Small potatoes compared to the billions that Facebook has.

• But those 200 million pay for Prime. Back to users vs consumers.

• They pay round $120 per user per year depending on what country they’re in.

• If traditional targeted ads start to have less effect, that smaller pool of proven paying customers looks a lot more attractive.

• And it may not just be companies like Amazon that benefit.

• The big box retail stores with large loyalty programs stand to benefit as well.

• The US examples would be companies like Target.

• Who have invested heavily in loyalty schemes and consumer behavior modelling.

Richard Bradbury: It comes back to that point you said earlier about advertising always finding new models to expand into?

Matt Armitage:

• Yes, so as I said most of these companies have used their data primarily to feel their own retail sales.

• But if they see the market for targeted ads changing,

• it's possible that they may start to see brand advertising as something that can generate significant revenue for them.

• Back to that 77% sector growth at amazon.

Richard Bradbury: One thing we haven't explored so far the benefits to Apple itself.

Matt Armitage:

• Yes, again, there's been a lot of media attention on the supposed feud between Tim Cook and Mark Zuckerberg and their competing visions for our digital future.

• And it comes back to that what I was saying at the start about the open Internet.

• Obviously, this model will make it a lot more difficult for many sites, apps and platforms to offer free services to users and then monetize the data they create.

• I don't think Apple’s intention is to put those companies out of business.

• I think we’re seeing the company push them towards a business model that apple can take a cut of.

• On the one hand, tracking transparency benefits Apple's customers.

• Like Amazon, Apple's has a monetized customer base rather than a revenue passive user base.

• Apple sells hardware and services to them directly.

Richard Bradbury: And through its app store, Apple is also a gatekeeper?

Matt Armitage:

• Yes. So this may well push many app makers to explore that hitherto untried and untested business model of charging money and turning users into customers.

• I would imagine that's what the company is gambling on.

• That more websites and platforms will move to subscription or retail funded models and drop the ad or data funded revenue models.

• Some content producers, including I think the Financial Times, have already added new subscription tiers in response to these new changes.

Richard Bradbury: Isn't that what you've been advocating for years? That we just pay for the services we use?

Matt Armitage:

• Yes. It's really weird.

• We tend to calculate things like brand value based on what we consider the products to be worth.

• It's one of the reasons we pay more money for Prada than Levi's.

• So many people say they couldn't live without Facebook.

• But are they prepared to pay for it? And what are they prepared to pay?

• Certainly, the anecdotal research that I've done shows that people are very loath to pay for it.

• Which makes this week's news about Twitter interesting.

• Twitter has struggled to become the kind of targeted advertising dynamo that Facebook developed into.

• The company was already known to be looking into subscription models for certain services and functionality.

• A few days ago an app researcher called Jane Manchun Wong published details of what she believes will be Twitter's new model,

• a subscription tier called Twitter Blue, priced at $2.99 per month

• This would include better organizational features and include an undo tweet function,

• which would allow you to recall a tweet and prevent others from seeing all reposting it for a few seconds.

Richard Bradbury: Has Twitter confirmed or denied the reports?

Matt Armitage:

• It hasn't. But that's not unusual for the company.

• Jane Manchun Wong has a pretty good track record when it comes to unearthing this stuff from the minutiae of those terms and conditions we never read.

• And adding fuel to the rumors some of the company's recent acquisitions:

• like Revue, a newsletter subscription service but it published earlier this year.

• And a company called scroll, a subscription service which removes ads from participating sites.

• It may well be that Twitter blue is simply one tier of several that may include different tiers of service, including add removal and newsletter type services.

Richard Bradbury: Is this your ‘I told you so’ moment?

Matt Armitage:

• I don’t want to gloat. I get things wrong as often as I get them right.

• But I think what apple’s transparency moves have demonstrated, is that business models built around the monetization of user data gathering are very fragile.

• It doesn’t take much for the ground to shift.

Richard Bradbury: That apparent financial certainties quickly become obsolete?

Matt Armitage:

• The BlackBerry is a good example. As is Nokia.

• That might turn out to be the case, its systems infrastructure may well be the backbone of tomorrow.

• But in terms of its consumer devices, another company, HMD Global, now licenses the name.

• These are brands that were ubiquitous but failed to adapt.

• A decade ago it looked like eBay would be the future of eCommerce.

• When was the last time you sat there watching an auction and chucking in last minute bids?

• Now we're watermarking pixels and selling them for millions of dollars.

• But even those hard-to-understand high tech NFT's – non fungible tokens - follow much a more traditional business model than companies like Facebook.

• An NFT may be a digital product, but it's a normal transaction.

• You’re buying it for a negotiated price, whether you’re paying in cash or cryptocurrency.

• This is the model that has served commerce for thousands of years.

• It’s not much different I’ll give you five silver pieces for that cow.

• If we come back to tracking, transparency and the data harvesting industry

• If the actions of one company like Apple can throw the entire business model of a huge section of digital economy into question,

• then that model was probably needs a rethink.