Shares of Snap Inc. (SNAP) fell more than 20% earlier this week after the social media company surpassed earnings estimates but expects slower growth in the current quarter as a result of Apple’s (AAPL) App Store new privacy rules. Snap said that the new rules have made it more difficult for advertisers to manage their campaigns which led to other social media stocks falling as investors prepared for similar remarks from other firms.
Those other tech giants have spoken and referenced similar challenges but not to the same degree as Snap. This more minimal impact on companies like Facebook (FB), Amazon (AMZN), and Twitter (TWTR) comes primarily due to the fact that those firms are less reliant on third-party data than Snap Inc.
This is where the biggest problem lies for smaller businesses looking to advertise on social media sites now. It has gotten significantly more expensive to target specific groups of consumers and many businesses aren’t willing to pay the higher prices and would rather go other more efficient directions to expand their operations.
Obviously companies not paying services like Facebook or Snapchat for advertising hurts those social media sites' total revenue but it's easy to think that just like inflation these changes are transitory. Policies may change but new algorithms can be made to adapt and create efficient models for advertising revenue. However, there’s an increasing push for privacy and security on devices in the long term.
Why is Apple Changing Policies and is it Alone?
Apple’s recent changes restrict how users are tracked on their mobile devices. This shift might not be loved by big tech firms but is certainly desirable for a large portion of Apple’s user base with many wanting increased privacy. How companies use data from everything a person does on his or her device has been criticized plenty in the public sphere as people seem to be tired of constantly being targeted by firms using data and psychology for marketing.
The advanced algorithms firms build with big data” generates incredible revenue for business looking to expand, for Facebook displaying the advertisements, and for Apple which sells the devices and maintains the platform that much of the ecosystem runs on.
So why would Apple shoot their own foot and restrict the use of data?
Public image and using that information for its own gains are two massive reasons why. Millions of people use Apple devices every day and the company is transitioning away from a hardware driven firm to an increasing focus on services as well. People aren’t buying iPhones every two years anymore with the improvements becoming smaller by the year. Phones in general are becoming more like automobiles in the sense that a Toyota Camry is released every year but people don't just turn in their 2020 Camry for a 2021 model (expect for maybe an extremely small group of Camry fanatics).
“One Firm to Rule Them All”
Instead Apple is still working on improving their devices but has a greater goal of maximizing the revenue generated from each device sold. People who own an iPhone are in the Apple ecosystem and use its own first-party apps (iMessage, Apple Music, Apple TV, etc.) in addition to just using the operating system to access third-party apps like Netflix or Spotify. This focus on first-party apps and products gives Apple massive advantages when selling services for its own devices that have their own unique advantages that no third-party service can provide.
For example, Apple’s AirPods pair immediately with Apple devices without having to find the Bluetooth menu. And there are other exclusive benefits that companies like Bose, Logitech, Skullcandy, etc. cannot provide because Apple itself controls that access. Thus, why would anyone buy a third-party product with fewer features for the same or similar price?
There are countless examples of this with Apple essentially destroying products made for its ecosystem by others so that Apple can go and sell that product themselves. Apple won’t actually stop you from using those other products but stacks the deck so heavily in its favor that it offers the illusion of choice with the only reasonable answer being to use the Apple-made product.
Back to Privacy Settings and Advertising
Bringing this back to advertising and the restriction on use of data. Apple and others (*cough* Google *cough*) are going to keep changing the privacy settings on their devices and operating system as personal privacy will remain a point of discussion.
Google recently revealed its newest operating system for Android and it prominently features an easy to access mic and camera toggle which lets you know when an application is using those features and lets you deny access with a simple tap. This is where technology is headed, an increasing focus on security and privacy or at least the illusion of privacy.
All the while, services like Twitter and Snapchat will try to adapt and create more efficient algorithms so that advertising is still profitable for them and the small businesses using their ad platforms. However, firms like Apple, Microsoft (MSFT), and Alphabet (GOOG) can keep changing the game and as long as they control how data is collected, they can stack the deck increasingly in their favor until everything on their devices is controlled and operated by them.
The reality is that everything a phone is used for should become increasingly controlled and dominated by the makers of the device and creators of the system it runs on. After all, why should Apple, Microsoft or Google share their cake when they can make it and eat it too?
